Legal/ Legislative Update – July 1, 2013

Published on: July 5, 2013

EMINENT AGAIN.  The movement to use eminent domain as a strategy for dealing with the foreclosure mess, which seemed to have faded, has resurfaced. The Los Angeles Times reports that federal programs have helped only 10 percent of underwater homeowners and notes favorably that “a more drastic approach [eminent domain] is gaining support. “

SENIOR SLUMP.   The average occupancy rate for senior housing was unchanged in the first quarter, the first time in three years that this rate had failed to increase, the National Investment Center for Seniors Housing & Care reported.

TIMING IS EVERYTHING.   Just as the push to reform the mortgage finance system (largely by scaling back Fannie Mae and Freddie Mac, or eliminating them altogether) seems to be gaining traction, the GSEs are reporting huge profits credited with boosting the nation’s credit outlook. Analysts say these positive reports are likely to take some of the wind out of the GSE reform sails.

GOOD, VERY GOOD, EVEN BETTER.  New and existing home sales, home prices, durable goods orders and consumer confidence all increased in May, providing a treasure trove of positive economic news ahead of the July 4th holiday.

NOT TO WORRY.   Rising interest rates may curb demand a little, but they won’t dent affordability. Freddie Mac economists estimate that rates would have to rise 7 percent above current levels to put home ownership out of reach for median income Americans. But HUD’s Inspector general is warning that another shoe is about the drop on the housing market, in the form of a sizable “shadow inventory” of homes not yet in foreclosure but soon to be added to the REO population. And if that’s not enough to interfere with your sleep, another report points out that soaring insurance costs are undermining affordability for some prospective homebuyers and creating serious financial pressures for existing homeowners.

TOO LONG AT THE FAIR?  President Obama told television interviewer Charlie Rose that Federal Reserve Chairman Ben Bernanke “has already stayed a lot longer than he wanted or he was supposed to,” signaling clearly that Bernanke will leave his post when his second term ends next year, but leaving observers to speculate about whether he is leaving because he wants to go or because he has outstayed his welcome.

RADON TESTING.  The Department of Housing and Urban Development is focusing on radon. The agency has announced new policies requiring radon testing and (where needed) mitigation in most new construction, conversion and substantial rehabilitation projects financed by FHA loans as well as in most homes financed with FHA mortgages.

RED FLAGS.   An increasing investor appetite for risk pushed issuances of commercial mortgage-backed securities past the $20 billion mark, the first time in more than five years this asset category has reached that level. But some analysts warn that increasing demand for a limited supply could have an adverse impact on credit quality. Expressing similar déjà vu concerns about housing, a Washington Post article cites escalation clauses in real estate contracts; “naked,” contingency-free offers, and listings with low-ball prices designed to pull in dozens of bidders and turn routine sales transactions into auctions” as indicators that the strategies contributing to the price bubble a decade ago are coming back into vogue. 4-4-13

 

LEGAL BRIEFS

 

TAKING REDEFINED

In a decision that is being hailed as a huge victor y for private property rights, and decried as a serious impediment to land use controls, the U.S. Supreme Court has held that concessions imposed as a condition for granting development permits may constitute an illegal “taking” of personal property barred by the Fifth Amendment’s requirement for “just compensation.”

Coy Koontz, the plaintiff in Koontz v St. Johns River Management District, had sought permits to develop 15 acres of Florida property he owned, a large portion of which had been classified as protected wetlands. In exchange for permission to destroy about 3.4 acres of those wetlands, Koontz offered to put the remaining 11 acres in a conservation easement. But that didn’t satisfy officials at the St. Johns Water Management District, who told him he would either have to reduce the size of his planned development or finance improvements to wetlands the district owned several miles away.

Koontz refused, his permit was denied and he sued, arguing that the concessions sought were excessive, amounting to an illegal taking of his property. A District Court agreed with him, but the Florida Supreme Court did not, concluding that the rejection of his permit did not constitute a taking of Koontz’s property. The U.S. Supreme court reversed that decision.

Writing for the 5-4 majority, Justice Samuel Alito, Jr. characterized the concessions demanded by local officials as “extortionate,” saying they “frustrate the Fifth Amendment right to just compensation.” Referencing two previous High Court decisions (Nollan v. California Coastal Commission in 1987 and Dolan v. City of Tigard in 1994), Alito said the principle they established – that there must be a “nexus” or “rough proportionality” between concessions demanded and the impact on a proposed development—should apply here, even though the permit was denied and Koontz never undertook the improvements required.

“It makes no difference that no property was actually taken in this case,” Alito wrote. “Extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation.” The takings standard established in Nollan and Dolan should apply, he said, “whenever the government commands the relinquishment of funds linked to a specific, identifiable property interest.”

A sharply-worded dissent written by Justice Elena Kegan acknowledged that while “the boundaries of the majority’s new rule are uncertain,” the decision, nonetheless, “threatens to subject a vast array of land-use regulations, applied daily in states and localities throughout the country, to heightened constitutional scrutiny….I would not embark on so unwise an adventure,” she added.

The Obama Administration and the attorneys general in 20 states, the District of Columbia and Puerto Rico had expressed similar concerns in amicus briefs arguing against an expanded interpretation of the takings clause, which, they said, would inevitably spur more litigation over land use decisions and undercut land use planning policies nationwide.

“The risk of such litigation will place those governments in the uncomfortable position of having to choose between denying otherwise beneficial projects and permitting development to proceed without mitigating its impacts,” they warned.

 

 

WORTH QUOTING: “Fewer minorities today may be getting the door slammed in their faces, but we continue to see evidence of housing discrimination that can limit a family’s housing, economic and educational opportunities.” ― Shaun Donovan, Secretary of Housing and Urban Development.