Tuesday, April 6, 2010

Unlawful Possession and the Foreclosure Crisis

I dislike the word 'squatting' because we tend to use it to mean unlawful possession we don't like; unlawful possession we do like we call 'pioneering' or, if it continues for long enough, perhaps 'adverse possession.'  Therefore, to describe unlawful possession as 'squatting' is to end the debate over the morality of any particular form of unlawful possession before it begins.

Let's talk about the morality of unlawful possession.

The foreclosure crisis has increased at least four types of unlawful possession of homes.  Which, if any, do you consider 'wrong'?  Why?

(1) Possessors of their former homes, whom lenders have not removed.

Lenders who have foreclosed on properties are increasingly refraining from evicting former owners, who now are in unlawful -- and rent free -- possession of their former homes.  100,000 former homeowners are living in their foreclosed properties in the Inland Empire area of California alone.  The glut of foreclosed homes on the market makes a quick sale of many properties unlikely.  An occupied home holds its value better than an unoccupied home, which often deteriorates from neglect.  So even though lenders may claim they are merely being kind (which they sometimes do), they have a strong financial incentive not to evict the former owners.      

(2) Possessors of their former homes, who refuse to leave despite lenders' efforts.

Some former owners remain in possession of foreclosed upon properties, refusing to leave unless forcibly evicted by the local sheriff, despite demands from their lenders that they vacate.  In fact, Congresswoman Marcy Kaptur has urged them to do it.  Refusing to leave extends their possession -- perhaps indefinitely.  The sheriff of Wayne County, Michigan has refused to carry out forcible evictions of former owners.  The sheriffs of Cook County, Illinois and Cuyahoga County, Ohio have refused to forcibly evict renters in properties that have been foreclosed.   

(3)  Possessors of empty homes, who care for the property.

Take Back the Land and other advocacy groups have begun placing homeless families in vacant homes in neighborhoods where foreclosures have become common. The group screens the families, and requires them to earn sweat equity in the properties by cleaning them and repairing them.  The families in unlawful possession are sometimes welcomed by neighbors, because they care for the properties, preserving the value of surrounding homes and keeping vandals at bay. 

(4)  Possessors of empty homes, who do not care for the property.

In some places, foreclosed upon homes have been unlawfully possessed by drug users and thieves, who use the homes as drug dens and bases of criminal operations. 

Now, I suspect most people -- but not all, by any means -- would find unlawful possession of type 1 morally unobjectionable, and unlawful possession of type 4 morally objectionable.  Do you agree?

But where does the line fall between types 2 and 3?  Is the critical factor the external benefits provided by unlawful possessors -- benefits to neighbors and, ultimately, us -- that determines the morality of their possession?  Or is their behavior intrinsically moral or immoral?

I would love to hear your thoughts.

Mark Edwards

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April 6, 2010 in Adverse Possession, Home and Housing, Mortgage Crisis | Permalink | Comments (2) | TrackBack (0)

Salkin on Nonconforming Uses

Patricia Salkin (Albany) has posted Abandonment, Discontinuance and Amortization of Nonconforming Uses: Lessons for Drafters of Zoning Regulations on SSRN.  Here's the abstract:

With a significant volume of litigation focused on the subject of nonconforming uses, this article offers practical strategies for drafters of local zoning ordinances and laws on the subject of abandonment, discontinuance and amortization of nonconforming uses.

Ben Barros

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April 6, 2010 in Land Use, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Saturday, April 3, 2010

Sterk on Settlement of Land Use Disputes

Stewart E. Sterk (Cardozo) has posted Structural Obstacles to Settlement of Land Use Disputes on SSRN.  Here's 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.

Ben Barros

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April 3, 2010 in Land Use, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, April 2, 2010

Avatar: awful but useful

There are some films I eagerly want to watch; there are many I'm completely indifferent to; and there are a few I determinedly avoid.  Avatar was one of the latter.  I'm grumpy about 'blockbusters' and I can't stand tired old cliched plots.  My children will one day tell their therapists about all the cultural references they missed because I wouldn't take them to hit movies. 

So it was very odd to find myself watching it in Omnimax 3D, surrounded by law students.  Reader, I took my entire Comparative Property Rights seminar to see it. 

Here's my review: special effects = impressive; movie = even worse than I feared, and that's saying something.  But . . . as a property rights teaching tool?  Pretty darn good. 

Some of the property issues are obvious: who has rights in the 'unobtanium' (even the name makes me cringe)?

But others are less obvious, more interesting and good teaching tools.  [SPOILER ALERT!]  For example:

  • who owns the avatars?  The company that developed them?  The people 'inhabiting' them?  Or are they human-enough that they are unownable?  Interestingly, my students generally agreed that they were the intellectual property of their creators.  But the implications of that left them uneasy: owners of property, after all, generally have the right to destroy it.  And yet everyone rooted against the company when it attempted to do just that.  And if the avatars are property, can they own property?  The main character seems to.
  • Do the Na'avi have individual property rights, or do they own all property in common?  Do the earthlings view them as 'noble savages' who are too pure for private property?  Does director James Cameron?  In that context, consider the cultural misunderstandings about that very issue that have historically undermined indigenous property rights systems: as Kenneth H. Bobroff explains, the continued misperception that Native American tribes owned all resources in common has had disastrous results for generations of Native Americans. 
  • What if the Na'avi lived in the United States -- could the government have simply taken their land, compensated them, and been done with it?
  • Has James Cameron misappropriated others' creative inventions?  After all, believe me, if you've seen Pocahantas or Dances With Wolves, you've seen Avatar, too at a startling level of detail.
  • Last property question:  Do you get to keep the 3D glasses? 

Did you see Avatar?  Did you think of the property rights issues?  Do your children find you annoying, too?   

Mark Edwards

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April 2, 2010 in Miscellaneous, Property in the Human Body, Teaching | Permalink | Comments (0) | TrackBack (0)

Moringiello on Mortgage Modification

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

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

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

Ben Barros

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

Bell and Parchomovsky on Takings Compensation

Abraham Bell (San Diego) and Gideon Parchomovsky (Penn) have posted The Hidden Function of Takings Compensation on SSRN.  Here's the abstract:

To date, scholars have justified the constitutional mandate to pay compensation for takings of property on the intuitively appealing grounds that fairness demands recompensing aggrieved owners; on the basis of a belief that government that fails to pay will suffer from “fiscal illusion” and take excessively; or due to the need to neutralize politically powerful property owners who would otherwise foil socially beneficial projects.

This Essay offers a new explanation of the role of takings compensation in ensuring good government. Inspired by public choice theory, we argue that takings compensation reduces the incentives for corruption by limiting corrupt politicians’ ability to profit from takings. Specifically, we show that mandating compensation reduces the funds self-serving politicians can extort from property owners. At the same time, mandating compensation permits publicly-oriented politicians to continue pursuing socially beneficial projects.

This explanation yields important insights into the optimal structure of takings compensation. First, current incentives to use eminent domain excessively in the service of private developers cannot be blunted by modifying compensation policy. Only by a separate policy that charges developers for the benefits they receive can reduce or eliminate such misuse of the taking power. Second, overcompensation is even worse than under-compensation insofar as corruption is concerned. For this reason, laws requiring the payment of fixed percentage bonus above market value to property condemnees are in error. Additionally, where judges are thought systematically to overrate the subjective value owners attach to their properties, market value compensation may have some merit. Third, public compensation cannot be replaced by a private insurance system, even if such insurance were practical, since insurance too would encourage corruption.

Ben Barros

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April 2, 2010 in Property Theory, Recent Scholarship, Takings | Permalink | Comments (0) | TrackBack (0)

Thursday, April 1, 2010

Burdon on Land Use Ethics

Peter D. Burdon (Univ. of Adelaide) has posted What is Good Land Use? From Rights to Relationship on SSRN.  Here's the abstract:

Food is our most basic common need. It nourishes us, brings people together and is a source of profound pleasure. However, the way we currently produce food is a primary cause of the current environmental crisis. This is evidenced in the rapid loss of topsoil, the pollution of water systems, and loss of biodiversity from land clearing and toxic pesticides. The degradation of agricultural land presents a significant challenge for global food security and broader environmental health. It also provides a pertinent opportunity to evaluate current land use practices and construct new guiding principles for future interaction. In this article I will describe and contrast two visions of land use, industrial and agrarian. From the industrial perspective, the question of land use is considered in economic terms. Land use is good if it increases production and maximises profit. Central to this perspective is the liberal theory of private property, which provides the law’s main message on ownership and is the key legal institution governing land use. I contend that the liberal theory is contributing to land degradation in three important ways. First, ownership is premised on individualism and the liberty to use property in a manner that maximises individual preference. Second, the legal idea of private property focuses on interactions between people, rather than considering physical nature. Finally, private property views the land as a ‘bundle of rights’, which can be divided into discrete parcels and used with no overarching vision of natural health. In contrast, the agrarian vision of good land use considers not just human good, but also relationship with place, ethics and the needs of the broader ecosystem. This philosophy offers not only a viable alternative to the way we produce food, but also a different perspective on ownership and the idea of private property. Agrarian philosophy is being practised by a growing number of people throughout the world who are choosing a different idea of ownership for themselves. Importantly, the liberal theory of private property allows this freedom and as an evolving social institution, social change is critical to reforming private property as an idea and an institution.

Ben Barros

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April 1, 2010 in Land Use, Property Theory, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Blumm and Ruhl on Background Principles and Takings Law

Michael C. Blumm (Lewis & Clark) and J. B. Ruhl (Florida State) have posted Background Principles, Takings, and Libertarian Property: A Response to Professor Huffman on SSRN.  Here's the abstract:

One of the principal, if unexpected, results of the Supreme Court's 1992 decision in Lucas v. South Carolina Coastal Commission is the rise of background principles of property and nuisance law as a categorical defense to takings claims. Our writings on the background principles defense have provoked Professor Huffman, a devoted advocate for an expanded use of regulatory takings to protect landowner development rights, to mistakenly charge us with arguing for the use of common law principles to circumvent the rule of law, Supreme Court intent, and the takings clause. Actually, ours was not a normative brief at all, but instead a positivistic explanation of takings cases in the lower courts since Lucas, which include judicial recognition of statutory background principles. In this article, we respond to Huffman, examining the continuing importance of the background principles defense and explaining the trouble with his vision of libertarian property and his peculiar notion of the rule of law. We focus especially on wetlands regulation, which Huffman thinks is a recent development when in fact its origins date to medieval England, and therefore is particularly suited to the background principles defense. We conclude that background principles, as "the logically antecedent inquiry" into the nature of a claimant's property interest, are now a permanent feature of the takings landscape.

Ben Barros

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April 1, 2010 in Recent Scholarship, Takings | Permalink | Comments (0) | TrackBack (0)

Chase on Rethinking the Homeownership Society

Arlo M. Chase (Brooklyn) has posted Rethinking the Homeownership Society: Rental Stability Alternative on SSRN.  Here's the abstract:

This paper radically challenges two of the dominant theories about housing policy: (a) that promoting homeownership is the best way to achieve household and neighborhood stability; and (b) that rent regulation has no place in competitive and thriving rental markets.

I argue that our national housing policy has failed by overemphasizing and over-subsidizing homeownership and by neglecting the rental market. These policies have not served the purported goals of individual and community stability. Indeed, over-subsidizing homeownership and home borrowing incentivized millions of households to overstretch their budgets in order to purchase homes, thereby contributing to the foreclosure crisis. The resulting housing instability has been further exacerbated by the failure of the rental markets to provide affordable and stable housing for low- and moderate-income households.

To address this increasingly untenable situation, I propose a rental stability program that would offer tenants an option for longer lease terms, rights to lease renewal, temporary regulation of rents, and federal rental subsidies to cover rent increases for rent-burdened low- and moderate-income households, while maintaining market-based incentives for owners to create new rental housing units and maintain existing ones. While my program takes pains to avoid many of the pitfalls of some “strict” rent regulation schemes, I do not shy away from the need to regulate rents for some finite period.
While they are not as dire as predicted by economists, I acknowledge that there are costs to rent regulation and my program is designed to minimize those costs. The specific consequences of rent regulation that often result, and that my proposal seeks to minimize, include: (i) the emergence of a “shadow” or “black” market for rental units; and (ii) incentives for landlords and tenants to litigate. My program would mitigate these and other unintended consequences by making the rent regulation time limited and subjecting all units in a jurisdiction to its purview. In the final assessment, states and localities considering my program would likely accept any small costs in market inefficiencies because of the gains achieved by increasing tenant stability.

Ben Barros

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April 1, 2010 in Home and Housing, Landlord-Tenant, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)