PropertyProf Blog

A Twist on Land Assembly

From Boston.com:

Seven families on Lori Lane -- who together make up the entire population of the dead-end road -- are selling their homes en masse for a combined asking price of $4.2 million. Their motive? To get out before a massive commercial development being built on Route 105, directly across from Lori Lane, boxes them in, further changing the nature of their once rural neighborhood.

In a kind of "if you can't beat them, join them" approach, the neighbors hope a developer will buy the parcel to put up a strip mall or something similar.

"This is absolutely the most unusual sale I've ever seen in my 20 years in real estate," said C.F. Cawley of Keller Williams Realty in Easton, the broker handling the sale. . . .

The Lori Lane houses of various shapes, sizes, and assessments, will be sold as a 3.5-acre parcel upon which they collectively sit. The families will split the sale money evenly, no matter the individual value of their homes. If the neighbors get their asking price of $4.2 million, each would get $600,000.

The land is zoned residential but the neighbors have the support of the Planning Board to seek a change at Town Meeting to commercial zoning. Town officials said they expect the change to pass because much of the area is already commercial.

The "Steet for Sale" strategy was simple, said Lori Lane resident Pat Rand, who came up with the idea. It was clear that the huge development going in at the end of the lane -- constructed by National Development and including, among other things, a Stop & Shop, Target, and Chili's -- would send residential property values plummeting. The development is being built on the site of the former Lakeville Hospital.

"There won't be a light for our street, we'll be facing the back end of Target, and we won't be able to get out easily. There will be a light up the street at a new Walgreens, but not here, and we'll be trapped by all the traffic.

"We'll be a little street," she said, "amongst this giant commercial area."

And that means that no one would want to live there. "Our property value will go down, without question," she said.

Ben Barros

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Vargas on Mexican Real Estate Acquisition

Jorge A. Vargas (University of San Diego) has posted Acquisition of Real Estate in Mexico By U.S. Citizens and American Companies on SSRN.  Here's the abstract:

For purposes of acquisition of real estate by foreigners and foreign legal entities, the Republic of Mexico is divided into two large areas: a) the “Restricted Zone;” and, b) the “Permitted Zone.” The Restricted Zone is the real estate located in a strip of 64 miles along Mexico's border with the United States and along Mexico's coastlines in the Pacific Ocean, the Gulf of California, the Gulf of Mexico, and the Caribbean Sea. The entirety of the Baja California peninsula is also comprised under this zone. The Permitted Zone is the remaining real estate located in the inland part of that country.

These two areas derive from the mandate found in Article 27, paragraph I, of Mexico's Federal Constitution of 1917 that prescribes that only Mexicans by birth and Mexican legal entities (with no foreigners or foreign investment in them) are the only ones who are allowed to have the direct ownership of real estate in the Restricted Zone. This outright constitutional prohibition against foreigners and the resulting two zones, have resulted in two contrasting legal regimes for the acquisition of real estate by Americans and American companies in that country under Mexican law.

The articles discusses the specific requirements applicable to the acquisition of real estate by Americans and American companies in each of those two zones, with special attention to real estate for commercial purposes and real estate under the so-called Fideicomiso regime (i.e., fifty-year real estate trust contract). The articles ends with a discussion on the indispensable professional involvement of Notary Public (Notarios Públicos) and Mexican fiduciary institutions in Fideicomiso transactions, the special legal characteristics of the Federal Maritime Land Zone, the questionable validity of the Article 27 Permit, and the need to erase the discriminatory treatment against foreigners.

Ben Barros

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Klein on The New Nuisance

Christine A. Klein (University of Florida College of Law) has posted The New Nuisance: An Antidote to Wetland Loss, Sprawl, and Global Warming on SSRN.  Here's the abstract:

Recently, a remarkable shift in environmental attitudes has begun to gain traction. For example, just fifteen years ago, the Supreme Court agreed in Lucas v. South Carolina Coastal Council that coastal property was valueless in its natural condition, and that the state could not prohibit its development without providing compensation to the affected landowner. Today, the highest court in at least one state has come to the opposite conclusion, determining that the development of coastal marshlands would constitute a public nuisance under state common law. An even more striking shift is underway in the area of climate change. In early 2005, one U.S. Senator—echoing the sentiments of many—denounced the threat of catastrophic global warming as "the greatest hoax ever perpetrated on the American people." The following year, An Inconvenient Truth was released, moving Al Gore from the status of unsuccessful presidential candidate to accidental folk hero (in some quarters) and nominee for the 2007 Nobel Peace Prize. At the same time, a sizeable group of prominent business leaders began a campaign to encourage Congress to regulate their own industries by enacting mandatory caps on greenhouse gas emissions. What factors could account for this remarkable shift? The attached article suggests two responses to that question. First, as the Lucas Court set forth a new categorical rule of governmental liability for regulatory takings, it also established a new defense that draws upon the states' common law of nuisance and property. That defense has taken on a life of its own— forming what this article calls the "new nuisance doctrine"—evolving from defense, to offense, to catalyst for legislative change. Second, in 2005 Hurricanes Katrina and Rita struck New Orleans and the Gulf Coast of Louisiana and Mississippi. The hurricanes and their resultant storm surge swept away levees, life, and property. They also shattered our skepticism that wetlands indeed perform valuable flood control functions, and challenged our belief that society can continue to emit carbon dioxide and other greenhouse gases into the atmosphere without adverse impact upon the climate, weather patterns, and sea levels. As expressly contemplated by Lucas, changed circumstances and new learning should guide courts as they determine the appropriate contours, respectively, of property rights and the public interest. This article undertakes a survey of such new learning in the areas of wetland destruction, sprawling land patterns, and global warming. It concludes by considering the extent to which this new information has been incorporated into the law of new nuisance.

Ben Barros

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Adler on Rapanos and SWANCC

Jonathan Adler (Case Western Reserve) has posted Once More, with Feeling: Reaffirming the Limits of Clean Water Act Jurisdiction on SSRN.  Here's the abstract:

The Supreme Court's decision reaffirming limits on federal regulatory jurisdiction in Rapanos v. United States was significant, but hardly revolutionary. The Court's holding that the Clean Water Act only reaches those wetlands with a "significant nexus" to navigable-in-fact waters followed directly from its prior decision in Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, in which the Court held the CWA did not extend to isolated, intrastate waters because they lack a "significant nexus" to navigable waters. Rapanos and SWANCC suggest the Court is reluctant to conclude Congress has authorized far-reaching federal regulatory controls over private land use, absent explicit statutory language to the contrary. Such a federalism "clear statement rule" may be in tension with some environmental concerns, but it need not hamper environmental conservation. Environmental progress is wholly consistent with meaningful limits on federal power. If the federal government is to play an optimal role in the protection of wetlands, and match its efforts to those aspects of wetland conservation that require action of a federal scope, it would concentrate its efforts in those areas where non-federal efforts are most likely to be insufficient. The challenge to policy makers is to adapt conservation measures to the broader legal landscape and recognize that environmental protection can live within legal limits.

Ben Barros

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Fox on Conceptualising Home

Lorna Fox (University of Durham) has a new book out called Conceptualising Home.  Here's the blurb:

It is difficult to overstate the everyday importance of home in law. Home provides the backdrop for our lives, and is often the scene or the subject of legal disputes. In addition, in recent decades there has been growing academic interest in the meaning of home, which has prompted empirical studies and theoretical exploration in a wide range of disciplines. Yet, while the authenticity of home as a social, psychological, cultural and emotional phenomenon has been recognised in other disciplines, it has not penetrated the legal domain, where the proposition that home can encapsulate meanings beyond the physical structure of the house, or the capital value it represents, continues to present conceptual difficulties. This book focuses on the competing interests of creditors who lend money against the security of the property and the occupiers who dwell in the property, in the context of possession actions. By mapping the concept of home as it has evolved in other disciplines against existing legal frameworks, Conceptualising Home examines the possibilities for developing a coherent concept of home in law.

I've been a fan of Lorna's previous work on home, and I'm looking forward to getting my hands on a copy of her book.  As many readers know, this is a subject near and dear to my heart.

Ben Barros

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Mortgages in a Downward Spiral

The NY Times has an interesting article on the tough times hitting the mortgage business, especially lenders who focused on the subprime market.  An excerpt:

Just as the technology boom of the late 1990s turned twenty-something programmers into dot-com billionaires, and leveraged buyouts a decade earlier turned Wall Street bankers into Masters of the Universe, the explosive growth in subprime lending turned mortgage bankers and brokers into multimillionaires seemingly overnight.

Now an escalating crisis in the market, which seemed to reach a new crescendo late last week, is threatening a wide band of people. Foremost are the poor and minority homeowners who used easy credit to buy houses that are turning out to be too expensive for them now that mortgage rates are going up, but the pain is also being felt widely throughout the business world.

Large companies that bought subprime lenders during the boom, like H&R Block and HSBC, are now scrambling to sell them or scale back their exposure. Many investors are also likely to suffer: Wall Street firms made billions in fees, commissions and trading revenue from packaging and selling subprime mortgages to them as bonds.

New Century has emerged as a poster child for the lenders that rode that boom to the top and are now in free fall. The company disclosed on Friday that federal prosecutors and securities regulators were investigating stock sales and accounting errors. The latter could jeopardize billions of dollars in financing for the company, which issued $39.4 billion in subprime loans in the first nine months of last year.

Weakening home prices and rising default rates have rocked the subprime business. But for those who cashed out before the market turned, the ride up was particularly sweet. The three founders of New Century, for example, together made more than $40.5 million in profits from selling shares in the company from 2004 to 2006, according to an analysis by Thomson Financial. They collected millions of dollars more in dividends, salaries, bonuses and perks.

The company said in a statement yesterday that the founders were “still significant shareholders,” noting that they collectively owned about 7 percent of the company at the end of last year.

New Century’s stock price, which seemed to mirror the trajectory of the subprime business, peaked at nearly $66 a share in December of 2004 and traded in the $40s most of last year; on Friday, it was trading at $11 a share after the market closed. In a series of sales from August to November, two of the company’s founders sold shares for an average price of about $40 a share, for a total profit of $21.4 million.

We've discussed the downward trend, and potential litigation fallout, before.

Ben Barros

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Safrin Guest Blogging at the VC

Sabrina Safrin is guest blogging this week at the VC on her latest article Chain Reaction: How Property Begets Property.

Ben Barros

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Stark on Kelo

Debra Pogrund Stark (John Marshall Law School - Chicago) has posted How Do You Solve a Problem Like in Kelo? on SSRN.  Here's the abstract:

This article analyzes one of the most controversial recent U.S. Supreme Court decisions and demonstrates that the common perception of the Kelo case, that now the government can take any property under the 5th Amendment if they simply allege or show that the new use of the property will achieve a higher economic use, is a misreading of the majority and concurring opinions in Kelo. The article then argues that the Kelo decision is still very troubling for the dicta in the majority, concurring, and even Justice O'Connor's dissenting opinion, that judges should show extreme deference to a legislative judgment of public use and not to “second guess” legislative judgments. The article then reviews all of the cases cited to by the Court in Berman and Midkiff (the two key cases relied upon by the Court in Kelo) and demonstrates that none of them provide support for this extreme judicial deference in the context of a non-traditional taking. Consequently, the Court is in a very strong position to re-examine the continued applicability of this deferential approach in the context of non-traditional takings. Rather than interpret public use to exclude all such non-traditional exercises of eminent domain, this article suggests that an approach that better comports with the legitimate functions of the legislative and judicial branches is for courts to more closely scrutinize these takings to make sure that the alleged public benefits from the taking are real rather pretextual or highly speculative and to increase the level of review when the taking will lead to high uncompensated subjective values to home owners. The article concludes by developing three distinct categories of takings and specific appropriate levels of judicial review and legislative burdens for each category in order to restore the system of checks and balances between the legislative and judicial branches that are essential to the American Constitutional system.

Ben Barros

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Deng on Landownership in China and England

Feng Deng (Chongqing University) has posted A Comparative Study on Landownership Between China and England on SSRN.  Here's the abstract:

By comparing the development of landownership in China and England, this paper explores what were behind their different trajectories. In particular, I examined the delineation of property rights, alienation of land, rent and tax, inheritance and accumulation of land. Feudal England was a combination of the Roman system and Anglo-Saxon tradition. From that very strict hierarchical structure England has experienced an evolution toward free land market. In contrast, since very early China has established a unique economic system that allowed free alienation of land, but it has been trying to check the development of land market and private property rights by various means, the most important of which is the strengthening and expanding of patriarchal clan system. The different development paths of China and England show the different responses of two different cultures, which are oriented toward family and individual, respectively, to the same problems related to landownership.

Ben Barros

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Korngold on Intergenerational Conflicts

Gerald Korngold (Case Western Reserve University School of Law) has posted Resolving the Intergenerational Conflicts of Real Property Law: Preserving Free Markets and Personal Autonomy for Future Generations on SSRN.  Here's the abstract:

This article argues that land allocation agreements (e.g., deeds, mortgages, covenants, easements, etc.) made today will have a profound and perhaps negative effect on owners in future generations. It shows that the current architecture of the land transaction system and related rules unduly favor current owners over successors, causing a negative impact on land markets and choices of future players. Moreover, the article demonstrates that current doctrine and theory do not provide adequate flexibility for future generations to deal with outmoded land allocation agreements, leading to inefficiencies and frustration of the personal autonomy of future owners. The article suggests a new conceptual framework as well as specific alternative approaches for courts and legislatures across the spectrum of real property areas (including, inter alia, interpretation of instruments, the recording system, changed circumstances rules, conservation easements, subdivision covenants, and eminent domain). Given the historical and ongoing importance of land in the American experience, it is essential that decision makers act to guarantee future generations the opportunity to engage in markets and to fulfill their personal aspirations.

Ben Barros

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Lovett on Property and Radically Changed Circumstances

John A. Lovett (Loyola-New Orleans) has posted Property and Radically Changed Circumstances on SSRN.  Here's the abstract:

Although Hurricane Katrina altered our national dialogue about many issues, few scholars have addressed whether the storm changed thinking about fundamental property relationships. This article fills that void in two ways. First, it creates a theoretical framework for understanding property law in the context of events producing radically changed circumstances. It does this by defining these events, exploring the mismatch between property law's traditional focus on stability and environments of radical change, creating a taxonomy of property relationships tailored for this exploration, describing typical problems confronted after an event of radical change, and finally developing a set of normative criteria to evaluate the resiliency of property regimes.

The second part of the article focuses on two common property relationships—between landlord and tenant and mortgagor and mortgagee—and examines how their default rules, voluntary private ordering, and market practices have fared under the pressure of Hurricane Katrina. This part also analyzes how another kind of property relationship—between a city (New Orleans) and its citizens—has weathered the radical change created by Katrina and how a series of federally funded and state administered programs have fared in restoring housing—a crucial common resource and public good—in the post-Katrina environment.

The article concludes by suggesting that longer term, more indefinite property relationships characterized by private ordering, risk spreading, setting aside exogenous resources and mutual accommodation—commercial lease and mortgage relationships to be specific—show more resiliency than shorter term and more finite relationships where default rules make exit easy for some parties (residential landlords) but re-entry difficult for others (residential tenants). The article also demonstrates how government housing recovery programs can be assessed using the normative criteria developed in Part I and what policy makers can learn from traditional private property regimes facing events of radical change.

Ben Barros

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Hershey Trust

We talk a lot here at propertyprof about new cases to add to the property curriculum, like what case ought to be first, a Hawaii substitute for Pierson v. Post, how to teach environmental justice, and RLUIPA. 

I'm teaching an advanced wills and trusts class for the first time this semester and am more excited about it than any class I've taught in years--in part because it has a seminar-like enrollment and I'm able to have a conversation with the students in a way that is difficult in lecture classes.  I'm also excited, though, because we're doing a bunch of fun stuff.  Much is on charitable trusts, though I'm also incorporating a practical component.  Working with a couple of colleagues in our clinic, the students work on quieting title to land that was inherited years ago (and now has a bunch of co-tenants), as well as a bunch of related issues.  Suffice it to say, I'm really enjoying the experience.

A few weeks ago we talked about the Hershey Trust case.  I thought that would be a great way to begin, because it deals with a company near and dear to the heart of this Pennsylvania boy.  And also because it's such an unusual case.  Perhaps this post would go better over at Gerry W. Beyer's shop, but I'm so excited by the case and our discussion that I thought I'd talk a little about it here.

The case arose back in the fall of 2002 when the Hershey Trust Company--perhaps at the instigation of Pennsylvania Attorney General--decided that it ought to diversify and, thus, moved to sell its controlling interest in the Hershey Chocolate Company.  That, then, led to a request for a preliminary injunction by the Pennsylvania Attorney General, under its parens patria power.  Not surprisingly, the trial court granted a preliminary injunction (the harm of sale was enormous), which was affirmed by the Commonwealth Court (over a vigorous and thoughtful dissent).  (The trial court's opinion is reprinted in an appendix to the Commonwealth Court's opinion available here.)  What particularly interests me about this case was the assertion of some kind of public right in the trust.  And while I certainly understand that the A.G. has the authority to look out for the trust beneficiaries, I was somewhat surprised to see the assertion of the public's right in the Hershey Company.

Seems to me that this is a great example of Joseph Singer's Reliance Interest in Property in action--and that the case has a lot of possibilities for future assertion of public rights.  Or maybe not, given how even the trial court judge recognized how unusual it is to have a charitable trust, established by the person for whom the town is named, which owns the major business in the town.  And even more unusual to then have the trust contemplating selling its business, when there is no apparent need for the money.  Here's a thoughtful and balanced and brief analysis of the case.  There have been three law review pieces devoted to the case--one by Mark Sidel in the Pitt Law Review (available through hein online here),one  by Evelyn Brody in the Indiana Law Journal (available here) and one by Jennifer L. Komorowski in the William and Mary Law Review (available through hein online here).

Anyway, it may be hard to work that case into the first year property class; it's unusual to do that much with trusts in the first year class; I hope that casebook authors will at least think about noting it.  It's an important example of progressive property jurisprudence, I think.

The image of Milton Hershey is from the Hershey Company website.

Alfred L. Brophy
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