Monthly Archives: September 2012

Those Underwater Mortgages — The Feds Strike Back

The Wall Street Journal blog reports that Rep. John Campbell (R-Cal.) is introducing legislation that, if enacted, would ban federal agencies alike Fannie Mae, Freddie Mac and the VA from buying mortgages issued in counties that use eminent domain to acquire existing but currently underwater mortgages in order to refinance them. The idea is that this would deprive the promoters of the scheme and the lenders on such mortgages of their principal market, and thus put the kibosh on the whole scheme.

We take it that a lobbying battle is about to erupt. Stay tuned.

See Alan Zibel, Eminent Domain Furor Hits Capitol Hill, WSJ Blog, September 13, 2012 – http://blogs.wsj.com/developments/2012/09/13/eminent-domain-furor-hits-capitol-hill/

Related item. If you aren’t tired of this subject or if you need a good summary of this scheme, check out an article in the Los Angeles Daily News – go to http://www.dailynews.com/ci_21550860/foreclosure-fix?source=most_viewed

2012 BRIGHAM-KANNER PRIZE AWARDED TO PROF. JAMES KRIER

The William & Mary College School of Law has announced that this year’s Brigham-Kanner prize for lifetime achievements in advancing property rights as fundamental in protecting individual liberty, will be awarded to Professor James E. Krier of the University of Michigan Law School. The award ceremony and the annual conference on property rights will take place at the William & Mary Law School in Williamsburg, Virginia, on October 11-12, 2012. For  further information and a conference brochure contact Kathy Pond, William & Mary Law School, P. O. Box 8795, Williamsburg, VA 23187-8795.

Lowball Watch – California

Loansafe.org reports that Rancho Cordova has just had a rude awakening. Back in 2007 the Los Rios Community College District agreed to buy a 9.6-acre parcel from the Lilly Co. for a satellite campus for $8.6 million.  But then the Rancho Cordova redevelopment agency filed an eminent domain action, seeking to take the subject parcel for $387,000 (i.e., $2.2 million, less $1.8 million in cleanup costs). That caused Los Rios to back out of the deal, and later  resulted in a settlement for breach of contract in favor of Lilly in the amount of $60,000.

But when the eminent domain case went to trial, the jury disagreed with the agency and awarded $7.9 million. Faced with that verdict, the Rancho Cordova redevelopment agency abandoned the condemnation, but under California law, it had to pay Lilly $900,000 in litigation expenses (including attorneys and appraisers’ fees). The city also incurred legal expenses of its own in the amount of $1.2 million.

Then came the unexpected. The California legislature abolished redevelopment, and the state supreme court upheld that law as constitutional. Since the redevelopment agency thus ceased to exist, its assets and liabilities shifted to the city of Rancho Codova which is now on the hook in favor of Lilly to the tune of over $2 million, and Lilly still owns the 9.6-acre subject property.

For the story go to http://www.loansafe.org/city-a-big-loser-in-land-fight

A Disgraceful Silence

Back in the old days, when Mort Sahl was a celebrated comedian, he used to tell a story about the time when doing a gig at a university, he took a pretty co-ed out to dinner. Once they were seated and the drinks were poured, he decided to start a conversation, so he said, “You know, today is December 7th.” She stared at him with a blank expression, so he explained: “You know, Pearl Harbor day.” She responded: “Oh, I was never much good at history.”

We were thinking about that this morning while perusing today’s newspapers, except that this time it wasn’t funny. Today is September 11 — an anniversary of 9/11 — but none of the major papers that cross our desk thought that this scarring event in recent American history was worth so much as an editorial peep. Neither the L.A. Times, nor the New York Times had anything to say on the subject. The L.A. Times had a “thumbsucking,” soulsearching op-ed by a former reporter, explaining why she did not explain 9/11 to her children, and the New York Times had an op-ed by some guy explaining that 9/11 was George W. Bush’s fault because he did not respond aggressively enough to CIA reports of an impending but unspecified terrorist attack.

We thought that the gratuitous slaughter of thousands of innocent, civilian Americans might have elicited at least an editorial word of mourning, if nothing else. We try to resist the charges that the American liberal establishment, which includes the major newspapers, hates America, its values and all it stands for to such an extent that it is willing to provide cover for our mortal enemies. How else do you explain this shameful silence? Even if you hate Geoge W. Bush, as so many of them do, didn’t the victims of 9/11 deserve a word of remembrance? And how else do you explain the deletion (self-censorship?) from television of images of Palestinian Arabs dancing in the streets with joy after learning of the 9/11 attacks?

After the 1941 Japanese attack on Pearl Harbor, it was an oft-heard slogan for Americans to say “Remember Pearl Harbor!” And the architect of that attack, Admiral Isoroku Yamamoto understood that sentiment and voiced his concern that attacking the United States was a dumb idea because it would engender a justified fury on our part, that would not cease until Japan was decisively and totally defeated. “I fear that all we have done,” said he after learning that the Japanese attack preceded a declaration of war, “is to awaken a sleeping giant and fill him with a terrible resolve.”

But 9/11 has not elicited a similar resolve on the part of today’s American establishment. Indeed, not so much as an editorial peep. Shame!

Municipal Chutzpa*

One of the old illustrations of  the concept of chutzpa is the case of the mugger who robs and  beats up his victim while loudly yelling “Help! Help!”

A case in point is the article in today’s issue of the Los Angeles Times, Abby Sewell and Jessica Garrison, Cities Left on Shaky Ground, September 9, 2012, at p. A29.

But before we get into the meat of this post, a bit of background. In the notorious Williamson County case, SCOTUS came up out of the blue with a procedural scheme that makes Dickens a piker. First, said the court, you have to apply for a building permit even when the local regulation forbids construction. Then you have to carry your application to its point of finality. SCOTUS admonished that this step was not be confused with exhaustion of administrative remedies, but most lower courts simply ignore that distinction and require such exhaustion. Then you have to apply for a variance. Only then can you sue for compensation. Except in California, where you can’t — you must first sue for a writ of mandate. Got the idea?

In this remedial regime, one of the most effective ways of denying property owners complaining of constitutional violations of their property rights access to courts, is the cost of litigation. A sarcastic joke has it that in order to pursue a regulatory taking case to its conclusion on the merits, the aggrieved property owner has to have at least a decade, a million dollar litigation budget, and the single-minded determination of a bulldog.

If you don’t believe us, check out our favorite: Del Monte Dunes v. City of Monterey, in which the unfortunate property owner, before being denied all use of his land, was put through a bureaucratic wringer requiring it to prepare and submit five development plans (each followed by administrative proceedings before city functionaries), nineteen plot plans, two visits to federal trial court and two to the U.S. Court of Appeals, plus a visit on the merits to the U.S. Supreme Court, before seeing a nickel in damages.

At least he got damages. But in Tahoe Sierra Preservation Council v. Tahoe Regional Planning Authority, the owners who had been denied the right to use their home-sites on which they intended to build retirement homes, for any rational use for over a period of 20 years, and were sent back-and-forth like a yo-yo between federal trial and appellate courts several times, SCOTUS decided that all this litigation was unnecessary because the operative facts were not in dispute and it was all a straighforward issue of law. In the meantime, the case dragged on so long that over 50 plaintiffs died of natural causes during that time.

And check out other horror stories, like the saga of Herman Corn, or the Yardarm restaurant in Florida, and the Dodd family in Hood County, Oregon, which at the government’s behest dragged on and on to no avail as the owners were sent by the courts on one wild goose chase after another through a multiplicity of courts .

We could go on, but the point has been made.

So now, guess who has the chutzpa to complain to the L.A. Times about the cost of litigation over land-use controversies? Why, the government!

Actually, if these guys are complaining about the cost and complexity of these cases, it serves them right. It’s a case of poetic justice. Why? Because ever since around 1980 it has been a mantra of government regulatory entities and their lawyers, that whatever the facts of the controversy may be, the owners’ case is unripe. The California Attorney General once argued that a land-use case can never be ripe because zoning is subject to change. There have even been cases — no, we are not making this up — in which the government argued successfully that the aggrieved owner’s case was simultaneously too early (unripe) and too late (barred by limitations). It has been like in Alice in Wonderland where at one point the Queen of Hearts informed Alice that she could have had jam on her toast yesterday, or will be able to get it tomorrow, but never today. We know you don’t believe us, so here it is in the words of the U.S. Court of Appeal for the 6th Circuit:

“It may seem a bit perverse that one taking claim (past violation) be barred by statute of limitations because it was delinquently filed in federal court, and yet a similar claim (continuing violation) be barred by ripeness because it was prematurely filed in federal court. But this is the nature of federal-state interplay after [the] Williamson County case . . . ” McNamara v. City of Rittman, 473 F.3d 633, 640 (6th Cir. 2007).

So here is our advice to these guys: you are the ones who created this swamp. You are the ones who persuaded the courts to impose it on long suffering property owners, and in the process made your bed. Now go lie in it. And don’t go whining to the Los Angeles Times, because the problem you have to deal with is self-inflicted. You sure didn’t complain when you were the beneficiaries of this crazy system, so now have the decency not to complain when its edge for once turns against you.

Full disclosure. Your faithful servant was one of the lawyers who represented the landowners before the U.S. Supreme Court in the Del Monte Dunes and Tahoe-Sierra cases. You win some and you lose some.

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* In the unlikely event, dear reader, that you are not familiar with this term, check it out in Gerald F. Uelmen, Plain Yiddish for Lawyers, ABA Journal, June 1985, at p. 78.


The Law of Unintended Consequences in Action

As we may have mentioned in the past (go to www.gideonstrumpet.info/?p=3749), the U.S. Court of Appeals for the 9th Circuit is not always opposed to private property rights. For example, it is kindly disposd to private polo fields (Carpinteria Valley Farms v. County of Santa Barbara, 344 F.3 822 (9th Cir. 2003). It all depends on whose property and what kind. And so it came to pass that when the city of Los Angeles finally got tired of the homeless folks leaving their stuff and trash on skid row sidewalks and set out to clean up, they found out that their federal Lordships do respect private property after all. They issued an injunction barring the city sanitation department from scooping up and disposing of tons of debris that along with the homeless folks’ possessions, included not only your garden variety trash, but also tons of garbage like dead rats, human feces, etc. Why would their Lordships do that? Because advocates for the homeless complained that their clients, bereft as they are of a proper place to store their possessions, would just leave them on the sidewalk, interspersed with the less savory and much less sanitary detritus of their presence, so that the activities of the city’s sanitation department tended to scoop up, discard and destroy their legitimate possessions along with the trash.

Make no mistake, we sympathize with the plight of the homeless. Their presence in American cities is a tragedy. We are tempted to launch into a discussion of the origins of this problem, but that would take us afield from the topic at hand.

Our point is that however heart-rending the plight of the urban homeless may be, it hardly justifies a legal regime where they are privileged to engage in grossly unsanitary activities that would land anyone else in the calaboose. But be that as it may, this is not the point of this post.

It turns out that under the terms of the federal injunction, the city may not just seize the possessions of the poor homeless folks, and dispose of them, because that would interfere with the homeless folks’ property rights.

But this act of public compassion has now given rise to a new species of illegal activity. Some of the more enterprising homeless folks, realizing that they can store their stuff on the public sidewalks, secure in the knowledge that it won’t be seized by the city, have taken to stashing cans of beer in shopping carts, covering them up with their junk, and then selling them for $1.50 a piece to their fellow skid row types, thus maintaining an elevated level of cheer among them and making a few bucks in the process. See Sam Allen, Illicit Vendors Sell Beer on Skid Row — and Duck Police, L.A. Times, September 7, 2012, at p. A1.

The unfortunate L.A. cops who are assigned to policing this activity do what they can which is largely nothing or next to nothing (such as issuing warnings and occasional citations that at most cause the beer peddlers to move down the street a block or two and resume their trade a day or two later). The L.A. Times quotes one of the illicit beer peddlers as saying “Police is trippin’, but I still got beer.”  And so he does. And so, the current status of skid row includes both the unsanitary status quo ante conditions, and increased alcoholism among those poor folks whose lot in life is wretched enough without beer a la mode being served to them around the clock.

It does however bring to mind the line of Brendan Behan who supposedly said, “I cannot conceive of a human condition so wretched that the appearance of a policeman couldn’t make worse.”

Follow up. For a discussion of the legal ramifications of this problem by the usual academic suspects in the usual academic way, go to the Volokh Conspiracy — http://www.volokh.com/2012/09/06/the-takings-clause-and-government-destruction-of-homeless-persons-property/

California Environmentalism Comes Home to Roost, Thanks to Unrestrained Activism of California Judges

In case you missed it, dig up a recent New York Times article by Ian Lovett, Critics Say A State Law Hurts Effort To Add Jobs, September 5, 2012, at p. A18, which breaks away from the Times’ usual liberal-green orthodoxy, and discloses that environmental laws, whatever they may do for the environment, are also widely and crudely abused in California, and are now all too evidently imposing increasingly intolerable economic burdens on this nearly bankrupt state’s economy, by — among other things — frustrating the creation of new, badly needed jobs. Nothing new about that to us Californians, but it is amazing that the New York Times is at long last willing to lower its politically correct curtain, allow a peek into the once Golden State, and acknowledge the problem.

Environmental laws can be and are being used around here to harass just about anybody over  anything, including perfectly innocuous and even environmentally-friendly projects. The same is true of land-use laws which are often enacted and applied to further environmental objectives of the regulators. How far can it go? The Times offers as an example the kerfuffle in San Francisco where “the city’s plan to paint bicycle lanes, one of the main goals of environmentalists, was delayed for four years by a lawsuit filed by the local resident who claimed that the lanes could cause pollution.” Or, the case of a service station owner who was prevented from adding one gas pump — count ’em, one — to his service station because of a lawsuit filed by a competitor. Well might you ask: How is that possible? The New York Times presents the problem in the abstract, as if unseen extraterrestrials landed in the dead of night and inflicted these things on us while we slept.

But as you know, that is not how it happened. It happened because California courts not only tolerated but abetted and facilitated these things in spite of their positively nonsensical character. And it was not just a zealous, Savonarola-like commitment to environmental values — there was also an ideological undercurrent in these events whereby some of the plaintiffs advanced and judges tolerated or de facto endorsed a commitment to an anti-property ideology that permeated some of the plaintiffs’ litigational rhetoric. So you ask: How could a rational court system, presumably presided over by rational judges allow such nonsense to become the law of the land? Good question. It’s an enlightening effort when you try to answer it. But to do that, we need to take a brief look at how it all started.

When environmental laws were first enacted in California, the legislation originally provided that public projects would have to be preceded by consideration of environmental factors (i.e., an environmental impact report). So how did we get from that law to one requiring that EIRs be prepaired for all projects, private as well as public? To get an answer you will have to ask the California Supreme Court which by a slick semantic sleight of hand held in the 1972 Friends of Mammoth case (8 Cal. 3d 247) that in this context, “public” included “private.” Over Justice Sullivan’s principled dissent, the Justices held that inasmuch as the construction of private projects requires a permit issued by a public body, that makes private projects “public” within the meaning of the California Environmental Quality Act.

Friends of Mammoth was only the starting gun. It was promptly followed by an avalanche of California court decisions running roughshod over land owners’ substantive, constitutionally protected property rights, denying them due process, and generally treating them as second-class citizens. Much was written on this subject, so we won’t attempt to go through it all here. But we feel that we should mention some of our favorites.

First, take a look at Chapter 12 (entitled Sea Ranch, California: The Devil’s Due) in THE ZONING GAME REVISITED (1985), by Richard F. Babcock and Charles L. Siemon, describing in some detail the incredible degree of harassment of individual owners of home building sites at the Sea Ranch — without a doubt the best, most environmentally sensitive, prize-winning home development in California, located in Sonoma County, north of San Francisco, and the courts’ shameful refusal to provide relief even when faced with gross violations of the owners’ rights by the California Coastal Commission.

And speaking of the Commission, don’t miss Michael M. Berger’s article in the January/February 1979 issue of the California State Bar Journal, entitled You Can’t Win Them All — Or Can You?, describing how in the 1970s, during the formative years of the decisional law dealing with California Coastal Commission regulations and operations, the Commission won 87.5% of its reported appellate cases as an appellant, as opposed to a rate of only 29% by other parties in other civil appeals. Think about it: in almost nine out of ten appeals, the Commission reversed the decisions of trial courts that it did not like.  That’s like batting .800 in major league baseball.

And it wasn’t just then. In the much more recent case of Clover Valley Foundation v. City of Rocklin, 197 Cal. App.4th 200 (2011) it took two decades to get a California Court of Appeal judgment approving a developer’s compliance with environmental laws — the court proudly announced that in that case, California environmental laws “worked” because it took only 20 years from a developer’s application to build a housing tract under existing zoning, to the court’s EIR approval.

And in the Del Monte Dunes case, acting at the city’s request, the would-be developer had to go through five subdivision applications and 19 plot plans, only to be told by the city after all that that it would not be permitted to build anything on its land. Why? Because, although no such creature had ever been seen on the subject property, the city asserted that if an endangered blue butterfly should wander onto it, it might like it there, so the land had to be “preserved” for it.  At least in that case, the federal courts awarded damages and the U.S. Supreme Court affirmed. But as far as the city was concerned, its attorney was quoted afterwards in the local newspaper as saying “Nothing has changed. We were right then and we are right now.” So much for the “rule of law.” Welcome to California, folks.

As promised above, we won’t go through the many California cases that applied environmental/land-use cases in a bizarre fashion. You can do that on your own. Our point here is that whether you like these decisions or not, ideas do have consequences. And when those ideas take the form of precedential court decisions, they shape later decisions and shape future laws. And to conclude with the obvious, if that sort of stuff is permitted to go on for decades, and when judges, instead curbing unreasonable government conduct, facilitate it, there comes a point where the negative impact of the law — the price of the judicially served “free lunch” — becomes unsustainable; its negative consequences outweigh its benefits, leading to the bizarre situation described by the New York Times. It looks like we are at that point — a point where everybody in the state, including the judiciary whose budget is being slashed, as the state increasingly faces bankruptcy, will have to shoulder an increasingly intolerable economic and human burden. One consequence is that housing prices in California, in areas where people want to live, remain sky-high in spite of the ongoing recession.

Has it been worth it? You tell us.

Those Underwater Mortgages: A New Wrinkle — Better Make It Two New Wrinkles

Wrinkle No. 1. The latest dispatch from the underwater mortgage front has it that, evidently stung by criticisms that they are out to make a buck rather than help underwater homeowners in San Bernardino County, the promoters of this scheme have indicated that they mean to expand their program to include not only underwater mortgages that are current (i.e., those where the borrowers continue to make payments), but also those that are in default. See Imran Ghouri, San Bernardino County: Mortgage Aid Expansion, Press Enterprise, September 7, 2012 — click here.

In the meantime the home market in San Bernardino County is improving, making the market value of those mortgages higher as time goes by, which may make for interesting date-of-valuation problems.

Wrinkle No. 2 . Everybody (and that includes us) talking about this problem has been so busy going on about the novelty of it all, and about the tricky valuation problems that ascertainment of just compensation in these cases would pose, that no one has been paying attention to existing albeit temporary federal legislation (enacted in 2007) suspending the tax liability of homeowners who receive reductions (of up to $2 million) per household in their outstanding mortgage debt. And that legislation is set to expire at the end of this year about three months from now. There is talk of extending it, but so far at least, it’s talk. There is no guarantee that such an extension will be enacted.

What that means is that if the condemnation of underwater mortgages proceeds and loan balances are reduced as proposed, that may result in substantial tax liabilities being imposed on those underwater homeowners whose mortgage balances are reduced in this fashion. See Jim Puzzanghera, Debt Relief May Bring a New Pain, L.A. Times, September 7, 2012, at p. B1.

Stay tuned.

This post was edited on September 7, 2012

Learning on the Job

Since we have been an appellate lawyer all our professional life, this struck us between the eyes, but it is possible that it will have a similar effect on all lawyers, and provide them with an insight.

In the September 2012 issue of the ABA Journal, at p. 26, the widely admired legal lexicographer, Bryan Garner, interviews Justice Kagan, wherein he brings us the following dispatch:

[Garner]: Had you done very many oral arguments before you became solicitor general?

[Kagan]: I had not. I had not done any appellate arguments in my early days . . . at Williams & Connoly. But that had been 15 or 20 years earlier. So I was thrown into the deep end of the pool, shall we say.

[Garner]: Was your very first oral argument in the U.S. Supreme Court?

[Kagan]: My very first appellate argument was in the U.S. Supreme Court.

[Garner]: Wow! That’s incredible!

And so it is. Further your affiant sayeth naught.