Land Use Prof Blog

Pomeroy on the Case for Standardized Vesting Documents

Chad Pomeroy (St. Mary's) has posted A Theoretical Case for Standardized Vesting Documents.  The abstract:

Practitioners, real estate professionals, and lay people throughout the country rely on the recording system to provide critical information regarding ownership rights and claims. Indeed, the recording system acts as a virtually mandatory repository and disseminator of all potential parties’ claims. This system, in turn, relies on these claimants and their agents to publicize their claims: property purchasers, lenders, lien-claimants, title companies, attorneys - these parties interact, make deals, make claims, order their affairs, and then record. The information system available to us, then, is only as good as what we make of it and what we put into it.

As such, it is surprising how little thought has been put into exactly what it is that we record. Should the mortgage of a lender in Ohio look like that of a lender in Florida? Should a deed from an individual in Texas differ from that of a corporation in Nevada? As it stands now, no one familiar with real estate law or commerce would expect different parties in different jurisdictions to record identical, or even similar, instruments. In an immediate sense, this heterogeneity of the recorded documents (“vesting heterogeneity”) does not seem a good thing: parties utilizing the recording system generally seek to make known, or to discern, the same generic type of information – that is, evidence of claims upon property – so why are different forms and types of documents utilized all over the country?

This article analyzes this vesting heterogeneity from a new perspective and concludes that it is, in fact, cause for significant concern. Vesting heterogeneity has arisen organically, growing with the recording system as they both evolved over time. This historical explanation does not, however, excuse the cost associated with such a lack of uniformity. Anyone seeking information with respect to any piece of property must navigate the complexities and uncertainties that arise because all such information is heterogeneous and, as a consequence, difficult to understand and utilize. This represents both a immediate transactional cost and an increased risk of ill-informed behavior.

This is particularly troublesome because this sort of cost-based concern arising from variability has a well-established analogue in property law that the law clearly desires to avoid. That analogue is the cost that would arise if property law were to permit unlimited property forms and gives rise to what is known as the numerus clausus theory. This theory explains the law’s hostility toward new, or different, types of property and holds that such heterogeneity is not generally permitted because of the extremely high informational costs associated with such creativity.

This article suggests that this common law concept can, and should, inform our analysis of vesting heterogeneity and that it precipitates strongly against such lack of uniformity. This is because the costs that drive the numerus clausus to hold that variability should be limited are strikingly similar to those created by variability of vesting documents. As such, this theory is relevant here such that the same analysis should be applied to vesting heterogeneity by asking whether a different (or “new”) document is helpful enough to outweigh the informational costs inherent therein.

Based on this reasoning, this article concludes that the law is wrong to systematically ignore heterogeneity in vesting documents. Instead, a numerus clausus type of analysis should be applied to new or different vesting documents to determine whether any inherent lack of uniformity is defensible. Where it is not, uniformity should be imposed.

Matt Festa

Arezki, Deininger, & Selod on What Drives the Global Land Rush

Rabah Arezki (IMF), Klaus Deininger (World Bank), and Harris Selod (World Bank) have posted What Drives the Global Land Rush?  The abstract:

This paper studies the determinants of foreign land acquisition for large-scale agriculture. To do so, gravity models are estimated using data on bilateral investment relationships, together with newly constructed indicators of agro-ecological suitability in areas with low population density as well as land rights security. Results confirm the central role of agro-ecological potential as a pull factor. In contrast to the literature on foreign investment in general, the quality of the business climate is insignificant whereas weak land governance and tenure security for current users make countries more attractive for investors. Implications for policy are discussed.

Matt Festa

 

Echeverria on Public Takings of Private Contracts

John D. Echeverria (Vermont) has posted Public Takings of Private Contracts, forthcoming in the Ecology Law Quarterly (2011).  The abstract:

This article, part of a larger project analyzing how far public and private contracting arrangements can go in constraining democratic decision-making, examines whether the United States should be liable under the Takings Clause of the Fifth Amendment when its actions have the effect of destroying or impairing private contract rights. In the Omnia Commercial case, decided 90 years ago, the Supreme Court ruled that private contract interests represent “property” within the meaning of the Takings Clause, and that the issue of whether such property has been “taken” should be resolved by assessing whether the government has “appropriated” the contract interest (resulting in a taking), or merely “frustrated” it (not resulting in a taking). While Omnia Commercial reflects a sound intuition that private contract interests deserve special treatment under the Takings Clause, the appropriation versus frustration standard has no principled foundation and is irreconcilable with modern takings standards. In place of the Omnia Commercial standard, this article suggests that the Court should adopt a two-part analysis. First, rather than treating all private contract interests as a form of “property,” the Court should only treat the direct contractual commitments between the parties as property; as a result, only when the government inserts itself into the parties’ contractual relations, by taking over the contract benefits of one of the parties, or by transferring the benefits to some new party, has the government impinged on “property” in a fashion that can potentially support a taking claim. Second, the Court should rule that a government action impinging on contract-based property does not result in a taking when the action imposes no net economic loss on the contracting parties, considered together as a single unit; this approach would require the parties to allocate between themselves the burden, if any, a government action has imposed on either one of them. On the other hand, the Court should rule that, when government interference with contract-based property does produce a net loss to the contracting parties, considered as a unit, a finding of a taking generally will be warranted under a traditional appropriation analysis.

Matt Festa

Miller on the Strategic Default Debate Among Contract Scholars

Meredith R. Miller (Touro) has posted Strategic Default: The Popularization of a Debate Among Contract Scholars, forthcoming in the Cornell Real Estate Law Journal.  The abstract:

A June 2010 report estimates that roughly 20% of mortgage defaults in the first half of 2009 were “strategic.” “Strategic default” describes the situation where a home borrower has the financial ability to continue to pay her mortgage but chooses not to pay and walks away. The ubiquity of strategic default has lead to innumerable newspaper articles, blog posts, website comments and editorial musings on the morality of homeowners who can afford to pay but choose, instead, to walk away. This Article centers on the current public discourse concerning strategic default, which mirrors a continuing debate among scholars regarding whether the willful breach of a contract has a moral element.

For those scholars that maintain that it is possible to describe and prescribe contract law with a general, unifying theory, the debate is primarily one between promise-based theories and economic theory. This debate between promissory and economic theory reflects a perpetual volley concerning whether contract law should reflect the primacy of morality or efficiency. 

The argument of those that support strategic default reads like a case for efficient breach. Many of these commentators argue that the mortgage contract simply presents home borrowers with a choice: pay or surrender the property in foreclosure. If a homeowner is deep underwater, she is better off defaulting and the lender is no worse off relative to the bargain (after all, the lender agreed to foreclosure as a remedy). However, those who argue in favor of strategic default are counteracting a prevailing social norm that it is fundamentally immoral to willfully breach a contract. Many of the blog comments and even newspaper editorials have reflected a general sense that the homeowners who strategically default are acting shamefully. 

The public discussion further mirrors the academic debate about whether encouraging efficient breach enables the greatest public good or, instead, undermines the very convention of contracting. On the one hand, strategic default serves as an example of how encouragement of breach of contract may lead to a breakdown of confidence in the marketplace and, in turn, could inhibit market activity. On the other, it is difficult to muster sympathy for lenders, whose imprudent loans are a large piece of the systemic problems that precipitated the housing crisis.

In the end, to the extent that questions of morality are nuanced and contextual, the example of strategic default elucidates the futility of either morality or efficiency as a unifying descriptive or normative theory of contract law. Indeed, it suggests that instead of focusing on individual contracts between borrowers and lenders, a more fruitful public discourse should be reframed to focus on appropriate systemic reforms to prevent the practices that played a part in devastating outcomes for the housing industry, families and communities. Because the concerns about strategic default – neighborhood depreciation and market collapse – are systemic, the solutions should be driven by those concerns, rather than shaming individual borrowers who decide to walk away.

Matt Festa

Miller on Strategic Default

Meredith R. Miller (Touro) has posted Strategic Default: The Popularization of a Debate Among Contract Scholars, Cornell Real Estate Journal, Vol. 9, Forthcoming .  The abstract:

A June 2010 report estimates that roughly 20% of mortgage defaults in the first half of 2009 were “strategic.” “Strategic default” describes the situation where a home borrower has the financial ability to continue to pay her mortgage but chooses not to pay and walks away. The ubiquity of strategic default has lead to innumerable newspaper articles, blog posts, website comments and editorial musings on the morality of homeowners who can afford to pay but choose, instead, to walk away. This Article centers on the current public discourse concerning strategic default, which mirrors a continuing debate among scholars regarding whether the willful breach of a contract has a moral element.

For those scholars that maintain that it is possible to describe and prescribe contract law with a general, unifying theory, the debate is primarily one between promise-based theories and economic theory. This debate between promissory and economic theory reflects a perpetual volley concerning whether contract law should reflect the primacy of morality or efficiency. 

The argument of those that support strategic default reads like a case for efficient breach. Many of these commentators argue that the mortgage contract simply presents home borrowers with a choice: pay or surrender the property in foreclosure. If a homeowner is deep underwater, she is better off defaulting and the lender is no worse off relative to the bargain (after all, the lender agreed to foreclosure as a remedy). However, those who argue in favor of strategic default are counteracting a prevailing social norm that it is fundamentally immoral to willfully breach a contract. Many of the blog comments and even newspaper editorials have reflected a general sense that the homeowners who strategically default are acting shamefully.

The public discussion further mirrors the academic debate about whether encouraging efficient breach enables the greatest public good or, instead, undermines the very convention of contracting. On the one hand, strategic default serves as an example of how encouragement of breach of contract may lead to a breakdown of confidence in the marketplace and, in turn, could inhibit market activity. On the other, it is difficult to muster sympathy for lenders, whose imprudent loans are a large piece of the systemic problems that precipitated the housing crisis.

In the end, to the extent that questions of morality are nuanced and contextual, the example of strategic default elucidates the futility of either morality or efficiency as a unifying descriptive or normative theory of contract law. Indeed, it suggests that instead of focusing on individual contracts between borrowers and lenders, a more fruitful public discourse should be reframed to focus on appropriate systemic reforms to prevent the practices that played a part in devastating outcomes for the housing industry, families and communities. Because the concerns about strategic default – neighborhood depreciation and market collapse – are systemic, the solutions should be driven by those concerns, rather than shaming individual borrowers who decide to walk away.

Matt Festa

Malloy on Adam Smith in the Courts of the United States

Robin Paul Malloy (Syracuse) has posted Adam Smith in the Courts of the United States, Loyola Law Review Vol. 56, p. 33 (2010).  The abstract:

Be it on topics of property, contract, commerce, trade, tax, legal history, or other matters, jurisprudence in the United States often invokes economic thinking in providing a rationale for legal outcomes. Consequently, I wondered how often the appeal to economic thinking in the courts included a reference to Adam Smith, the founder of modern economics. This essay traces the citations to Adam Smith in the judicial opinions of the Federal Courts starting with the first two cases to cite Smith in 1796; 214 years ago. The essay provides a brief contextual discussion about Smith and the way in which he has been cited over the years. This is followed by a report on the full set of citations to Adam Smith in the case opinions of the Federal Courts and in the legal briefs filed in those cases. 

Between the years 1796 and 2009, Adam Smith is directly referenced in 162 cases, and in legal briefs filed in 213 cases. Over time Smith is cited for different purposes. He is cited in case opinions dealing with a range of topics including: tax, trade, commerce, labor, antitrust, and private property. The way in which Smith is referenced over time also changes. In general, references to Smith shift over time as he goes from being an authoritative reference on matters of taxation to being a mere iconic punctuation point in the arguments of those seeking to promote free markets and laissez-faire. 

The article offers quotations from case opinions and establishes a record of Adam Smith’s appearances in the Courts of the United States. Interestingly, 70% of the citations to Smith occur since 1970. Hopefully, the article will be a fun piece to read no matter what one’s specialized research or teaching area may be.

This article covers many topics and should be of interest to anyone working in the history or economic underpinnings of land use issues.  

Matt Festa

Anderson on the Offside Goals Rule in Practice

Ross G. Anderson (University of Glasgow) has posted The Offside Goals Rule in Practice.  I must admit that the paper title caught my eye primarly because we've been watching a lot of World Cup soccer around here [for evidence, see this local news video from Rice Soccer Camp with my daughter giving her pre-game analysis of the U.S.-Algeria game (and showing off some footwork) from last week!]. 

But it turns out that Anderson's paper is actually about property law--Scottish property law to be exact.  The abstract:

The author discusses the rule which penalises purchaser's of property who have private knowledge of the rights of a prior purchaser. In particular, he focusses on the practical implications of the rule for transactional lawyers.

From skimming the paper it looks like the "offside goals rule" is somewhat analagous to the American concept of race-notice recording of land conveyances.  But I like the soccer metaphor. 

Matt Festa

Way on Informal Homeownership

Heather K. Way (Texas) has posted Informal Homeownership in the United States and the Law, from St. Louis University Public Law Review, Vol. 29, No. 1 (2009).  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.

Matt Festa

Sterk on Structural Obstacles to Settlement of Land Use Disputes

Stewart E. Sterk (Cardozo) has posted Structural Obstacles to Settlement of Land Use Disputes, forthcoming in the Boston University Law Review.  The abstract:

In many states, legal doctrine discourages settlement of land use litigation by requiring that any settlement undergo the same review process as the decision that led to the litigation in the first place. The problem is exacerbated by broad standing rules that allow a variety of parties to challenge the settlement. As a result, municipalities and developers often have an incentive to litigate to judgment, even though both parties would prefer a negotiated or mediated solution.

On the other hand, permitting developers and municipalities to settle litigation behind closed doors could impair both the quality and the legitimacy of the ultimate land use decisions. Because broad participation in the decisionmaking process operates both to educate decisionmakers and to increase acceptance of adverse decisions, excluding neighbors from the settlement process threatens significant substantive and process values.

Concerns about closed-door decisionmaking, however, do not justify a doctrinal framework that permits collateral challenges to land use settlements. Instead, permitting neighbors to intervene in proceedings between developers and municipalities, and binding neighbors to settlement when they choose not to intervene, better harmonizes the interest in informed and participatory decisionmaking with the cost-saving advantages of negotiated solutions to land use problems.

Matt Festa

SCOTUS decides Mac's Shell case

Yesterday, the U.S. Supreme Court decided Mac's Shell Serv., Inc. v. Shell Oil Prods. Co., No. 08-240.  Service station franchisees sued under the Petroleum Marketing Practices Act, 15 U.S.C. 2802, 2804, claiming a "constructive termination" of their franchises.  From the Syllabus:

The Petroleum Marketing Practices Act (Act) limits the circumstances in which franchisors may "terminate" a service-station franchise or "fail to renew" a franchise relationship. 15 U. S. C. §§2802, 2804. Typically, the franchisor leases the service station to the franchisee and permits the franchisee to use the franchisor's trademark and purchase the franchisor's fuel for resale. §2801(1). As relevant here, service-station franchisees (dealers) filed suit under the Act, alleging that a petroleum franchisor and its assignee had constructively "terminate[d]" their franchises and constructively "fail[ed] to renew" their franchise relationships by substantially changing the rental terms that the dealers had enjoyed for years, increasing costs for many of them. The dealers asserted these claims even though they had not been compelled to abandon their franchises, and even though they had been offered and had accepted renewal agreements.

Justice Alito wrote the opinion for a unanimous Court, which held:

1. A franchisee cannot recover for constructive termination under the Act if the franchisor's allegedly wrongful conduct did not compel the franchisee to abandon its franchise. Pp. 6-15. . . .

2. A franchisee who signs and operates under a renewal agreement with a franchisor may not maintain a constructive nonrenewal claim under the Act.

The case turned more on contract and franchise law, but it also may be of interest to land users to the extent that it touches on real property leases and oil and gas law . . . plus service stations are often a big issue in zoning.  Lots more info is available on this SCOTUS Wiki by Shira Liu of Stanford Law School.

Matt Festa