PropertyProf Blog

Editor: Stephen Clowney
Univ. of Kentucky College of Law

A Member of the Law Professor Blogs Network

Thursday, June 3, 2010

Way on Informal Homeownership

Heather K. Way (Texas) has posted Informal Homeownership in the United States and the Law on SSRN.  Here's the abstract:

This article examines how millions of lower-income families in the United States attempt to acquire title to their homes informally, outside the mortgage market and instead through mechanisms such as lease-to-own contracts and intestacy. Many of these families are left holding inferior and insecure title to their homes--if they hold title at all. The article explores the benefits and pitfalls of "informal homeownership" and the legal structures that perpetuate disparties between formal and informal homeownership. The article then proposes a series of legal reforms to help ensure that the American legal system provides lower-income families with better opportunities to obtain secure title to their homes.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

June 3, 2010 in Home and Housing, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Sunday, May 23, 2010

White on Emotion and Strategic Default

Brent T. White (Arizona) has posted Take This House and Shove It: The Emotional Drivers of Strategic Default on SSRN.  Here's the abstract:

An increasingly influential view is that strategic defaulters make a rational choice to default because they have substantial negative equity. This article, which is based upon the personal accounts of over 350 individuals, argues that this depiction of strategic defaulters as rational actors is woefully incomplete. Negative equity alone does not drive many strategic defaulters’ decisions to intentionally stop paying their mortgages. Rather, their decisions to default are driven primarily by emotion – typically anxiety and hopelessness about their financial futures and anger at their lenders’ and the government’s unwillingness to help. If the government and the mortgage industry wish to stem the tide of strategic default, they must address these emotions.

Because emotions are primary, however, principal reductions may not be necessary. Rather, many underwater homeowners simply need some reason to feel less apprehensive about the financial consequences of continuing to pay their underwater mortgages. One possible way to provide this comfort would be a “rent-based loan program,” allowing underwater homeowners to refinance their entire balances to an interest rate that would bring their mortgage payment in line with the rental cost of a comparable home. Indeed, a rent-based approach would relieve many underwater homeowners’ financial anxiety and likely be enough alone to stem the tide of strategic default.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

May 23, 2010 in Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, May 21, 2010

Rodriguez-Dod on Protecting Tenants from Foreclosure Evictions

Eloisa C. Rodriguez-Dod (Nova Southeastern) has posted Stop Shutting the Door on Renters: Protecting Tenants from Foreclosure Evictions on SSRN.  Here's the abstract:

This article discusses existing and proposed federal and state law affecting tenants’ rights in foreclosure. As “Foreclosure” signs rapidly join “For Sale” signs across the country, the national foreclosure crisis has not only displaced homeowners, but a plethora of renters as well. The approach taken by states concerning tenants affected by foreclosure varies greatly. Furthermore, a recently enacted federal law, created specifically to help tenants in foreclosure, does not relieve the uncertainty in resolving this issue. In addition to being the first to critique the new federal law, this article offers recommendations for legislation that may better protect tenants from foreclosure-related evictions.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

May 21, 2010 in Landlord-Tenant, Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (1) | TrackBack (0)

Harris on Recourse and Non-Recourse Mortgages

Ron Harris (Tel Aviv) has posted Recourse and Non-Recourse Mortgages: Foreclosure, Bankruptcy, Policy on SSRN.  Here's the abstract:

The recourse-non-recourse dimension is fundamental in any loan as it deals most directly with the pool of assets out of which lender can collect at delinquency and default. This paper calls attention to an exceptional feature of the American home mortgage market, compared to mortgage markets elsewhere in the world, the prevalence of non-recourse mortgages as created by foreclosure rules in leading states such as California and Arizona and federal bankruptcy law. It explains how the legal impediments on recourse to personal assets and future income, together with the recent drop in home prices, led to a dramatic rise in strategic foreclosures (ones that resulted from negative equity rather than from cash-flow problems). No less than 588,000 strategic walk-away mortgage defaults took place, representing nearly 20% of all foreclosures in 2008. Most of these were not likely to happen in a recourse regime.

The paper then deals with policy. It uses a few theoretical frameworks: put option, default insurance, asset partitioning and screening. It examines the pros and cons of recourse regime and of non-recourse regime. It concludes that there is no compelling justification for prohibiting either recourse or non-recourse loans. The benefits and pitfalls of a dual regime are then examined. The question relating to why we don't observe a dual regime in the real world is addressed. The paper recommends that jurisdictions that prohibit recourse loans lift this prohibition. It concludes that both recourse and non-recourse should be on the table, on the levels of regulation policy and lending practices.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

May 21, 2010 in Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (2) | TrackBack (0)

Monday, May 10, 2010

The Human Face of the Foreclosure Endgame

David Streitfeld had a fascinating and sobering piece in the New York Times this week, chronicling a day in the life of Joseph Laubinger, in essence a foreclosure 'fixer' who represents lenders in their last interactions with former homeowners still in actual possession of their homes before the sheriff arrives.  Laubinger's business has a simple goal but a complex task: getting foreclosed owners out as seamlessly as possible.  He gets a fee for getting the possessors out, and then gets to earn a commission by selling the house.  He comes face to face with the pain caused by the foreclosure crisis, and lest we forget, there is real, gut-wrenching human pain.

It's a somber job, and Laubinger is anything but cavalier; he is described in the article as "a soft touch," and regularly gives people in trouble extensions so they can find somewhere else to go rather than being rendered homeless.  On the day Streitfeld followed him, Laubinger encountered the Lukaszs, a young Polish couple in default on two loans secured by a modest home that they've been unable to sell for what they owe.  What did them in, like many others, was that Mrs. Lukasz became chronically and painfully ill; Mr. Lukasz's salary from working night shift at an envelope factory could cover the loan payments, or the pharmacy bills, but not both.  Enter Mr. Laubinger.  Mr. Lukasz agreed to accept $1500 to move out without a sheriff's eviction, but later changed his mind, deciding to stay until the last possible moment.  Another family of six encountered that day end up sheltered by their church.

Laubinger, to his credit, seems to treat these people with compassion.  The Lukasz's situation left him in tears.  In some strange and convoluted way, Mr. Laubinger's role and demeanor remind me of the great Bruno Ganz's angel of death in Wim Wender's breathtaking Wings of Desire, unable to prevent death but able to usher the victims out with some comfort. On the other hand, foreclosure isn't death, and angels don't have a profit motive.

Mark Edwards

[comments are subject to approval, so there will be some delay in posting]

May 10, 2010 in Home and Housing, Mortgage Crisis, Real Estate Transactions | Permalink | Comments (2) | TrackBack (0)

Arruñada and Lehavi on New Models for Residential Development and Fiance

Benito Arruñada (Universitat Pompeu Fabra) and Amnon Lehavi (Interdisciplinary Center Herzliyah - Radzyner School of Law) have posted Prime Property Institutions for a Subprime Era: Exploring Innovative Models of Residential Development and Finance on SSRN.  Here's the abstract:

This paper breaks new ground toward contractual and institutional innovation in models of homeownership, equity building, and mortgage enforcement. Inspired by recent developments in the affordable housing sector and in other types of public financing schemes, this paper suggests extending institutional and financial strategies such as time- and place-based division of property rights, conditional subsidies, and credit mediation to alleviate the systemic risks of mortgage foreclosure. Alongside a for-profit shared equity scheme that would be led by local governments, we also outline a private market shared equity model, one of bootstrapping home buying with purchase options.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

May 10, 2010 in Home and Housing, Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, May 3, 2010

White on the Morality of Strategic Default

Brent T. White (Arizona) has posted Beyond Guilt in the Housing Crisis: The Morality of Strategic Default on SSRN.  Here's the abstract:

Responding to those who argue that homeowners who strategically default on their mortgages are immoral and socially irresponsible, this article argues that breaching a mortgage contract is not only morally acceptable, it may be the most responsible course of action when necessary to fulfill more important obligations to one’s family.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

May 3, 2010 in Mortgage Crisis, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, April 29, 2010

The Blazed Locust Tree

I haven't been blogging that much lately, in part because my wife and I are in the process of buying a new house.  The house was built in 1810, and the property is in a pretty rural area.  The property description includes these gems:  "BEGINNING at a point immediately southeast of a white oak tree . . . thence by same, South 60 degrees East, 278.25 feet, more or less, to a blazed locust tree . . ."  We're having a survey done . . .

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

April 29, 2010 in Real Estate Transactions | Permalink | Comments (2) | TrackBack (0)

Tuesday, April 20, 2010

Sandercock and Lebovits on NY Landlord-Tenant Law

Margaret B. Sandercock and Gerald Lebovits (St. John's) have posted New York Residential Landlord-Tenant Law 101 for the Transactional Attorney on SSRN.  Here's the to-the-point abstract:

This article discusses the basics of New York residential landlord-tenant law for the transactional attorney.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

April 20, 2010 in Landlord-Tenant, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, April 2, 2010

Moringiello on Mortgage Modification

Juliet M. Moringiello (Widener) has posted Mortgage Modification, Equitable Subordination, and the Honest but Unfortunate Creditor on SSRN.  Here's the abstract:

Mortgage foreclosures are at an all-time high and property values in many parts of the country have declined precipitously. Yet bankruptcy, which is often a last resort for individuals in financial distress, provides little relief to a homeowner who finds that her mortgage debt exceeds the value of her home. The reason for bankruptcy’s inadequacy in this regard is the Bankruptcy Code’s prohibition on the modification of home mortgages, a prohibition that became part of bankruptcy law in 1978, when most home mortgage loans were 30-year fixed rate loans made by savings and loan associations. While most secured loans can be stripped down in bankruptcy, reflecting the payment that the lender would receive if it were forced to foreclose on the collateral, a home mortgage loan must be paid in full, giving the lender more than it would receive under state law.

In recent years, abusive mortgage practices have proliferated. These abusive practices, which have prevented homeowners from building equity in their homes, harm not only the debtor, but also the debtor’s other creditors. Despite their behavior, however, home mortgage lenders who engage in these practices continue to receive favorable treatment in bankruptcy. In this paper, I argue that creditors should be denied special treatment in bankruptcy unless they behave in an “honest but unfortunate” manner. Judges can deny this special treatment by using a time-honored bankruptcy principle, the principle of equitable subordination, to subordinate the unsecured portion of a home mortgage loan to all secured and priority claims. While equitable subordination, by itself, will not solve the foreclosure crisis, it may, by reducing the claims of abusive mortgagees, deter abusive lending practices in the future.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

April 2, 2010 in Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 16, 2010

Oliveri on Discriminatory Housing Advertisements On-Line

Rigel Christine Oliveri (Missouri) has posted Discriminatory Housing Advertisements On-Line: Lessons from Craigslist on SSRN.  Here's the abstract:

The Fair Housing Act makes it illegal to publish discriminatory housing advertisements. This has long been applied to newspapers, which have effectively screened all discriminatory housing ads from sight. However, in 1996 Congress created a loophole when it immunized website operators from liability for the content posted to their sites by third parties. Without publisher liability, websites have no incentive to screen out discriminatory housing ads. The result is that such ads are proliferating in cyberspace.

While this situation is problematic from a fair housing standpoint, it presents a valuable opportunity. For the first time in a generation discriminatory housing advertisements are out in the open and available for analysis. This article contains a comprehensive review of discriminatory housing ads appearing on the popular website craigslist, which yields a number of interesting findings, including: (1) The vast majority of those who post discriminatory on-line advertisements for housing are placed by people seeking roommates. (2) The overwhelming majority of problematic ads discriminate on the basis of familial status. There are very few that discriminate based on race, ethnicity, or religion. (3) The few roommate ads that do mention race, ethnicity, or religion are more likely to discriminate in favor of minority groups. Thus, they appear more as expressions of individual diversity of backgrounds and beliefs than exclusionary tools of a majoritarian power structure.

This information can and should inform changes to the legislative and enforcement regime for dealing with discriminatory housing advertisements. For example, we should recognize that the roommate relationship is different from traditional rental housing, and accord roommate-seekers protection from the law – protection which is currently given to small landlords (who arguably do not need it) but not co-lessees. Fair housing advocates also must address the unique problems presented by familial status as a protected category, both in terms of public awareness and acceptance of the law.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

March 16, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Sunday, March 14, 2010

Malloy on Mortgage Market Reform

Robin Paul Malloy (Syracuse) has posted Mortgage Market Reform and the Fallacy of Self-Correcting Markets on SSRN.  Here's the abstract:

The article discusses the mortgage market collapse in connection to the broader financial crisis. In developing the argument I proceed in several steps. First, I discuss the fallacy of self-correcting markets as a way of explaining the need for volitional and purposeful regulation in the housing and mortgage markets. This involves explaining that markets are not self-correcting; while Alan Greenspan and company waited for the invisible hand to appear and correct the mortgage markets, the system collapsed. Second, I provide an overview of the basic exchange relationships among the parties involved in the underlying real estate transaction, those in the primary and secondary mortgage market, and potential investors in mortgage related securities. Third, I explain the inapplicability of Hernado DeSoto's idea of parallel lives between underlying real estate transactions and the market for securities based on the mortgages in these underlying transactions. And, fourth, I suggest a series of regulatory and transactional reforms to consider for improving the soundness of the underlying real estate transaction and the operation of the primary mortgage markets. These reforms include: taking steps to reduce speculation in housing prices; eliminating incentives for over borrowing and over lending; and, adjusting the structure of the underlying real estate transaction to undermine an inverse prisoner’s dilemma problem. I also suggest that lawyers reassert themselves into doing basic real estate transactions and that real estate sales people and others be restricted to simply doing the sales work that they are trained to do.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

March 14, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, March 11, 2010

Davidson on Housing and Community Development Policy

Nestor M. Davidson (Colorado) has posted Reconciling People and Place in Housing and Community Development Policy on SSRN.  Here's the abstract:

In housing and community development theory, scholars have long debated tensions between place-based policies and those that focus on fostering mobility. In practice, this is a false dichotomy and this essay explores ways in which place-based policies change the calculus of mobility, while mobility policies deeply shape both the communities people seek and those they leave behind.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

March 11, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Fennell Lecture at Florida

On March 17, Lee Fennell (Chicago) will give the Third Annual Wolf Family Lecture in the American Law of Real Property.  The lecture will take place at 11:00 a.m. in the University of Florida's Levin College of Law Chesterfield Smith Ceremonial Classroom.  Professor Fennell's talk will be titled "Possession Puzzles", and according to the flyer, (Download Wolf Lecture Flyer 2010[1]) she will "use the housing crisis and waves of foreclosures and abandonments it has generated — in Florida and elsewhere — as a springboard for examining the surprisingly complex relationship between property rights and continuity of possession."

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

March 11, 2010 in Property Theory, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

HOAs Consider "Reverse Foreclosure"

We just wrapped up our unit on promissory servitudes in my Property course.  As is the case every year, the discussion of Neponsit Property Owners' Ass'n v. Emigrant Industrial Savings Bank produced a lot of questions from the students.  Given that Neponsit concerns what are essentially homeowners' association dues, this time around I received a few questions about what HOAs might do to collect such dues on homes where the homeowners are in default with the bank.  (I have a pretty unique group this year, which includes a real estate developer, an HOA board member, a realtor, and a member of a local historic preservation commission, among many other interesting students.  A propertyprof's dream class!)

The problem, it seems, is that the bank will file a notice of foreclosure against the homeowner but will delay completing foreclosure because it doesn't want unmarketable, upside-down assets in its portfolio.  The defaulting homeowner usually stops paying her HOA dues, as well, and the indeterminate state of the foreclosure proceedings keeps the property in limbo.  HOAs are then stuck with unpaid dues, which affects community maintenance, etc.

A potential solution for the HOA was highlighted in this past Sunday's Miami Herald.  Apparently, several HOAs in Florida have started using a process called "reverse foreclosure" to force the bank's hand.  Under this procedure, the HOA forecloses on its lien resulting from the unpaid dues, takes title, and then renounces its claim, leaving the bank as the only player left to receive title.  Once the bank owns the property, it has to pay HOA dues (up to a certain capped amount).

I am always trying to teach students to be creative in their lawyering, and this provides a nice example of "outside-the-box" thinking to advance a client's interests.  But I also try to teach students that there are sometimes larger costs to pursuing legal remedies.  I wonder whether the HOA's long-term interests are ultimately served by this strategy, which promises to result in a higher number of displaced homeowners and an increased number of listed properties in an already saturated market.

Mike Kent

[Comments are held for approval, so there will be some delay in posting.]

P.S.  Thanks to Stetson law student Quincy Bird for bringing the article to my attention.

March 11, 2010 in Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 10, 2010

Nelson on Federalization of Mortgage Foreclosure Law

Grant Nelson (Pepperdine) has posted Confronting the Mortgage Meltdown: A Brief for the Federalization of State Mortgage Foreclosure Law on SSRN.  Here's the abstract:

This Article argues for federal preemption of state procedures governing the foreclosure of mortgages and security interests in rents. While it also suggests that federal action limiting or prohibiting state anti-deficiency legislation may be appropriate, it leaves this issue to future consideration. Thus, its major focus is to advocate the congressional adoption of both Uniform Nonjudicial Foreclosure Act (UNFA) and Uniform Assignment of Rents Act (UARA) to make them available to all lenders nationwide. However, the federal government has a special stake in greater uniformity for its own account. This is especially the case as to mortgages on real estate. The fallout of the economic crisis of the past year and a half has made it the owner or guarantor of millions of mortgages. It will be confronted with an overwhelming number of foreclosures that will survive all attempts at modification. Given the fact that Fannie Mae and Freddie Mac are now wards of the federal government, the federal stake in efficient and fair foreclosure procedures has become compelling. Forcing the federal government to foreclose possibly hundreds of thousands of mortgages judicially in many states seems almost surreal. Given the enormous cost of this crisis to the federal taxpayers, the government should not be held hostage to arcane and outmoded foreclosure procedures. Even in nonjudicial foreclosure states, the federalization of Fannie Mae and Freddie Mac probably necessitates changes in some statutes to comply with constitutional due process mandates. At the very minimum, the federal Single Family and Multifamily Acts with minor modifications should be made available to all federal agencies.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

March 10, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 23, 2010

A Different Kind of "Self-Help"

Over at PrawfsBlawg, Jack Chin (Arizona) has an interesting post (complete with links) about a man who bulldozed his house to keep the bank from foreclosing on it.

Mike Kent

[Comments are held for approval, so there will be some delay in posting.]

February 23, 2010 in Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 9, 2010

Mitchell, Malpezzi, and Green on Forced Sale Risk

Thomas W. Mitchell (Wisconsin), Stephen Malpezzi (Wisconsin), and Richard Green (USC) have posted Forced Sale Risk: Class, Race, and The 'Double Discount' on SSRN.  Here's the abstract:

What impact does a forced sale have upon a property owner's wealth? And do certain characteristics of a property owner such as whether they are rich or poor or whether they are black or white, tend to affect the price yielded at a forced sale? This Article addresses arguments made by some courts and legal scholars who have claimed that certain types of forced sales result in wealth maximizing, economic efficiencies. The Article addresses such economic arguments by returning to first principles and reviewing the distinction between sales conducted under fair market value conditions and sales conducted under forced sale conditions. This analysis makes it clear that forced sales of real or personal property are conducted under conditions that are rarely likely to yield market value prices. In addition, the Article addresses the fact that judges and legal scholars have utilized a flawed economic analysis of forced sales in cases that often involve property that is owned by low- to middle-class property owners in part because those who are wealthier own their property under more stable ownership structures or utilize private ordering to avoid the chance that a court might order a forced sale under the default rules of certain common ownership structures. The Article also raises the possibility for the first time that the race or ethnicity of a property owner may affect the sales price for property sold at a forced sale, resulting in a "double discount," i.e. a discount from market value for the forced sale and a further discount attributable to the race of the property owner. If minorities are more susceptible to forced sales of their property than white property owners or if there does exist a phenomenon in which minorities suffer a double discount upon the sale of their property at a forced sale, then forced sales of minority-owned property could be contributing to persistent and yawning racial wealth gaps.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

February 9, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (1) | TrackBack (0)

Burkhart on Manufactured Housing and Real Estate Finance

Ann M. Burkhart (Minnesota) has posted Bringing Manufactured Housing into the Real Estate Finance System on SSRN.  Here's the abstract:

Eight percent of the United States population - more than 23 million people - live in manufactured homes (also called mobile homes). In some years, more than 30% of the new homes sold have been manufactured. Moreover, manufactured housing is the most important form of unsubsidized affordable housing in this country. Up to two-thirds of the new affordable homes built each year have been manufactured. However, the manufactured housing industry currently is struggling to survive a meltdown in its sales and finance markets. A tremendous obstacle to the industry’s recovery is that most manufactured homes are characterized as personal property, though they have evolved tremendously from their earliest ancestor, the travel trailer. Today, only 1% of manufactured homes are moved after being sited on a lot. Recharacterizing manufactured homes as real property would reflect modern reality and would provide purchasers and owners with access to the mortgage market, which would increase credit availability and affordability and would provide manufactured home owners the same legal protections that owners of site-built homes enjoy.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

February 9, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 2, 2010

"The age of suburbanization . . . is over"

So says John K. McIlwain, Senior Resident Fellow and J. Ronald Terwilliger Chair for Housing at the Urban Land Institute.  You can find a synopsis of his predictions for the American housing market on the Wall Street Journal's real estate blog, which also contains a link to his larger report.

Mike Kent

[Comments are held for approval, so there will be some delay in posting.]

February 2, 2010 in Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)