Legal/Legislative Update – October 1, 2014

Published on: September 30, 2014

FEELING MUCH BETTER.   As the effects of the “Great Recession” recede, community association managers and board member are feeling a lot better about the communities they oversee. Almost 90 percent of the 1000 respondents to CAI’s annual “State of Associations” survey described the overall health of their associations as “excellent,” and more than half (55 percent) expect their associations to be in even better economic shape five years from now.

VAPORIZING.  The companies selling e-cigarettes insist that they are safe; critics say the health effects are at best uncertain. The World Health Organization isn’t waiting for this debate to be resolved. The organization is advocating stringent restrictions on where e-cigarettes can be ‘vapored,’ and on how they can be marketed. While acknowledging that the vapor emitted by e-cigarettes may not be as harmful to non-smokers as second-hand smoke, the WHO insists that it still increases the level of toxins to which non-smokers are exposed. The organization wants to limit advertising and prohibit e-cig manufacturers from making “unproven” health claims for the product – including the claim that the-cigarettes help smokers break that habit, for which, WHO scientists say, there is no scientific proof.

FHA TEMPEST   There’s a tempest brewing in the FHA teapot, and it appears to be intensifying. Jamie Dimon, chairman of JP Morgan Chase, signaled the gathering storm in a press call with reporters, when he said the agency’s aggressive repurchase policies were making him and other lenders question whether to continue offering FHA-insured loans. JPM, Bank of America and other large lenders have paid more than $3 billion in fines related to FHA loans that soured during the downturn. Lenders say it is no coincidence that FHA loan originations have tanked, declining by almost 20 percent in the first nine months of this year compared with the same period last year. Concern about those numbers, and the impact on lower-income borrowers, who rely disproportionately on FHA financing, led Administration officials to convene a meeting with banking industry executives recently to discuss the issues. “A big issue is the DOJ settlements and their impact on the lending attitudes of the banks, which is clearly the elephant in the room,” Brian Chappelle, a former FHA official and partner at Potomac Partners LLC, a Washington, D.C. consulting firm, told Bloomberg News “The government is worried about access to credit,” he added. “They’re looking at volume numbers and they know it’s a serious problem.”

WINDING DOWN.    The end is near for Federal Reserve policies that have kept interest rates at record lows for the past six years. Fed officials announced that the agency will slash its purchases of Treasuries and mortgage-backed securities to $15 billion in October from a monthly average of $85 billion last year, and end its purchase program entirely after that. But Fed officials also said they will maintain the agency’s $4.4 trillion balance sheet by reinvesting securities as they mature and will keep the benchmark interest rate at zero “for a considerable time” after ending the bond purchases. “There is no fixed, mechanical interpretation of the time period,” Fed Chairman Janet Yellen said. “It is highly conditional and it is linked to the committee’s assessment of the economy.”

NET WORTH RECORD.   Household net worth hasn’t just rebounded – it has reached a new high. The Federal Reserve reported recently that household wealth totaled $81.5 trillion at the end of the second quarter, 10 percent above the year-ago figure and the highest level ever. Like other measures of economic recovery this one primarily reflects gains of higher income households, with most of the improvement attributable to increases in home values and equities. Median income, by contrast, was essentially unchanged and 8 percent lower than in 2007, before the “Great Recession” sent the economy into a three-year tailspin. A longer perspective darkens the picture even more: Median income is lower than it was in 1989 and nearly 9 percent below the 1999 peak. The income trend is consistent with the household wealth pattern: lower income earners have fared worst. Average income for the 20 percent of workers at the bottom of the ladder has declined by 16 percent since 1999 compared with a 2 percent dip for the highest earning 20 percent at the top.

DOWN AGAIN.   Up and down and up and down. That’s been the pattern for home sales throughout much of the recovery, and August was a down month. Existing home sales declined for the first time in five months, falling 1.8 percent below July’s upwardly revised annual pace of 5.14 million units. Analysts, who had predicted (or hoped to see) a slight gain, attributed the weakness to the lack of investor activity and the failure, thus far, of owner occupants to fill the resulting gap. Stronger employment growth will solve that problem, Anika Khan, senior economist at Wells Fargo, told Bloomberg News. “As we start to see overall improvement in employment,” particularly for younger Americans, she said, “we’ll start to see that first-time homebuyer activity increase.”


ON THE BEACH.    For as long as residents of coastal communities have been building beachfront homes, there have been disputes about the extent to which the public should have access to beaches these homeowner claim, or want to claim, as their own. A Rhode Island Superior court confronted that question recently in a suit challenging the “private beach” signs and fences property owners had posted on or near Misquamicut Beach. Rhode Island Attorney General Peter Kilmartin filed the suit on behalf of public beachgoers, arguing that the original owners of these beachfront parcels had granted an easement permitting public use of a two mile stretch of the beach. The current owners contended that there was no evidence proving that the original owners granted or intended to grant an easement, and that they lacked the authority to do so, in any event.

In a detailed decision, Judge Martin explained that a dedication of land to the public via plat must be clear and unambiguous, based on the language and descriptions in the plat. The Attorney General had pointed to the plat’s description of the disputed area as “beach” as evidence of the owners’ intent to dedicate it for public use – an argument Judge Martin found to be “spurious, at best.

“No common law rule existed in 1909—and no common law rule exists now—on which the Plattors could have relied to manifest their supposed intention to create an incipient dedication of an easement over the Beach Area, merely by depicting it on the 1909 Plat. The Plattors had no reason to think that their depiction of an area labeled “Beach” on their platted parcel would be construed, either then or one hundred years later, as an incipient dedication.” Judge Martin reasoned. “If the Plattors truly intended to dedicate an easement over the area labeled “Beach” on the 1909 Plat, as the Attorney General contends,” he added, they “needed to do more than merely label the Disputed Area ‘Beach.’

Judge Martin found another equally serious flaw in the Attorney General’s argument – Several parties owned the disputed area, but four of them did not sign the plat or the indenture accompanying it. So even if the owners who signed the plat had “a clear and unambiguous” intent to grant the easement, Judge Martin ruled, they lacked the authority to do so, because a portion of the property “did not belong to them.”
The Attorney General had suggested that the court should simply exclude from the easement the portions that didn’t belong to the granting owners – an argument Judge Martin descried as “interesting and original” but also “unpersuasive. The State does not supply a legal foundation upon which such a finding…can be sustained,” he said. The owners who signed the plat collectively were acting, in effect, as tenants in common, Judge Martin wrote, “and the law in Rhode Island clearly provides that all tenants in common to a parcel of land must join in the deed to make a valid dedication of land to the public.” The bottom line: Even if the Attorney General could prove the owners intended to grant public access to the beach area, they lacked the authority to do so. “This finding should end the inquiry,” Judge Martin ruled.


“One or the other of these institutions must step up to provide the funds since there is no entity that can take their place in the near or even intermediate term…Thus, the source of my fear is clear. If the government is adamant that the GSEs must go, housing prices will fall. This will be a crisis.” – Bank analyst Richard Bove, president of equity research at Rafferty Capital Markets, in a note to clients.