PropertyProf Blog

Editor: Stephen Clowney
Univ. of Arkansas, Fayetteville

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Friday, January 29, 2010

Dorfman on Private Ownership

Avihay Dorfman (Tel Aviv) has posted Private Ownership on SSRN.  Here's the abstract:

The most powerful response to the growing skepticism about the intelligibility of the idea of private ownership has been cast in terms of owners’ rights to the exclusive use of an object. In these pages, I argue that this response suffers from three basic deficiencies, rather than merely explanatory gaps, that render it unable to overcome the spectre of skepticism. These deficiencies reflect a shared want of attention to the normative relationship that ownership engenders between owners and non-owners. In place of the right to exclusive use, I set out to develop an account of private ownership that seeks to defeat skepticism concerning this idea. The proposed account insists that the idea of private ownership picks out a special authority relation between an owner and a non-owner involving the normative standing of the latter in relation to an object owned by the former. I further demonstrate the important place of this idea in shaping the contours of normative disagreements about the point of ownership rights and responsibilities.

Ben Barros

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January 29, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, January 25, 2010

Rizzolli on the Law & Economics of Building Encroachments

The latest issue of the Review of Law & Economics has an article by Matteo Rizzolli (University of Milan - Bicocca) titled Building Encroachments.  Here's the abstract:

Property law usually addresses encroachments with ejectment. Building encroachments differ, however, as restoring a landowner’s property claims implies the reversal of often large costs sustained by the builder. The authority thus confronts the following dilemma: either it stands by the landowner, thereby facing the social costs of undoing significant investments and possibly supporting an opportunistic landowner that tries to hold up the builder, or it defends the investment of the builder thereby endorsing a kind of private eminent domain. In addressing building encroachments, national property laws have deployed different remedies ranging from a property rule in favor of the landowner to a property rule in favor of the builder with a variety of liability rules, often hybridized with property rules, in between. This paper models the builder-owner conflict after the theory of optional law (Ayres, 2005); it frames different national solutions into a common analytical setting; and it evaluates the different laws in their relative allocative and distributive outcomes and their capacity to constrain opportunistic behavior.

Ben Barros

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January 25, 2010 in Property Theory, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, January 21, 2010

Home Sales and Fraudulent Concealment

I currently am teaching a brief unit on real estate transactions in my Property course, and tonight we are covering disclosure and fraudulent concealment.  As luck would have it, a recent article in the Wall Street Journal discusses this exact issue.  The article indicates that disclosure issues have taken on added significance in the current housing market because buyers cannot expect increasing home values to help them recover from mistakes made in the initial purchase.  Additionally, the article suggests that faulty disclosures may result not just from lying on the part of sellers, but also from the complexity of the disclosure requirements themselves.

Mike Kent

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January 21, 2010 in Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 13, 2010

Mitchell, Malpezzi, and Green on Forced Sales

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

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January 13, 2010 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, January 11, 2010

Adams on Homeownership

Kristen Adams (Stetson) has posted Homeownership: American Dream or Illusion of Empowerment? on SSRN.  Here's the abstract:

In this Article, I endeavor to show that because Americans value homeownership so much — in fact, more than we should — we have placed ourselves in an untenable position as a country and now find ourselves in the midst of a well-documented housing crisis. In addition, we have used the primacy of homeownership as an excuse not to fulfill our country’s commitment to provide housing assistance to those persons who need it most. We have done this in part by undervaluing quality, affordable rental property (and quality renters) just as we have overvalued homeownership (and homeowners). Some have used the word “myth” in talking about the American view of homeownership; however, the word I prefer is “illusion,” which I intend to be less pejorative while still acknowledging that homeownership does not always deliver the benefits it promises, particularly for lower income homeowners. This Article is not particularly concerned with the question of who is to blame for the current housing crisis, because I believe fault in this context is too complicated to be laid at the feet of just one party or another. Part II of this Article examines the median American household, mortgage, and house, concluding that many Americans cannot afford the homes they have purchased. Next, Part III addresses the question of why our country overvalues homeownership to such an extent that it now finds itself in this position. In doing so, Part III examines the many benefits that homeownership supposedly provides to both individuals and society. Part IV contrasts society’s customary treatment of homeownership as a virtue with its stigmatization of renters, concluding that the latter is unfounded. Part IV also explores how the very interests that have promoted homeownership have also benefited most from its growth. Part V considers several factors that contributed to the real estate boom that culminated in the mid-2000s, including homeowners’ treatment of mortgage debt as wealth, financing options such as no-down-payment and interest-only loans, increased utilization of home equity loans, and certain features of subprime lending. Part VI concludes by suggesting that universal homeownership does not provide the benefits Americans have come to expect from it and proposing four steps policymakers should follow in creating healthier, more sustainable housing policy.

Ben Barros

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

Peck and Steadham on Land Description Errors

John C. Peck and Christopher L. Steadham (Univ. of Kansas) have posted Land Description Errors: Recognition, Avoidance, and Consequences on SSRN.  Here's the abstract:

Legal descriptions of land are used in many legal documents, including contracts, deeds, mortgages, and others. The article first describes several commonly used description methods, including the metes and bounds, U.S. Government Survey, plat reference, and surveyor's or angular description. A suggested method of drawing descriptions is provided. Many types of errors can occur in legal descriptions. Errors can be made because the description is too informal, is ambiguous, or contains mistakes in numbers. Sometimes errors are made when the description is valid in and of itself, but is not the one intended by the parties. Courts have devised canons and aids in construction of land descriptions that contain patent or latent errors. When errors are made, several parties may be adversely affected, including buyers and sellers, mortgagors and mortgagees, lawyers, and land surveyors. For lawyers, errors can implicate both legal and professional ethics violations. Surveyors may be liable in malpractice. The article concludes with some suggestions on methods to avoid making errors in land descriptions.

Ben Barros

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

Wednesday, December 9, 2009

How Do You Value Damage to a Tree?

Inquiring minds have wanted to know since Tiger Woods hit his neighbor's tree.  Christopher Beam explains at Slate.

Ben Barros

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December 9, 2009 in Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Thursday, October 29, 2009

Bennett's Bibliography on Condos

Donna S. Bennett (Northern Kentucky) has posted Condominium Homeownership: A Selected Annotated Bibliography of Legal Sources on SSRN.  Here's the abstract:

Following a brief historical sketch of the condominium concept, this bibliography focuses on the development and growth of condominium homeownership in the United States.

Ben Barros

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October 29, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 28, 2009

Johnson et al. on No Walmart in My Backyard

Daniel K. N. Johnson, Kristina M. Lybecker, Nicole Gurley, Alex Stiller-Shulman, and Stephen Fischer (all of Colorado College) have posted The NWIMBY Effect (No Walmart in My Backyard): Big Box Stores and Residential Property Values on SSRN.  Here's the abstract:

Recent Wal-Mart openings have been accompanied by public demonstrations against the company’s presence in the community, asserting (among other things) that their presence is deleterious to residential property values. This study empirically evaluates that claim, analyzing the spatial correlation between Wal-Mart locations and residential property values, while comparing Wal-Mart with other big-box retailers for a frame of reference and controlling for other important aspects of a home’s market value. We recognize that market value may represent a trade-off between price and patience, so perform a similar analysis using a property’s days on the market to evaluate any big-box effect. Finally, we interpret the resulting effects in two ways, from both the resident’s and retailer’s point of view, casting new light on the NWIMBY effect.

Ben Barros

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October 28, 2009 in Land Use, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Green and Wachter on The Housing Finance Revolution

Richard K. Green (George Washington) and Susan M. Wachter (Wharton) have posted The Housing Finance Revolution on SSRN.  Here's the abstract:

While other countries dismantled their segmented housing finance systems and linked housing finance to capital markets through deregulated depositories, the US linked housing finance to capital markets through depository deregulation and securitization. Elsewhere securitization has not developed. The US provided the underpinnings for its mortgage security infrastructure with the creation of FNMA in 1938 and in order to create liquidity in the mortgage market required the standardization of mortgage documentation and more fundamentally required that home mortgages within securities would be sufficiently homogeneous that they could trade in liquid markets. These developments allowed 22 years of uninterrupted liquidity in the market for conventional conforming mortgages, to be followed by the creation of a subprime mortgage market backed by securities that were illiquid, nonstandardized and marked to model not to market which allowed systemic underpricing of risk. This paper presents the recent history of the linkage of mortgage funding to financial markets in the US and elsewhere and specifically in the US suggests how the housing finance revolution resulted in the "terror" which has brought down global financial markets.

Ben Barros

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October 28, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Pavlov and Wachter on Subprime Lending and Real Estate Prices

Andrey D. Pavlov (Simon Fraser) and Susan M. Wachter (Wharton) have posted Subprime Lending and Real Estate Prices on SSRN.  Here's the abstract:

This paper establishes a theoretical and empirical link between the use of aggressive mortgage lending instruments, such as interest only, negative amortization or subprime, mortgages, and the underlying house prices. Such instruments, which come into existence through innovation or financial deregulation, allow more borrowing than otherwise would occur in previously affordability constrained markets. Within the context of a model with an endogenous rent-buy decision, we demonstrate that the supply of aggressive lending instruments temporarily increases the asset prices in the underlying market because agents find it more attractive to own or because their borrowing constraint is relaxed, or both. This result implies that the availability of aggressive mortgage lending instruments magnifies the real estate cycle and the effects of fundamental demand shocks. We empirically confirm the predictions of the model using recent subprime origination experience. In particular, we find that regions that receive a high concentration of aggressive lending instruments experience larger price increases and subsequent declines than areas with low concentration of such instruments. This result holds in the presence of various controls and instrumental variables.

Ben Barros

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October 28, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Sunday, October 18, 2009

DiLorenzo on Equity Stripping

Vincent DiLorenzo (St. John's) has posted Mortgage Market Deregulation and Moral Hazard: Equity Stripping Under Sanction of Law on SSRN.  Here's the abstract:

This article examines the failure of the current regulatory structure to adequately protect consumers against risks in a home mortgage lending market characterized by complexity and limited transparency. It explores the reliance of bank regulators, particularly the Federal Reserve Board, on market discipline to control risks and the failure of market discipline. It also explores the Federal Reserve’s view that market intervention is only justified based on net societal benefits. This is a viewpoint that prevented regulatory intervention until the financial sector was in crisis, and a viewpoint that is at odds with the view of the Congress. This article urges a rejection of the net societal benefits standard as the determinant of regulatory intervention in the mortgage market.

Ben Barros

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October 18, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Reiss on Landlords of Last Resort

David J. Reiss (Brooklyn) has posted Landlords of Last Resort: Should the Government Subsidize the Mortgages of Privately-Owned, Small Multifamily Buildings? on SSRN.  Here's the abstract:

The absence of stable financing options has long caused difficulties for owners of small multifamily buildings. Despite the ongoing maturation of a secondary mortgage market for small multifamily mortgages, this housing stock continues to shrink due to abandonment, demolition, foreclosure and other causes. As these buildings house many low-income households, some have suggested subsidizing the financing costs for the owners of these buildings. Any proposal to subsidize these landlords to meet affordable housing goals, however, should be predicated on determinations that (i) it is an efficient means to provide housing to the neediest tenants and (ii) the multifamily mortgage market is subject to failures that make such government intervention appropriate.

This article first describes what little is known about small multifamily properties and their owners. It then describes the lending environment for real estate entrepreneurs over the last hundred years. Finally, it evaluates the role the government should play in the small multifamily mortgage sector. The article concludes that subsidizing owners of small apartment building is an inefficient and unwarranted affordable housing policy and that more direct subsidies to low-income households, such as housing vouchers, are preferable.

Ben Barros

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October 18, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Saturday, September 26, 2009

Roark on Fixtures

Marc Lane Roark (La Verne) has posted Defining Fixtures in Law and Policy in the UCC on SSRN.  Here's the abstract:

This article offers both a concession and a critique. The article concedes that the law of fixtures under the Uniform Commercial Code is helplessly tied to the various state laws dictating real estate. The natural impact of explicitly tying a UCC doctrine to multiple state law variation is the automatic loss of uniformity. At the center of the fixtures discussion in the UCC is a definition that does not define, and more importantly, does not limit doctrinal extension. Because the UCC offers a non-defining definition, this article considers the function of the fixtures definition. Specifically, the article looks to the original drafters comments about what the purpose of the fixtures definition was intended to accomplish.

Conceding that the definition in the UCC does not define, the article then critiques the definition by asking what role the definition plays in the game of seeking uniformity. Specifically, the article argues that the fixtures definition in UCC Section 9-102(a)(41) performs a function just as important as defining - it narrates. The article argues that the drafters in deciding on a definition of fixtures isolated themes of commonality and described those themes in a concise, but useful description of the fixture. Those themes include the joining of goods to realty, the concept of relation, and the emphasis on interests as a governing factor in the fixtures analysis. The article argues that the narration accomplished by the UCC allows for uniformity, not by mandatory uniformity, but by synchronic dialogue - allowing the themes to create images and the images to compel instinctive beliefs. The article argues, however, that the description provided by the drafters should be reunited with the substantive provisions relating to fixtures since each are tied to the other’s understanding.

Ben Barros

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September 26, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 16, 2009

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)

Friday, September 4, 2009

The Looming Commercial Real Estate Crisis

I would like to begin my blogging by setting up a discussion about the commercial real estate industry, the looming crisis, and what this all means for property law.  In a nutshell, the problem is this: 

(1) Over the past ten years, commercial rents rose quickly, which supported a rapid increase in the “value” of commercial real estate. 

(2) The emergence of the Commercial Mortgage-Backed Securities (CMBS) market and the explosion of IPOs by real estate investment trusts created strong incentives for real estate owners to expand and to continue to drive up prices through demand, particularly in desirable markets like Florida and urban centers.

(3) Many CMBS loans were underwritten aggressively by lenders who were focused on closing a portfolio quickly and selling the securities.  As in the residential mortgage securities market, the lenders who originated the loans did not keep them on their books very long.  (This incentives problem has been obvious for a while -- here is an interesting 2007 article on the subject.)

(4)  The pressure of the recession on tenants and their ability to pay ambitious rents, combined with the sudden evaporation of capital means that most, if not all, collateral in the CMBS pools could not be sold or refinanced today for the amount of the existing debt.  (Here is a recent story from the New York Times on the subject.)

This all sounds familiar, right?  It is a very similar story to the residential real estate debacle.  There are a few important differences. 

First, although financial institutions have largely taken the hit for the losses felt in the residential real estate market, the significant losses in the commercial real estate market have yet to be fully internalized by either lenders or owners.  Unlike residential mortgages, which have a standard term of 30 years, “permanent” commercial loans have a standard term of 10 years.  Adjustable rate mortgages, aggressive borrowing, and a rising unemployment rate meant that many homeowners were unable to make their mortgage payments, triggering banks to recognize that some debt was unlikely to be repaid.  In the commercial realm, owners usually have other sources of income (or credit) that they can tap into to cover a property that isn't generating sufficient income to satisfy its own mortgage payments.  That strategy only stalls the inevitable, however and we will see a significant amount of commercial real estate debt begin to mature over the next 24 months.

Second, commercial real estate attorneys have put some fairly creative legal structures into place during the boom years.  As tenants seek to get out of their lease obligations and lenders seek compensation for vanished equity, we are (anecdotally) already seeing a significant uptick in commercial real estate litigation.  Surely some of these cases will make it to the appellate level, giving the courts new opportunities to consider the law of modern real estate transactions, financing, and leasing.

One such case, to which I plan to dedicate one or more posts, is the Chapter 11 filing of General Growth Properties (GGP), the second-largest operator of enclosed malls in the nation.  GGP filed for bankruptcy on April 16, 2009 citing “broken credit markets” which “require GGP to reduce and restructure [its] debt.”  (Read GGP’s fascinating FAQ on its bankruptcy here.) 

The GGP case highlights the box that CMBS loans created for borrowers – easy access to capital had a trade-off in the form of stringent loan covenants and restrictions on sale and refinancing.  It also highlights the economic reality faced by commercial real estate owners (and lenders) across the company.  When loans mature, extensions run out, and proceeds from sale or refinance are insufficient to pay off the debt, both owners and lenders will be faced with limited and undesirable options. 

Sorry for such a long post, but I wanted to set up future posts on the GGP bankruptcy, the legitimacy of special purpose entities, and other related topics.  Please comment below to let me know if there are any related issues that you are particularly interested in!

Tanya Marsh

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September 4, 2009 in Real Estate Transactions, Recent Cases | Permalink | Comments (1) | TrackBack (0)

Thursday, August 13, 2009

Marsh on Blackacre and Widgets: "Rethinking Commercial Real Estate Contract Remedies"

Tanya D. Marsh of Indiana University's Kelley School of Business has just posted "Sometimes Blackacre is a Widget: Rethinking Commercial Real Estate Contract Remedies," on ssrn.  Marsh's abstract is:

This Article argues that the presumption that all land is unique, a principle so embedded in the common law that it is “settled beyond the need for citation,” is wrong. The “uniqueness doctrine” is used to justify granting non-breaching purchasers of real property nearly automatic access to the remedy of specific performance without requiring a wronged party to prove that it has no adequate remedy at law. This powerful common law protection for non-breaching purchasers evolved for a variety of social and economic reasons. This Article makes the case that these historical reasons do not support the applicability of the uniqueness doctrine to modern commercial real estate transactions. Despite the illegitimacy of the uniqueness doctrine, this Article argues that allowing the parties to commercial real estate contracts to bargain for equitable relief is not only desirable, but consistent with legitimate doctrine, practical concerns, and the property rule/liability rule paradigm described by Professors Calabresi and Melamed. The instability of the uniqueness doctrine poses an immediate practical problem – any sudden change would cause significant problems and increased costs for the already-troubled $6.5 trillion American commercial real estate sector. This Article proposes that acknowledging the illegitimacy of the uniqueness doctrine is essential to preserving and enhancing the remedies regime relied upon by the industry.

I think you'll enjoy this. 

Al Brophy

August 13, 2009 in Real Estate Transactions | Permalink | Comments (2) | TrackBack (0)

Tuesday, August 11, 2009

Lefcoe on Restraining House Flipping

George Lefcoe (University of Southern California) has posted How 'Spec' Condo and Tract Home Buyers Helped Sink Our Housing and Finance Markets: Should the Alienability of Their Interests Be Restrained by Law? on SSRN.  Here's the abstract:

This paper begins by recounting the extent to which speculating buyers contributed more than proportionately to housing price volatility and the rate of mortgage foreclosure. The second section turns to the way spec buyers deceived mortgage lenders by committing occupancy fraud, claiming falsely that they were buying as owner occupants so they could benefit from more favorable mortgage rates and terms. The third section starts by describing the mischief spec buyers caused home builders and condo developers by signaling phantom housing demand, and degrading ‘for sale’ housing tracts and condo developments by leaving newly bought homes vacant or filling them with short term rentals. The fourth section explores the rationale for a government imposed ban on home flipping. This would be a publicly imposed constraint on alienability.

Ben Barros

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August 11, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Reiss on Ratings Agencies and the Subprime Crisis

David J. Reiss (Brooklyn) has posted Rating Agencies: Facilitators of Predatory Lending in the Subprime Market on SSRN.  Here's the abstract:

This book chapter explores how the three largest rating agencies, Standard & Poor’s, Moody’s Investor Service and Fitch Ratings, exploited their privileged regulatory status to profit from the booming subprime mortgage market at the expense of homeowners. These rating agencies boosted their own bottom lines and assisted predatory lenders by effectively vetoing state consumer protection initiatives. While regulators have identified enhanced investor protection regulation of credit rating agencies as a priority, future regulation must ensure that the systemic biases of the rating agency industry are no longer permitted to trump legitimate state consumer protection initiatives.

Ben Barros

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August 11, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 29, 2009

Reiss on Fannie Mae and Freddie Mac

David J. Reiss (Brooklyn Law School) has posted Fannie Mae and Freddie Mac: Privatizing Profit and Socializing Loss on SSRN.  Here's the abstract:

This book chapter describes the role of Fannie Mae and Freddie Mac in the ongoing financial crisis. The chapter first explains the hybrid public-private nature of Fannie and Freddie, which are what is known as Government Sponsored Enterprises (GSEs). Fannie and Freddie were originally chartered by the federal government to create a national mortgage market. The chapter then explains how the two GSEs morphed into extraordinarily large companies that profited enormously from their special relationship with the federal government, while providing only modest benefits to American homeowners. In what turned out to be a disastrous trade-off for American taxpayers, Fannie and Freddie ended up needing a bailout measured in the hundreds of billions of dollars. Ultimately, Fannie and Freddie exhibited the common failings of poor GSE design — after fulfilling their original purpose, they took on monstrously large lives of their own that defied political oversight. The chapter concludes that Fannie and Freddie should be privatized, with their remaining public functions assumed by pure government actors.

Ben Barros

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July 29, 2009 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)