Wednesday, September 16, 2009

Humbach's Estates and Future Interests Tutorials

From John A. Humbach at Pace:

Free Online Tutorials:  Estate System and Basic Future Interests for first year Property

Many regard the estate system and basic future interests as intricate and tedious. Indeed, for many law students these subjects are the hardest thing they do in their first year.

To help with this, I have developed two online tutorials that are absolutely FREE: The Estate System and Basic Future Interests. They are available without charge over the internet to anybody who wants to use them.


The tutorials present the traditionally “difficult” estates material in a steady progression of easily absorbed bite-sized portions. Numerous student users at my school have told me that the lessons provide a relatively quick and painless presentation of these subjects. Yet, the treatment is also thorough.


The two tutorials, along with a set of online “drill” questions (also free to all),  not only provide students a helpful learning supplement and review but they also let the professor shorten and even (if desired) potentially eliminate the class time spent on estates and future interests. There is also an optional free online proficiency test (I require my students to attain 90% proficiency, far higher than I have ever achieved, on average, using traditional teaching methods alone.)


I do not make money on these online tutorials and do not ever expect to. My time spent in creating them is amply repaid just knowing that students benefit from using them. My goal right now is to make them more widely known and utilized.


I urge you to try the online tutorials for yourself and to recommend them to your first-year students.


The tutorials and exercises can be found at my professorial website.


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September 16, 2009 in Estates In Land, Future Interests and the RAP, Teaching | Permalink | Comments (0) | TrackBack (0)

Schliecher on The City as a Law and Economic Subject

David Schleicher (George Mason) has posted The City as a Law and Economic Subject on SSRN.  Here's the abstract:

Local government law has fallen behind the times. Over the past two decades, economists have developed a deep understanding of 'agglomeration economics,' or the study of how and why mobile citizens and firms locate in cities. Their work argues that people decide to move to cities because of the reduced transportation costs for goods, increased labor market depth, and intellectual spillovers cities provide - that is, individuals and firms locate in cities in order to get the benefits of being near one another. Economically-minded local government law scholars have ignored this burgeoning literature and instead have continued to examine exclusively a separate set of benefits people get from their location decisions, the gains from 'sorting.' As analyzed in the well-known Tiebout model, individuals move between local governments in a region in order to receive public policies that fit their preferences.

This paper seeks to develop the framework for a modern law and economic method for analyzing local governmental law. Specifically, it claims that there is an inverse relationship between the gains from agglomeration and sorting. Having many small local governments, and enabling individuals to choose their local public policies by sorting among them, affects the organization and density of people in metropolitan areas, creating movement away from economically-optimal location decisions. Sorting thus reduces agglomerative efficiency. Similarly, the existence of agglomerative gains means that individuals are making location decisions for reasons other than matching their preferences for public policies. Agglomeration therefore causes a reduction in the efficiency of sorting.

States face a tradeoff between maximizing agglomerative and sorting efficiency in deciding how much power, and which responsibilities, to allocate to local governments. The need to balance these two conflicting sources of efficiency and changes in the nature of agglomerative gains over the last hundred years explains a great deal about the history of American local government law, current allocations of power between local governments and state legislatures, judicial decisions about local governmental power and the proper role for the federal government in policy areas, like housing and transportation, that are primarily regulated at the local level.

Ben Barros

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September 16, 2009 in Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Treasury Relaxes CMBS Restructuring Rules

In my previous post on the looming commercial real estate crisis, I promised to blog in more detail about Commercial Mortgage-Backed Securities (CMBS) loans.  I had not planned to do so today, but the Treasury Department has made the subject timely. 

CMBS loans are "permanent loans," meaning that they were designed for commercial, incoming-producing assets, normally with a 10 year term.  They were not designed for undeveloped land or to fund construction costs.  An originating lender would make a number of CMBS loans meeting certain criteria, bundle them into a portfolio, and then shares of that portfolio would be sold to investors in the CMBS market.  The individual loans would then be taken off the originating lender's balance sheet and the lender would earn a fee for putting the deal together.  CMBS loans were particularly attractive to borrowers because interest rates were normally lower than traditional permanent loans.

Because the individual loans were packaged into securities, strict deal requirements evolved.  The central requirement was that the borrower in a CMBS loan must be a special purpose entity (SPE).  An SPE's sole purpose is to own and operate the mortgaged asset.  SPE's were routinely created for the purpose of entering into the loan so that the lender could loan to a "clean" entity with no prior liabilities.  Typically formed as Delaware limited liability companies, SPE operating agreements contained form provisions requiring them to maintain a separate existence from other entities and business enterprises (including separate letterhead, a separate telephone number, etc.).  The purpose of an SPE was to isolate the operations of the borrower from the borrower's parent and affiliates.  Each loan was intended to stand alone.  SPEs were also designed and intended to be "bankruptcy-remote," meaning that they contained provisions which limited the borrower's ability to declare bankruptcy without the lender's consent (through an independent director) and limited the ability of the SPE to be involuntarily brought into a bankruptcy declared by the SPE's parent or affiliates.

In a CMBS loan, the role of the lender can be thought of as bifurcated.  The holders of the securities own the economic interest in the loan, but the authority of the lender pursuant to the loan documents is vested in the servicer, usually another large financial institution.  The servicer is permitted to do little more than receive and process loan payments and approve routine matters like new leases.  The major force limiting the servicer's authority are tax rules that create taxable events for the securities holders if the servicer oversteps the bounds of its authority.  For example, a servicer had no authority to renegotiate the terms of a loan, agree to a forbearance, or negotiate term or interest rate unless the borrower is in default.  It is this inflexibility that General Growth Properties cited in its bankruptcy filing. 

Commercial real estate owners have been petitioning Treasury to relax those rules, panicked at the thought of finding new debt (and equity) to cover the $150 billion in CMBS loans that will come due between now and 2012.  (Non-CMBS loans are being routinely extended for a year or so to give the market time to readjust.)  Treasury has now responded, issuing guidance which allows servicers to modify interest rates and term, regardless of when the loan matures.  The only criteria is that the servicer must believe that there is a "significant risk of default," which may be true even if the loan is not currently in default.

Treasury's new guidelines are outlined in an article in the Wall Street Journal today on page C6 entitled "New Rules Ease the Restructuring of CMBS Loans."  Unfortunately, I cannot link to the WSJ.

I wouldn't try calling a CMBS servicer today -- I'll bet the phone lines are jammed. 

Tanya Marsh

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September 16, 2009 in Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 15, 2009

Food Policy is a Land Use Policy

Michael Pollan, the author of "The Omnivore's Dilemma," contributed an opinion piece to The New York Times this week that linked the federal government's subsidies of commodity crops to the health insurance debate.  An excerpt:

"[S]o far, food system reform has not figured in the national conversation about health care reform. And so the government is poised to go on encouraging America’s fast-food diet with its farm policies even as it takes on added responsibilities for covering the medical costs of that diet. To put it more bluntly, the government is putting itself in the uncomfortable position of subsidizing both the costs of treating Type 2 diabetes and the consumption of high-fructose corn syrup."

Thinking about the connection between farm policy and health care led me to begin to consider how deeply our federal farm policy influences local land use. 

For example, confined feeding operations, a popular topic amongst those interested in zoning, environmental issues, and land use, are encouraged by a farm policy that subsidizes the commodity crops fed to meat animals.  If grain were more expensive, farmers would be encouraged to shift to grass feeding rather than feedlots.  Such a move would have a ripple effect in some parts of the country, impacting the balance between ranchers and public grazing lands.

Flying coast to coast illuminates both the range/township/section method of dividing land in the Midwest and West (witness the neat squares of tilled soil in 160 acre units) and also shows the conforming influence of the farm policy.  I have spent time looking through the agricultural schedules from the 1880s.  The Nebraska farms I studied produced a dizzying variety of items -- animals kept for meat, eggs, milk, and fiber, along with fruit, vegetables, and several types of grain (corn, rye, wheat, oats).  Today, those same farms are largely dedicated to a single crop and perhaps a home garden.  Unless a farm is organic and within an easy drive of a good-sized population with busy farmer markets, it simply isn't economically feasible to continue that traditional model of farming.

Pollan ties together health care, the farm policy and land use near the end of his piece:

"Recently a team of designers from M.I.T. and Columbia was asked by the foundation of the insurer UnitedHealthcare to develop an innovative systems approach to tackling childhood obesity in America. Their conclusion surprised the designers as much as their sponsor: they determined that promoting the concept of a 'foodshed' — a diversified, regional food economy — could be the key to improving the American diet."

Just as some communities have used zoning codes to discourage confined feeding operations, it would be interesting to consider whether local land use policies could encourage a "foodshed" rather than commodity crops.  Or whether they would even want to.

Food for thought.  (Pardon the pun.  I couldn't resist.)

Tanya Marsh

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September 15, 2009 in Land Use | Permalink | Comments (0) | TrackBack (0)

De Soto Documentary and Blog Contest

Over at Marginal Revolution, Alex Tabarrok notes an upcoming PBS documentary featuring Hernando de Soto, whose ideas are of great interest to many PropertyProfs.  Free To Choose Media is sponsoring a contest tied to the documentary for a blog post of under 500 words that best addresses the following question:  What institutions can enable the world’s poor to realize their power and achieve prosperity?  My guess is that the desired answer is "property".  I doubt that I'll write a post for the contest, but if you're a PropertyProf and want to take part, I'd by happy to let you post an entry here.

Ben Barros

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September 15, 2009 | Permalink | Comments (0) | TrackBack (0)

Dead Towns

The NY Times had an interesting story on Treece, Kansas, where the residents are pushing to be bought out by the EPA.  Both Treece and a neighboring town were highly poluted by the mining industry.  The neighboring town of Picher, Oklahoma was bought out.  The EPA, however, has so far insisted that the towns present different issues.  There are a bunch of property-related issues raised by the the story, but this one jumped out:

But the buyouts stopped at the Oklahoma line. Treece remains similarly contaminated, but now even more isolated. Officials in Kansas have been practically begging the federal government to move Treece’s impoverished people, mostly the children and grandchildren of old miners, but to no avail.

“You can turn and see one block away is Oklahoma, unsafe,” said Pam Pruitt, the city clerk. “They got bought out, and we didn’t? It’s incredibly unfair. The people here, if they wanted to leave, they can’t. They can’t sell their property. They can’t get bank loans to fix them up. They’re just stuck.” . . .

Mr. Stanislaus said that in Picher, the residential areas were interspersed with mining waste sites, but that in Treece, the residential areas were away from pollutants. Still, he said, the agency is “taking a hard look” at the residents’ concerns and will continue to evaluate their situation.

Such explanations do nothing to ease the worry of the people in Treece. In addition to living in fear of lead and other poisons, they lost their stores, gas stations, some public services, jobs and their social outlet with the demise of Picher.

This reminded me a bit of a condemnation blight scenario, and highlights the integrated nature of communities.  Just focusing on the issue of whether the land is contaminated misses the larger picture of whether Treece is a viable community now that Picher has been vacated.

Ben Barros

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September 15, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunday, September 13, 2009

Tracing the History of a Neighborhood

I just finished a piece for the Indiana Historical Society magazine about the Brightwood neighborhood in Indianapolis and one family that called it home for over seventy years.  The exercise of researching the history of the neighborhood has been time-consuming, but fascinating. 

I began in the Marion County Recorder's Office, going through the old plat books to find the original subdivisions.  Most sections of Brightwood (which is on the near north-east side of Indianapolis) were platted in the 1870s with large lots for industrial development and clusters of residential neighborhoods with small lots -- cottages for the workers.  There were also segments of the neighborhood that were designed for retail and professional services.

Of course, there was no public planning process in the 1870s and 1880s in Indianapolis -- private owners and developers determined the pattern of land use based on their own interests.  The cornerstone of Brightwood was a large railroad repair shop and the railroad lines running into the shop, as well as supporting industry.  Many of the developers active in the area were also board members of the railroad. 

After a series of railroad company mergers, the railroad repair shop moved to a 100 acre parcel in Beech Grove, Indiana around 1908.  By World War II, all traces of the railroad were gone from Brightwood, along with many of the major industrial employers like the Atlas Engine Works, Polk Milk Company, and the National Motor Car Company.  Comparing Sanborn fire insurance maps and Baist real estate atlases from 1887 through 1941 is illuminating.  These maps of Indianapolis are digitized and on-line here

In 1880, 40% of the population of Brightwood were born in Europe (mostly Germany and Ireland) or were first generation Americans.  There was also a minority of African-Americans.  By 1960, Brightwood was evenly mixed.  In 1990, 90% of Brightwood's 4,700 residents were African-American. 

Today, Brightwood is an economically depressed neighborhood.  The jobs long provided by neighborhood heavy industry are gone, although the devastating environmental impact remains.  (A lead smelter, for example, operated for decades in Brightwood.)  The last banks, grocery stores, and doctor offices closed in the 1980s.  However, there is a strong core of families who have lived in the area for generations and are committed to its revitalization.  Brightwood also benefits from several strong and activist churches and neighborhood organizations

Tracing the history of the Brightwood neighborhood has been a thought-provoking exercise.  The land use patterns developed 120 years ago by private interests have determined the present and, if unchanged, will dictate the future of the neighborhood.  Current zoning reflects past uses.  The cost of remediating environmental contamination discourages a change in use from industrial to residential, retail or office.  Postage-stamp residential lots discourage redevelopment of modern multi-family housing or larger homes which would raise property values.  Like many cities unconstrained by geographic boundaries, Indianapolis sprawls.  Redevelopment in a neighborhood like Brightwood is just too expensive and difficult -- it is cheaper and easier to build new in a cornfield 30 minutes east. 

I am also interested in conducting more research in the demographic changes in the neighborhood over time, particularly with respect to the patterns of renters versus owners.  This exercise has shown me that it is possible (although, again, time-consuming) to reconstruct a detailed history of a neighborhood by using plat maps, fire insurance maps, census records, and deed records.  Brightwood's story certainly isn't unique, although each neighborhood in each American city tells a different story.  Reconstructing some of those stories could help us better understand what private choices helped shape the present, which may impact how we approach land use decisions in the future.

Tanya Marsh

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September 13, 2009 in Land Use | Permalink | Comments (3) | TrackBack (0)