Wednesday, August 30, 2017
Christopher Serkin (Vanderbilt) and Micheal P. Vandenbergh (Vanderbilt) have posted Prospective Grandfathering: Anticipating the Energy Transition Problem (Minnesota Law Review) on SSRN. Here's the abstract:
Legal change has the potential to disrupt settled expectations and property rights. The Takings Clause provides protection from the most significant costs by requiring compensation following a change in the law, but threats of takings claims can discourage policymakers from adopting sound laws and policies. If specific legal changes can be anticipated far enough in advance, are there tactics available to reduce the risk of takings claims and blunt their political force in the future? We identify innovative tools that preserve regulatory flexibility so that legal changes can avoid takings liability, and we do so specifically in the context of natural gas and the acute threat of climate change. Natural gas poses a particular challenge to policymakers today. Rapid and widespread proliferation of natural gas is essential if we are to make major progress in reducing carbon emissions, but natural gas is often referred to as a bridge fuel because we will eventually have to pivot away from fossil fuel-based electric generation to reduce the risk of catastrophic climate change. Without timely intervention, investments in natural gas infrastructure today may result in vested property rights that the Takings Clause may then protect against significant regulatory changes. We argue that developing a record that constrains the reasonable expectations of investments in natural gas will help to preserve regulatory flexibility in the future. More aggressively, we also propose “prospective grandfathering” as a regulatory innovation. Announcing but delaying the adoption of new regulations, combined with accelerated cost recovery for utilities, should immunize future governments from takings claims if and when climate change compels movement away from natural gas as part of the de-carbonization of our energy supply. These new tools offer promise beyond natural gas, however, and provide a new way of addressing anticipated legal change.
Monday, August 28, 2017
Luke Meier (Baylor) has a new article coming out out titled Drafting a Texas Oil and Gas Lease to Ensure Enforceability of a Consent-to-Assign Clause: How to Make an Oil and Gas ‘Lease’ a Lease, 50 Tex. Tech L. Rev. __ (forthcoming 2017). The article builds on previous works Luke has written that closely examine oil and gas leases. The article argues that, through a simple drafting trick, a “true” term lease can be created when drafting an oil and gas lease, thus preventing a court from striking a consent-to-assign clause as an illegal alienation restraint of a fee estate. The article has a particular focus on Texas law, but the notion has far more reaching application for all involved in oil and gas law.
Saturday, August 19, 2017
(Photo Credit: Buffalo News)
Of the many ills that resulted from the 2008 financial crisis, none garnered such a fantastic moniker as did the “zombie mortgage crisis.” But despite its name, this isn’t an episode of The Walking Dead. Rather, the phrase refers to a practice by mortgage lenders (or, mortgage servicers to be more precise) whereby a notice of foreclosure would be given and the defaulted and distressed homeowner would typically move out in anticipation of a foreclosure sale. But then, the lender would decide not to go through with the foreclosure process after all.
Not finishing the process was typically due to the fact that the property was “underwater” (meaning that the net of the debt due on the mortgage loan and the value of the property subject to the mortgage was in the negative—the secured debt was greater than the value of the collateral, in commercial law terms). This meant that there was no chance the lender could recoup its losses at the sale, which typically resulted in the property becoming REO (owned by the lender itself). This might seem obvious, but lenders don’t like being property owners—they would rather get paid. One reason they really don’t like owning foreclosed property is because ownership comes with costs. For instance, the bank is going to have to pay any homeowners association dues that might be required (which failure to pay can result in a lien on the property). There could also be tort liabilities if someone is hurt on the premises. But the lender can avoid all of this (and did) by just not doing anything—leaving the house still titled in the name of the now-absent homeowner but also leaving the mortgage in place. Hence the name—the mortgage process is initiated, leading one (the homeowner) to believe that foreclosure will soon happen and the mortgage will be gone, only to have the mortgage linger on (potentially forever)--like a zombie. You get the gist...
After receiving notice from JP Morgan Chase in 2008 that foreclosure was imminent, homeowner Joseph Keller vacated his home, moved to a new residence, and tried to pick up the pieces and start again. Two years after he had relocated, however, the county sued Keller because his house, “already picked clean by scavengers,” was in violation of the housing code. Upon returning to investigate, Keller found his former home “in  shambles,” with “hanging gutters and collapsed garage.” Keller also discovered that he owed back taxes, sewer fees, as well as bills for municipal weed and waste removal. Furthermore, he remained personally liable on the Chase mortgage loan, the debt having grown from $62,000 to $84,000 because of two years of unpaid interest, penalties, and fees. Adding insult to injury, the Social Security Administration rejected his disability application because the vacant, crumbling home he still unwittingly owned was a valuable “asset.” Chase had dismissed the foreclosure judgment two months after Kelley had moved out, but somehow Kelley was never informed. (citations omitted).
And the zombie mortgage problem isn't just something that's bad for homeowners. Abandoned property of this kind has a huge impact that reaches far beyond lot lines. Stories abound of zombie mortgaged properties that fall into disrepair and become havens for crime and create public health concerns. This, in turn, has the effect of diminishing the property values of those parcels that are nearby—indeed, the whole community can sink with just a handful of scatter-site abandoned properties. And of course, where the problem is bad enough, local governments see a shrinking of property tax revenues as a result of the decline of neighborhoods where abandoned homes are located. Also, for those vacant properties in common interest communities (like a homeowners association or a condo association), the lender has no reason to pay the assessments (except for those few states which have adopted the limited super priority of the Uniform Common Interest Ownership Act). Whatever lien is imposed by the HOA for nonpayment will almost always be inferior to that of the lender's mortgage. Again, the mortgagee's interest is protected. Thus, those owners still left in the neighborhood must bear the burden of the unpaid assessments.
Naturally, social harms also follow the zombie mortgage practice. Consider, again, an excerpt from Boyack and Berger:
. . . [P]roperties subject to zombie mortgages are concentrated in low-income and minority communities. More than 57% of zombie properties are located in census tracts made up of households in the bottom 40% of income, compared to only 22.5% of zombie properties in communities where household income is in the top 40%. Statistically, if minority households compose at least 80% of a census tract, it is 18% more likely that a foreclosure in that community will end up a zombie mortgage compared with foreclosures commenced in other neighborhoods. (citations omitted).
So why is this important now, since the practice has obviously been going on for several years? Well, in the 2016 legislative session, the New York legislature passed a bill (effective December 2016) to try and address the zombie foreclosure problem. At the time the bill was passed, NY state officials estimated there were over 6,000 homes that were unoccupied and falling into disrepair.
So how does this law work? First, the legislation (known as New York’s 2016 Zombie Property and Foreclosure Prevention Act but more properly Part Q of Chapter 73 of the Laws of New York) has "mandatory" reporting requirements when it comes to informing the state about abandoned homes. Second, the law requires mortgage lenders (servicers to be precise) to maintain vacant and abandoned properties (something that previously was only required when the bank actually became the owner of the property). The trigger for the shift in the obligation to maintain the property comes when the lender has “a reasonable basis to believe that the residential real property is vacant and abandoned . . . and is not otherwise restricted from accessing the property.” If the lender fails to maintain the property, the government can impose a civil penalty of $500 per violation, per day, per abandoned property.
For lenders, the law gives them an expedited foreclosure process if there is a good faith showing that the property has been abandoned. Importantly, the new act mandates that the foreclosing lender must proceed to the foreclosure sale within 90 days of obtaining a foreclosure judgment. If the lender itself purchases the property at the auction, then it must ensure that the home becomes reoccupied within 180 days of the date of acquisition. Lastly, the legislature gave the governor $100 million to be used to help low- to moderate-income individuals purchase and make repairs to these abandoned properties.
So now that we’re one year in (well, a little less), how is the law working? Evidently there are some practical/enforcement problems, as recently reported by the National Mortgage News and other outlets. First, reporting requirements (although mandatory) are not easy to enforce. The law leaves it up to lenders and local governments to report homes that are abandoned or vacant—which can be spotty and unreliable. Also, despite the penalities, the New York Department of Financial Services (the body that is not necessarily charged with enforcement of the law but that has taken up the mantle) reports that no penalties have been assessed since the law took effect. Although the NY deparment reports that banks and their servicers are broadly complying, state officials admit that they do not send inspectors to the properties to assess the situation themselves. And some local officials, like the mayor of Lackawanna, NY, says that not all banks are complying with the law. He noted this past May 2017 that "[t]his is bringing down our neighborhood, not just Lackawanna, not just Western New York but all of New York State by having banks being absent in their obligations in what they're supposed to be doing."
Also, unfortunately the abandoned home registry is not public. State officials say that doing so would make it a target for “squatters and criminal activity.” I’m a bit incredulous about that claim, since I can’t imagine many squatters and/or everyday criminals being sophisticated enough to go check out the Department of Financial Services’ website and find its registry database (or even know about it) and then go through the process of finding the ideal abandoned home for their purposes. Like the CFPB’s complaint database, making this registry public could help researchers and academics in empirically studying the zombie foreclosure issue more closely.
Lastly, NY state officials hope to help local governments build the capacity necessary to enforce this law themselves (an additional task that most municipalities will likely find difficult to pay for without funding from the state or another source).
Here at the #PropertyLawProfBlog, we’ll keep an eye on how this law continues to be rolled out in New York (as well as what other states might be doing to address the zombie foreclosure phenomenon). For now, over and out!
Wednesday, August 9, 2017
The international peer-reviewed journal Planning Theory has put out a CFP for a special issue the journal is producing to "critically survey the current state of the concept of ideology as it relates to planning theory, policy and practice across a variety of geographical contexts and advance debates about its analytical value from a variety of different but related theoretical positions." Abstracts of 500 words are due by October 20, 2017 to Edward Shepherd (firstname.lastname@example.org).
Tuesday, August 8, 2017
The San Francisco Chronicle published a fascinating story yesterday about a group of Bay Area homeowners getting a big surprise when the city, in a tax foreclosure, sold their street! Here's some excerpts from the article:
Thanks to a little-noticed auction sale, a South Bay couple are the proud owners of one of the most exclusive streets in San Francisco — and they’re looking for ways to make their purchase pay.
Tina Lam and Michael Cheng have bought Presidio Terrace, a private street lined with expensive homes. Residents apparently had no idea the common spaces were up for sale.
The couple’s purchase appears to be the culmination of a comedy of errors involving a $14-a-year property tax bill that the homeowners association failed to pay for three decades. It’s something that the owners of all 181 private streets in San Francisco are obliged to do.
In a letter to the city last month, Scott Emblidge, the attorney for the Presidio Homeowners Association, said the group had failed to pay up because its tax bill was being mailed to the Kearny Street address used by an accountant who hadn’t worked for the homeowners since the 1980s.
Two years ago, the city’s tax office put the property up for sale in an online auction, seeking to recover $994 in unpaid back taxes, penalties and interest. Cheng and Lam, trawling for real estate opportunities in the city, pounced on the offer — snatching up the parcel with a $90,100 bid, sight unseen. . . .
Now they’re looking to cash in — maybe by charging the residents of those mansions to park on their own private street.
It's that time of year: time to dust off the old textbooks and get back in the classroom! Hope everyone enjoyed their summer break. We certainly did here at #PropertyLawProfBlog!
Apropos for this time of year, Tim Iglesias (San Francisco) has posted his recent essay A Novel Took for Teaching Property, 20 Chap. L. Rev. 321 (2017). Tim's essay argues that "property doctrines and rules are answers to several consistent legal questions, and that these questions provide a useful framework for teaching Property doctrine." Tim notes that by beginning with these consistent legal questions, students more easily "recognize the connections among doctrines and rules across topics instead of seeing Property as a disconnected group of topics and rules."
Welcome back to the classroom!
Friday, August 4, 2017
Why did, and does, the federal government own most of the public domain within the United States? The standard historical answers — that states ceded their lands to the federal government and the Property Clause confirmed this authority — turn out to be incomplete, masking a neglected process in the 1780s and ‘90s in which legitimate ownership came to derive primarily from the federal government.
This transformation, which I call the rise of federal title, involved two intertwined controversies. The first was a federalist struggle over whether the federal government could retain land in former territories admitted as states notwithstanding the promise of equal footing. The second concerned the nature of ownership. As states’ unregulated land grants created endless litigation, claimants turned to the federal government to resolve conflicting rights and to create a land system that offered certain title. Both processes vindicated federal ownership, with the consequence that the federal government enjoyed a monopoly on one of the nation’s most important sources of wealth.
This history proves highly relevant. The rise of federal title is under threat, as many western states, and the Republican Party platform, have spun a theory based on erroneous history that argues federal landholding is unconstitutional. Simultaneously, in constructing a principle of equal sovereignty, the Supreme Court’s recent Shelby County decision relied on equal footing cases that ignored this early history. But the implications transcend immediate doctrinal concerns: this Article suggests theoretical interventions about the interplay between sovereignty and property, and commodification and regulation, in American history.
Wednesday, August 2, 2017
This short essay reviews the regulatory takings legacy of Justice Antonin Scalia, evaluating both its impact on the Supreme Court's takings canon and its consistency with his stated jurisprudential principles.
Tuesday, August 1, 2017
As sad as it is to see a friend of the blog head over to the dark side (administration! *cue thunder claps*), we have to take a moment to congratulate our own Thomas Mitchell who was recently named interim dean at the Texas A&M University School of Law. Congratulations, Thomas! Cribbing from the announcement here:
Thomas W. Mitchell, J.D., LL.M., professor of law and co-director of the Program in Real Estate and Community Development Law, has agreed to serve as interim dean of the Texas A&M University School of Law. He will assume this position on August 1, 2017. He follows Andrew P. Morriss, J.D., Ph.D., who has agreed to serve as the founding dean of the School of Innovation and vice president for entrepreneurship and economic development at Texas A&M University.
Professor Mitchell joined the Texas A&M University faculty in 2016. He earned a B.A. in English from Amherst College, a J.D. from Howard University School of Law, and an LL.M. from the University of Wisconsin Law School, where he also served as a William H. Hastie Fellow. He previously served on the faculty of the University of Wisconsin Law School where he held the Frederick W. and Vi Miller Chair in Law and also served on the faculty of the DePaul University College of Law in addition to serving as a visiting research fellow at the American Bar Foundation and at the University of Chicago.
Professor Mitchell’s primary research interests focus on real property issues that impact poor and disadvantaged communities, many of which are rural. More broadly, he researches issues of economic inequality, specifically focusing on how the ability or inability of individuals or communities to build and retain assets can impact inequality.