Legal & Legislative Update – August 12, 2013

Published on: August 12, 2013

SHAKING IT UP. President Obama is proposing the equivalent of a neutron bomb strategy for revamping the housing finance system ─ eliminate Fannie Mae and Freddie Mac but leave in place (with some federal support) the 30-year mortgage the quasi-governmental entities have made possible.

RIGHTING A WRONG. Lawmakers from New York and New Jersey are sponsoring legislation that would alter a long-standing FEMA policy that denies flood insurance coverage to condominiums and cooperatives because they are defined as businesses rather than single-family residences.

DISPARATE IMPACT DISSENT. A coalition of multi-family housing and financial industry trade associations is urging Congress to prohibit the Department of Housing and Urban Development from using the ‘disparate impact’ theory to enforce fair housing laws. “Under this rule, even when a mortgage lender, apartment owner, apartment manager or housing cooperative takes every step to prevent discrimination and treats all consumers fairly and equally, a neutral policy can serve as a basis for very serious and harmful claims in the absence of intentional discrimination. This would make it harder for families to buy or rent a home,” the groups note in a July 29 letter.

STILL STRONG. The economy grew faster in the second quarter than most economists were anticipating. GDP increased by 1.8 percent as inventories increased and consumer spending, while slower than in the first quarter, remained relatively strong.

INSURANCE TRENDS. Commercial property and casualty insurance costs are still rising, but not as fast as they had been .Average prices increased at annual rate of 4.3 percent in the second quarter compared with 5.2 percent in the first three months of this year, evidence that “the market hardening appears to have moderated,” according to Ken Crerar, president and CEO of the Council of Insurance Agents and Brokers, which conducts the quarterly pricing survey.

GAINS AND LOSSES. The home ownership rate has fallen from a peak of 69.2 percent to 65 percent – where it stood two decades ago, according to Census data. Some analysts are bemoaning the death – or at least, the scaling back – of the “American Dream.” Others are praising what they see as a more realistic conclusion that home ownership is not a feasible goal for everyone. Landlords, meanwhile, see only good news for them in the recent Census report – a falling ownership rate means an increasing population of renters. The national rental vacancy rate stood at 8.2 percent in the second quarter compared with 8.6 percent a year ago.

 

LEGAL BRIEF

 

BLOWING SMOKE. Most of the recent court battles between smokers and non-smokers have ended favorably for non-smokers, who have successfully pressed their arguments about the health risks second-hand smoke creates for non-smokers. In a balancing of interests, the courts increasingly have concluded that it is smokers, not non-smokers, who must modify their behavior. But a Maryland appeals court recently decided otherwise, concluding that second-hand smoke is not always, by definition, a legal “nuisance.”

That decision by the Maryland Court of Special Appeals (in David S. Schuman v. Greenbelt Homes) came in a dispute between Schuman, owner of a unit in the Greenbelt Homes Cooperative, and the cooperative’s governing board over the alleged “nuisance” created by Schuman’s smoking neighbor.

Because of complaints from Schuman and others about second-hand smoke penetrating their units, owners had amended the cooperative’s governing documents to bar smoking within units, but smoking was still permitted on exterior patios of the town-homes, which is where Schuman’s neighbor smoked four-to-six cigarettes every evening.

Other neighbors had reported, and testified at the lower court trial, that closing their windows kept the smoke out of their units, but Schuman pressed his suit, insisting that his neighbor’s smoking created an offensive odor, violating the cooperative’s rule barring “nuisances.”

The court was not sympathetic. “All Schuman would have to do to eliminate any offensive odor from the outdoor patio smoking would be to shut his window, and, if need be, run a small fan to clear any smoke that entered his unit,” the court noted.

Not only had Schulman failed to attempt this “simple solution,” the court found, he had also failed to prove that his neighbor’s smoking constituted either a nuisance “per se” (affecting everyone) or a nuisance ‘in fact,’ affecting Schuman alone. To meet the latter legal standard, the court noted, Schuman had to demonstrate that he was actually harmed by the second-hand smoke and not simply offended its odor. Upholding the finding of the lower court, the appeals court agreed that Schuman had failed to demonstrate that the smoke was “a substantial and unreasonable interference with the use and enjoyment of his home.”

Schuman’s case was not strengthened, to say the least, by the testimony of his own expert witness, who found nicotine levels inside the courthouse, where smoking was banned, to be close to the readings inside Schuman’s home.

In a unanimous opinion, the four-judge panel concluded, “If this Court were to hold that any amount of secondhand smoke entering from one cooperative housing member’s home to another’s constituted a nuisance, we would be one step away from banning smoking in all private homes.”

This decision does not suggest that courts are likely to be less inclined in the future to view smoking as a nuisance; but it does emphasize that in some courts, at least, plaintiffs seeking to restrict smoking in their communities can’t simply assert that smoking is a nuisance; they must present evidence of the harm that makes smoking a nuisance to them.

 

WORTH QUOTING: “Everyone is looking for returns, and the real estate space is a good place to get them.” ─ Chip Fedalen, Wells Fargo’s executive vice president and group head of institutional commercial real estate, quoted in Housing Finance News, talking about increasing lender interest in financing multifamily construction.