Land Use Prof Blog

Fascinating 21st Century Real Estate Cases

The New York Observer has a list of the 15 Most Fascinating NY Real Estate Cases of the 21st Century, based on a survey of NYC real estate lawyers.  Although most involve contracts or financing gone awry, a few involve zoning and land use disputes.  They also make use of Sherlock Holmes-esque titles, like "The Case of the Mischievous Mall Developer." 

Of particular interest are "The Case of the Masterpiece & The Condo Ad," involving a dispute over advertising, public art, and landmarking.  The "Case of the Museum and the Architect" involves a building designed by Jean Nouvel next to MOMA, as well as zoning, landmarking and air rights issues. "The Case of the Brooklyn Basketball Arena" gives a very truncated summary of the series of legal battles over eminent domain and the construction of a new arena for the Brooklyn Nets.  (For a more detailed account in response from critics of the development see the Atlantic Yards Report).  And "The Case of the Abused J-51" details the legal battles over rent regulation following the $5.4 billion purchase of Stuyvesant Town.

John Infranca

Can Eminent Domain Solve the Mortgage Crisis?

There has been some discussion over the past couple of months over an innovative proposal to have governments use the eminent domain power to take ownership of underwater mortgages, to decrease the risk of default and then refinance the obligations, all to promote the common good.  Here are some links to give you a sense of the major points of this debate.

The launch of this idea comes from a proposal by Law Professor Robert C. Hockett (Cornell) in his piece It Takes a Village: Municipal Condemnation Proceedings and Public/Private Partnerships for Mortgage Loan Modification, Value Preservation, and Local Economic Recovery.  The abstract:

Respected real estate analysts now forecast that the U.S. is poised to experience a renewed round of home mortgage foreclosures over the coming 6 years. Up to 11 million underwater mortgages will be affected. Neither our families, our neighborhoods, nor our state and national economies can bear a resumption of crisis on this order of magnitude.

I argue that ongoing and self-worsening slump in the primary and secondary mortgage markets is rooted in a host of recursive collective action challenges structurally akin to those that brought on the real estate bubble and bust themselves. Collective action problems of this sort require duly authorized collective agents for their solution. At present, the optimally situated such agents for purposes of mortgage market clearing are municipal governments exercising their traditional eminent domain authority.

I sketch a plan pursuant to which municipalities, in partnership with investors, can condemn underwater mortgage notes, pay mortgagees fair market value for the same, and systematically write down principal. Because in so doing they will be doing what parties themselves would do voluntarily were they not challenged by structural impediments to collective action, municipalities acting on this plan will be rendering all better off. They will also be leading the urgently necessary project of eliminating debt overhang nationwide and thereby at last ending our ongoing debt deflation.

Professor Hockett's idea was then promoted in the media by, among others, Prof. Robert J. Shiller (Yale--Economics & Finance), in the New York Times Piece Reviving Real Estate Requires Collective Action.  As the title indicates, Schiller theorizes the mortgage crisis as in part a collective action problem that can be addressed by Hockett's proposal to use eminent domain to seize underwater mortgages. 

But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners.

Yesterday in The Atlantic Cities, Amanda Erickson published an excellent overview story about the proposal, Can Eminent Domain Solve our Mortgage Woes?.  Of note to us are the comments by the eminent eminent domain expert (that's not a typo) Prof. Thomas Merrill (Columbia). 

It's a clever idea. But is it legal? "It's very unusual," says Thomas W. Merrill, a law professor at Columbia University who specializes in property law. But, he notes, "this doesn't mean it's unconstitutional."

Before the landmark 2005 Kelo vs. New London decision, Merrill says, there's little doubt that the courts have upheld this kind of law. "Before Kelo, courts took a hands-off approach," Merrill says. In the 1984 case Hawaii Housing Authority vs. Midkiff, the Supreme Court ruled that the Hawaiian legislature could take a property controlled by landlords and sell it back to leasees. "Condemning a landlord's interest in property to transfer to a tenant is not too different," Merrill says.

But Kelo changed that. In that case, the Supreme Court ruled that cities could use eminent domain to transfer land from one private owner to another, and that doing so for economic development purposes constitutes a public use. "At this point, I guess you'd have to say all bets are off in terms of what is and isn't eminent domain," Merrill says.

And finally for now, Prof. Richard Epstein is critical of the idea. From More Nonsense on the Home Mortgage Front: Don't Let Municipal Governments Condemn Mortgages at Bargain Rates:

The idea has already been rightly panned by the Wall Street Journal. But the entire proposal needs still further consideration. First off, Hockett and his group insist that there is a huge collective action problem that prevents the rationalization of mortgage matters. And there is. It is called local government regulations that have blocked the foreclosure measures set out above. Handle those and the externalities to which they refer disappear. No longer do we have owners neglecting property or clogging the courts with endless motions.

Again, this post is just to give you some links to look at the arguments.  From my perspective, these are some fascinating arguments that illuminate not only the mortgage crisis but also the general debate over eminent domain. 

Matt Festa

Bronin & Byrne Casebook on Historic Preservation Law

Sara C. Bronin (Connecticut) and J. Peter Byrne (Georgetown) recently published a new casebook called Historic Preservation Law, Foundation Press 2012.  HP is quickly becoming a central part of land use planning, as the authors make clear in this excerpt from the Preface:

This book was written for anyone interested in the increasingly important area of historic preservation law.  With this book, we hope to advance and encourage the teaching of preservation law, shape the way the field is conceived, and create a practical resource that will be consulted by attorneys and other preservation professionals. 

Our approach to the subject is reasonably straightforward.  We present the most significant legal issues in preservation and place them in a contemporary context, identifying contested questions and areas of reform.  The format of the book is traditional: edited leading cases with notes that provide explanation, extension, and issues for discussion.  Given the interdisciplinary nature of the field, we belive that the legal issues can only be understood in light of historical, aesthetic, political, and administrative issues that make up the larger realm of preservation.  Accordingly, we provide secondary materials, both legal and non-legal.

Because we focus on preservation of buildings and sites, we present preservation as part of land use or urban development law.  Thus, we provide extensive treatment of local preservation law, which regulates private property, as well as relevant issues in real estate finance and project development.  We also provide comprehensive treatment of federal law, including the National Historical Preservation Act and related statutes.  In addition, we explore federal laws that address preservation vis-a-vis cultural property issues, particularly regarding Native American and archaelogical sites.  Preservation has also generated important and interesting constitutional questions related to takings, religious freedoms, and free speech rights, which we address.

This is the first, or at least the most recent, major casebook on the law of historic preservation that I know of.  Professors Bronin and Byrne, who are also accomplished scholars in the land use field generally, have provided us a major contribution with this book, which looks to be *the* significant text in HP law.  Land use scholars and professionals should definitely have this one on their shelves.

Matt Festa

Furman Center's 1Q New York City Housing Update

The latest report from the NYU Furman Center for Real Estate & Urban Policy:

We are pleased to share with you our latest New York City Quarterly Housing Update (Q1 2012). We find that home sales volume rose in the first quarter of 2012, with the number of transactions citywide up almost five percent. Housing prices throughout the city are up 3.5 percent compared to the same quarter last year. In the Bronx, however, prices fell more than nine percent between the fourth quarter of 2011 and the first quarter of 2012--the largest single-quarter decline in the borough since 2002.   

 

The report also finds that the number of foreclosure notices issued in Q1 2012 has fallen citywide since its peak in the third quarter of 2009. However, foreclosure notices in Queens and Staten Island increased by more than 20 percent from the fourth quarter of 2011. You can read the full report here, or the press release here.

 

The Furman Center's Quarterly Housing Update is unique among New York City housing reports because it incorporates sales data, residential development indicators, and foreclosures. It also presents a repeat sales index for each borough to capture price appreciation while controlling for housing quality. The publication is available on a quarterly basis at:

 http://furmancenter.org/research/publications/c/quarterly-housing-reports/ 

 

Valuable data and analysis, as always.

Matt Festa

In the Conservation Easement versus Mortgage Battle...

the mortgage wins. Because I am a conservation easement nerd savvy academic, I have Westlaw alert me every time a case mentions the term "conservation easement." For years, this yielded very few cases and I only received alerts once a month or so. Lately, I have been getting them daily. Many of these cases come from the tax court and have to do with valuation issues, one line of cases however explores mortgage subordination.

Conservation easements are nonpossessory interests in land that restrict a landowner's use of her property with a goal of yielding a conservation benefit. Many landowners donate conservation easements (i.e. voluntarily restrict the use of their property). Such donations can yield significant federal tax deductions. For a conservation easement (or historic preservation easement) to qualify for a charitable tax break, the restriction must be perpetual. The IRS, Tax Court, and others have acknowledged that it is well nigh impossible to ensure perpetuity of these things. Instead, the IRS has explained that it will consider a restriction to be perpetual if when the restriction is terminated, the beneficiary gets the proceeds. Basically, when a conservation easement is terminated (for any variety of reasons/methods), the holder of the conservation easement will get cash for its porportionate value. Ideally, the holder then uses that money to protect other lands. If your conservation easement doesn't have a provision detailing this procedure, the IRS (in theory) will disallow your deduction. To ensure that the holder will be able to get the proceeds from a land sale, the conservation easement holder must have primary rights to the proceeds. That is, other restrictions on the land must be subordinated (everyone else gets in line behind the conservation easement holder when proceeds from the sale are passed out). This is why the IRS requires any mortgages on the land to be subordinate to the conservation easement.

There have been a few cases from the tax court exploring this issue and most of them seem to involve historic facade easements. In Kaufman v. Commissioner (134 T.C. 182 Apr. 2010), the Tax Court concluded that a facade easement did not qualify for a tax deduction because it wasn't really perpetual because there was a non-subordinated mortgage encumbering the property. The landowners argued that the lack of subordination did not necessarily mean that the holder would not get its proceeds, but the court didn't care. There was a possibility that the facade easement holder would  not be able to receive the proportionate share.

Last week in Wall v. Commissioner (T.C. Memo. 2012-169, June 2012), the Tax Court reached a similar result even though the conservation easement (again a facade preservation easement) declared that it all exisiting mortgages were subordinate. The court did not take the conservation easement at its word and instead looked at the text of the mortgage subordination. The two banks involved executed documents appearing to subordinate the mortgages (based on the title and opening provisions of the documents), but a closer reading revealed that the banks still were claiming that they had "prior claims" in the event of any foreclosures or eminent domain proceedings. The presumption that the mortgages get first dibs at the moola stems mostly from the fact that they encumbered the land prior to the facade easement.

However, I think the main lesson here is that there is almost a presumption against the restrictions being perpetual and any possibility that the proportionate proceeds won't get paid to the conservation easement holder mean no tax deduction.

Jessica Owley

Reiss on Reforming the Residential Mortgage-Backed Securities Market

David J. Reiss (Brooklyn) has posted Reforming the Residential Mortgage-Backed Securities Market, forthcoming in Hamline Law Review (2012).  The abstract:

This essay is a lightly-edited version of a talk given at the “Federal Housing Finance Policy, Secondary Mortgage Market Issues: Causes and Cures, Secondary Mortgage Market Reform” symposium at Hamline University School of Law. The issues that we are struggling with now are, in many ways, the equivalent of the issues that we struggled with during the Great Depression: what should housing policy look like and what decisions should be made in the next five years or so to bring us from crisis to stability? In all likelihood our answer to this question will define the housing market for generations. To help answer the question, this essay will proceed as follows. First, it will provide some context for American housing policy discussions. It will then outline three ethics that inform housing policy. The essay will then focus on one of the key issues that we face — what should happen with Fannie and Freddie as they exit conservatorship? It concludes by highlighting some of the other housing finance issues that must be addressed before we can move forward with a coherent plan of reform. These additional issues include, first, what is the future of the 30-year mortgage? Second, what is the fate of the lock-in, whereby a person could get a guaranteed interest rate prior to closing the loan? Third, what is the fate of the low-down-payment mortgage? Fourth, what is the appropriate role of the FHA in the context of the entire housing finance infrastructure, and in relationship to Fannie and Freddie in particular? And finally, how much will we allow the goal of increasing homeownership to impact the design of our housing finance system?

Matt Festa

Furman Center's State of New York City Housing & Neighborhoods

Last week the NYU Furman Center published its latest research on the State of New York City's Housing and Neighborhoods.

The Furman Center is pleased to present the 2011 edition of the State of New York City’s Housing and Neighborhoods. In this annual report, the Furman Center compiles statistics on housing, demographics and quality of life in the City, its five boroughs and 59 community districts.

This year we examine the distribution of the burden of New York City’s property tax, analyze the changing racial and ethnic makeup of city neighborhoods, evaluate the state of mortgage lending in New York City and highlight the Furman Center’s latest research on public and subsidized rental housing.

Here is a link to the full report:  http://furmancenter.org/files/sotc/SOC_2011.pdf

The Furman Center does the leading empirical analysis of land use policy today.  This report shows that "owners of New York City’s large rental apartment buildings are subject to a higher effective property tax rate than owners of one-to three-family homes, and bear a disproportionate share of the city’s overall property tax burden."  Very interesting stuff.  Thanks to Meghan Lewit for the link. Here is the web link to the project, and the full report is here.

Matt Festa

ABA "Professors' Corner" Teleconference on Property Cases

On Wednesday I'll be part of the ABA's "Professor's Corner" teleconference, to discuss Severance v. Patterson, the Texas Open Beaches Act case. The teleconference is Wednesday, May 9 at 12:30 eastern/11:30 central. All are welcome to participate at the number below. The blurb:

The ABA Real Property, Trust and Estate Law Section’s Legal Education and Uniform Laws Group has a regular (and free!) monthly teleconference, “Professor’s Corner,” in which a panel of three law professors highlight and discuss recent real property cases of note.

Members of the AALS Real Estate Transactions section are encouraged to participate in this monthly call (which is always on the second Wednesday of the month).

The May 2012 call is this Wednesday, May 9, 2012, at 12:30 p.m. Eastern time (11:30 a.m. Central, 9:30 a..m. Pacific). The call-in number is 866-646-6488. When prompted for the passcode, enter the passcode number 557 741 9753.

The panelists for May 9, 2012 are:

Professor Tanya Marsh, Assistant Professor of Law, Wake Forest University School of Law. Professor Marsh will discuss Roundy’s Inc. v. National Labor Relations Board, 674 F.3d 638 (7th Cir. 2012). Decided in March 2012, this case held that Roundy’s (a non-union supermarket chain) did not have the right to exclude third parties (in this case, non-employee union organizers) from common areas of shopping centers in which it operated.

Professor Matt Festa, Associate Professor of Law, South Texas College of Law. Professor Festa will discuss Severance v. Patterson, 2012 WL 1059341 (Tex. 2012). In this case, decided March 30, 2012, the Texas Supreme Court struck down the “rolling easement” theory of public beachfront property access under the Texas Open Beaches Act.

Professor Wilson Freyermuth, John D. Lawson Professor and Curators’ Teaching Professor, University of Missouri. Professor Freyermuth will discuss Summerhill Village Homeowners Ass’n v. Roughley, 270 P.3d 639 (Wash. Ct. App. 2012), in which the court refused to permit the mortgage lender to exercise statutory redemption after its lien was extinguished by virtue of a foreclosure sale by an owners’ association to enforce its lien for unpaid assessments. He will also discuss First Bank v. Fischer & Frichtel, 2012 WL 1339437 (Mo. April 12, 2012), in which the Missouri court rejected the “fair value” approach to calculating deficiency judgments under the Restatement of Mortgages.

It should be an interesting conversation with a good variety issues to discuss. Please feel welcome to participate, whether or not you are a currently a section member.

UPDATE: Thanks to everyone who participated, and to Wilson Freyermuth for moderating and Tanya Marsh for inviting me.  The ABA RPTE Section will be doing this every month, so stay tuned for more interesting discussions to come!

Matt Festa

Furman Center Reports on NYC Housing and Parking

The MacArthur Award-winning NYU Furman Center recently has produced two reports that are well worth noting.  First, an important policy paper on parking and housing:

We are pleased to share with you the latest policy brief from the Furman Center and its Institute for Affordable Housing Policy: Searching for the Right Spot: Minimum Parking Requirements and Housing Affordability in New York City. The report examines the minimum residential parking requirements in communities throughout the city, and explores the effects the requirements may have on housing affordability and the city's sustainability goals.

 

Our findings suggest that the requirements generally cause developers to provide more off-street parking than they think buyers and tenants really demand, potentially driving up the cost of housing and promoting inefficient car ownership. The  report provides examples of tools other cities have used to refine their parking regulations to better balance concerns about housing affordability, sustainability, and traffic congestion with the needs of car owners.

 

Please find the full report here, and the press release here. We hope you find the report informative, and we look forward to receiving your feedback.

The Center has also released its Fourth Quarter NYC Housing Report:

We are pleased to share with you our latest New York City Quarterly Housing Update (Q4 2011). We find that home sales volume continued to decline, with the number of transactions citywide down 15 percent from the previous quarter and 11 percent from the fourth quarter of 2010.  

 

The report finds, however, that foreclosure starts were down in most of the city, with 33 percent fewer foreclosure notices issued in the fourth quarter of 2011 compared to the same quarter in 2010. Manhattan was the only borough where the number of foreclosure starts increased, although the number of foreclosure notices issued in Manhattan remained well below the numbers issued in any of the other boroughs. You can read the full report here, or the press release here.

 

The Furman Center's Quarterly Housing Update is unique among New York City housing reports because it incorporates sales data, residential development indicators, and foreclosures. It also presents a repeat sales index for each borough to capture price appreciation while controlling for housing quality. The publication is available on a quarterly basis at:

 http://furmancenter.org/research/publications/c/quarterly-housing-reports/ 

Very valuable research and analysis, as usual. 

Matt Festa

Tear Down This Mansion?

A Michigan appellate court has ordered the owner to tear down what looks to be a fairly elaborate and presumably expensive home, because it is only 80 feet from the neighboring property, instead of the 100 feet required in the deed restrictions.  Talk about strict enforcement!  But as the neighbors say in the video, rules are rules. 

The news story is here at msnbc.com.  Might be an interesting clip to show for servitudes, land use, or real estate transactions.  Thanks to Helen Jenkins for the pointer.

Matt Festa

Remarks by the President on Housing

President Obama gave a speech yesterday in Falls Church, VA, explaining his State of the Union thoughts on housing.  From the White House transcript:

As I indicated at the State of the Union last week, I am sending Congress a plan that will give every responsible homeowner in America the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates. (Applause.) No more red tape. No more runaround from the banks. And a small fee on the largest financial institutions will make sure it doesn’t add to our deficit.

I want to be clear: This plan, like the other actions we’ve taken, will not help the neighbors down the street who bought a house they couldn’t afford, and then walked away and left a foreclosed home behind. It’s not designed for those who’ve acted irresponsibly, but it can help those who’ve acted responsibly. It’s not going to help those who bought multiple homes just to speculate and flip the house and make a quick buck, but it can help those who’ve acted responsibly.

What this plan will do is help millions of responsible homeowners who make their payments on time but find themselves trapped under falling home values or wrapped up in red tape.

Matt Festa

City Journal's take on the California Redevlopment decision

I've been enjoying the outstanding posts on last week's landmark California Supreme Court ruling by Ken Stahl (here and here) and guest-blogger Stephen Miller (here and here) (I smell a great panel or symposium topic in the making).  Just now I came a cross an early analysis by Stephen Greenhut at City Journal, the always-interesting center-right urban affairs journal.  Greenhut has a strongly positive take on the decision in Crony Capitalism Rebuked California’s supreme court strikes a blow for property rights and fiscal sanity:

On December 29, the California Supreme Court handed down what the state’s urban redevelopment agencies (RDAs) and their supporters called a “worst of all worlds” ruling—first upholding a law that eliminates the agencies, then striking down a second law that would have allowed them to buy their way back into power. This was great news for critics who had spent years calling attention to the ways modern urban-renewal projects distorted city land-use decisions, abused eminent-domain policies, and diverted about 12 percent of the state budget from traditional public services to subsidies for developers, who would build tax-producing shopping centers and other projects sought by city bureaucrats. As of now, the agencies are history, though the redevelopment industry is working to craft new legislation that would resurrect them in some limited form.

Matt Festa

ULI Report on What's Next in Urban Land Use

As we head into the New Year, The Urban Land Institute has also been looking ahead at the future of land use.  ULI recently issued its report What's Next? Real Estate in the New Economy.  From the press release:

A new economy is unfolding over the course of this decade, driven by an extraordinary convergence of demographic, financial, technological and environmental trends. Taken together, these trends will dramatically change urban planning, design and development through 2020, according to a new report from the Urban Land Institute (ULI).

What’s Next? Real Estate in the New Economy outlines how every aspect of living, working and connecting will change in major ways, driven in large part by the values, preferences and work ethic of Generation Y, the largest generation in American history. . . .

Among the report’s findings:

• Technology will reshape work places. Office tenants will decrease space per employee, and new office environments will need to promote interaction and dialogue. Offices will be transforming into meeting places more than work places, with an emphasis on conference rooms, break areas and open configurations. Developers will craft attractive environments to attract young, talented workers.
• Major companies will value space that enables innovation. They will continue to pay more for space in a global gateway served by a major international airport, or in 24-hour urban centers. Hard-to-reach suburban work places will be less in demand.
• The influx of Generation Y, now in their teens through early thirties, will change housing demand. They are comfortable with smaller homes and will happily trade living space for an easier commute and better lifestyle. They will drive up the number of single households and prompt a surge in demand for rentals, causing rents to escalate.
• For most people, finances will still be constrained, leading to more shared housing and multi-generational households. Immigration will support that trend, as many immigrants come from places where it is common for extended families to share housing. This may be the one group that continues to drive demand for large, suburban homes.
• The senior population will grow fastest, but financial constraints could limit demand for adult housing developments. Many will age in place or move in with relatives to conserve money. Developers may want to recast retirement communities into amenity-laden “age friendly” residences. Homes near hospitals and medical offices will be popular, especially if integrated into mixed-use neighborhoods with shops, restaurants and services.
• Energy and infrastructure take on greater importance. Businesses cannot afford to have their network connections down, and more will consider self-generated power or onsite generator capacity. Developers, owners and investors are realizing that the slightly higher costs of energy- and water-saving technologies can pay for themselves quickly, creating more marketable and valuable assets. Ignoring sustainability issues speeds property obsolescence.

You can download the full report here. 

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

 

Voicu, Been, Weselcouch, & Tschirart on HAMP vs. non-HAMP Loan Modifications

Ioan Voicu (US Gov't--Office of the Comptroller of the Currency), Vicki Been (NYU), Mary Weselcouch (NYU Furman Center), and Andrew Tschirart (US Gov't--OCC) have posted Performance of HAMP versus non-HAMP Loan Modifications--Evidence from New York City.  The abstract:

Policymakers have heralded mortgage modifications as a key to addressing the ongoing foreclosure crisis. However, there is a lack of research about whether modifications are successful at helping borrowers stay current on their loans over the long run and what kinds of modifications are most successful. Our empirical strategy employs logit models in a hazard framework to explain how loan, borrower, property, servicer and neighborhood characteristics, along with differences in the types of modifications, affect the likelihood of redefault. The dataset includes both HAMP modifications and proprietary modifications. Our results demonstrate that borrowers who receive HAMP modifications have been considerably more successful in staying current than those receiving non-HAMP modifications.

Matt Festa

Renuart on the Ibañez Time Bomb

Elizabeth Renuart (Albany) has posted Property Title Trouble in Non-Judicial Foreclosure States: The Ibanez Time Bomb? It's the first piece that I've come across to explore the title law ramifications of the Mass. Supreme Judicial Court's Ibañez decision that I alluded to in a post earlier this year.  Hat tip to my colleague, Judy Fox, for sharing it with me. Here's the abstract:

The economic crisis gripping the United States began when large numbers of homeowners defaulted on poorly underwritten subprime mortgage loans. Demand from Wall Street seduced mortgage lenders, brokers, and other players to churn out mortgage loans in extraordinary numbers. Securitization, the process of utilizing mortgage loans to back investment instruments, not only fanned the fire; the parties to these deals often handled and transferred the legally important documents that secure the resulting investments — the loan notes and mortgages — in a careless manner. 
The consequences of this behavior are now becoming evident. All over the country, courts are scrutinizing whether the parties initiating foreclosures against homeowners legally possess the authority to repossess those homes. When the authority is absent, foreclosure sales may be reversed. The concern about authority to foreclose is most acute in the majority of states where foreclosures occur with little or no judicial oversight before the sale, such as Massachusetts. Due to the decision in U.S. Bank N.A. v. Ibanez, in which the Supreme Judicial Court voided two foreclosure sales where the foreclosing parties did not hold the mortgage, Massachusetts is the focal jurisdiction where an important conflict is unfolding. 
This article explores the extent to which the Ibanez ruling may have traction in other nonjudicial foreclosure states and the likelihood that clear title to foreclosed properties is jeopardized by shoddy handling of notes and mortgages. I focused on Arizona, California, Georgia, and Nevada because they permit nonjudicial foreclosures and they are experiencing high seriously delinquent foreclosure rates. After comparing the law in these states to that of Massachusetts, I conclude that Ibanez should be persuasive authority in the four nonjudicial foreclosure states highlighted herein. However, property title trouble resulting from defective foreclosures may be more limited in Arizona and Nevada. The article also provides a roadmap for others to assess the extent to which title to properties purchased at foreclosure sales or from lenders’ REO inventories might be defective in other states. Finally, the article addresses the potential consequences of reversing foreclosure sales and responds to the securitization industry’s worry about homeowners getting free houses. 

Jim K.

Morgan Stanley says US moving toward "Rentership Society"

I came across a link to this Bloomberg report in reading for my previous post on the Leinberger-Kotkin debate.  The article is a few months old, but I still think it's highly relevant: U.S. Moves Toward Home 'Rentership Society,' Morgan Stanley Says, discussing a report on housing.

The U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded, a sign of the country’s move toward a “rentership society,”Morgan Stanley said in a report today. . . .

The homeownership rate reached an all-time high of 69.2 percent in 2004 as relaxed lending standards fueled home sales and President George W. Bush promoted an “ownership society.” Mortgage delinquencies, foreclosures and tighter credit for housing loans are reducing property buying, [Morgan Stanley analysi Oliver] Chang said.

“Taken together they are forcibly moving the country away from being an ownership society,” Chang, based in San Francisco, said in an e-mail. “This change is only beginning, and is moving the country towards becoming a rentership society.”

A real estate professional demurs, but look at the reason why:

Most Americans still aspire to own their houses and don’t want to be renters forever, said Rick Davidson, president and chief executive officer of Century 21 Real Estate LLC in Parsippany, New Jersey.

“It isn’t about the financial aspects, but about building a family and having a part of the American dream,” Davidson, whose company is a unit of Realogy Corp., said today during an interview at Bloomberg’s offices in New York. “What really drives purchases at the end of the day is emotional and has to do with lifestyle.”

We're still conditioned to think of homeownership as the sine qua non of the American Dream--but it's not necessarily in our financial or economic interest; it's emotional and about lifestyle.  But is there an adequate range of opportunities presented for Americans to choose (emotionally?) between different forms of lifestyle?  I believe that at their base, issues of housing, community, and urban form are primarily cultural.

Matt Festa

Furman Center's 3Q New York Housing Report

They NYU Furman Center has released its Third Quarter New York City Housing Report:

We are pleased to share with you our latest New York City Quarterly Housing Update (Q3 2011). We find that home sales volume remained low in the third quarter of 2011, with the number of properties sold citywide four percent lower than the number sold in the third quarter of 2010.

The report finds that property values are also lagging in most of the city. Manhattan is the only borough where properties have appreciated in price over the last year. Foreclosures have continued to slow citywide, with 32 percent fewer foreclosure notices issued in the third quarter of 2011 compared to the same quarter last year. You can read the full report here, or the press release here.

Matt Festa

Halperin on Incentives for Conservation Easements

Daniel I. Halperin (Harvard) has posted Incentives for Conservation Easements: The Charitable Deduction or a Better Way, Law & Contemporary Problems, Vol. 74, p. 29, Fall 2011.  The abstract:

Therefore, to give greater assurance that the public benefit of the gift will be consistent with the claimed deduction, the donee should be required to certify that it has selected the easement consistent with its mission and it has both the resources to manage and enforce the restriction and a commitment to do so. Moreover, it is inappropriate to measure the charitable deduction by the supposed loss in value to the donor from the imposition of the easement. The focus should be on actual benefit to charity. Therefore, eligibility for a charitable deduction for a conservation easement should be contingent on certification – by a public agency or, possibly, an IRS-accredited land trust – that the public benefit from the contribution is equivalent to the claimed deduction.

In fact, the recent changes to various tax-expenditure programs – placing caps on the expenditures and requiring the participation of expert agencies – indicates that Congress is less enamored than it once was with open-ended tax expenditures administered solely by the Treasury Department. This suggests a cap on tax credits for the contribution of conservation easements. Even if the program is open-ended, Congress should mandate participation of an expert agency such as the Bureau of Land Management, which is more capable of evaluating the public value of an easement.

Matt Festa

Land sales in Cuba?

Land use news from Cuba: New law will let Cubans buy and sell real estate. (Paul Haven, AP).

HAVANA (AP) -- For the first time in a half-century, Cubans will be allowed to buy and sell real estate openly, bequeath property to relatives without restriction and avoid forfeiting their homes if they abandon the country.

The highly anticipated new rules instantly transform islanders' cramped, dilapidated homes into potential liquid assets in the most significant reform yet adopted by President Raul Castro since he took over the communist country from his brother in 2008.

But plenty of restrictions remain.

. . . including restrictions on sales to emigrants or foreigners, so shelve those plans to acquire your Caribbean resort. But it's a great step in the right direction for Cuba. Thanks to Adam MacLeod for the pointer!

Matt Festa