Monthly Archives: April 2013

Bubble, Bubble (Con’t.)

A few days ago, we noted developments in California housing market that may suggest a revival of the “bubble” or at least the early stages thereof. Click here.  Today we get a significant follow-up story.

The Los Angeles Times reports that loans are again being made to home buyers whose credit ratings — how shall we put it? —  are less than stellar. E. Scott Recard, Lenders Venturing Back Into the Subprime Market, L.A. Times, April 27, 2013, Business Section.

The sort of loan described by the Times as representative of this market segment  requires 35% down and interest on the mortgage at 10.9%. A far cry from the “bubble days” but the point of the Times article appears to be that would-be homebuyers with low credit ratings are again able to obtain home purchase loans, with all the risks associated in that reflecting the higher risk.

Looting the Treasury

If you work in the field of eminent domain, you know that as surely as the sun rises in the East, you can count on condemnors’ lawyers whining in court that if property owners whose land is being taken by eminent domain were to be paid full compensation for all their demonstrable economic losses brought about by the eminent domain takings of their property, the government would go broke. The California Supreme Court once wrote that if owners were to be so compensated for their losses, “an embargo” on public projects would have to be declared. We regularly take note of that because in spite of its absurdity the court never retreated from that nonsensical statement, not even after the legislature repealed the rule of the case (People v. Symons) in which that absurd statement was made, but the creation of public works kept going on and on. For a more detailed discussion of how the courts promise “fairness and justice” but deliver undercompensation instead, see Gideon Kanner, “Fairness and Equity,” or Judicial Bait-and-switch? 4 Albany Government Law Review 38 (2011).

But outside of eminent domain, it’s another story altogether. Do read Sharon LaFraniere, Federal Spigot Flows as Farmers Claim Bias, N.Y. Times, April 26, 2013, at p. A1 (above the fold). Long story short, responding to claims of racial bias (some of which proved to be nonexistent) the feds loosed a river of money to claimants, many of whom made transparently fraudulent claims. You gotta read the details, folks — it is not to be believed, though its is all too true if you believe the New York Times. Click here for the whole NY Times article that asserts explicitly that

“From the start, the claims process prompted allegations of widespread fraud and criticism that its very design encouraged  people to lie: because relatively few records remained to verify accusations, claimants were not required to present documentary evidence that they had been unfairly treated or had even tried to farm. Agriculture Department reviewers found reams of suspicious claims, some from nursery-school-age children and pockets of urban dwellers, sometimes in the same handwriting with nearly identical accounts of discrimination.”

And so it goes for pages, including Xerox  copies of transparently fishy claims by supposedly different people, but using the same handwriting and making the same claims.

The punch line of it all is that the feds knew all that but continued the “federal spigot flow[ing] unchecked.” “The total cost could top $4.4 billion.” Your tax money at work.

Bottom line: for that sort of orgy of waste they have money. But for paying “just” compensation to people whose properties are taken by the government, or worse, for private individuals for their personal profit under the borrowed government banners of “public use” and “just compensation” they ain’t  got money.

What Goes Around, Comes Around

We just came across an on-line ad in which shopping center owners whine for public support because on-line retailers are getting a tax break by being able to sell stuff at retail without sales tax, whereas they have to pay it. Unfair? Maybe. So what?

It was only yesterday that shopping centers were wiping out smaller businesses en masse, because under redevelopment laws they were able to do so with tax money subsidies. Redevelopment agencies would take others’ (often their competitors’) land by eminent domain, raze the [competing] businesses to the ground without full compensation and without any compensation for the destroyed condemnees’ businesses, and then turn over that land at bargain rents of even gratis to favored shopping center developers.* See Dean Starkman, Take and Give:  Condemnation Is Used To Hand One Business Property of Another, Wall St. Jour., December 2, 1998, at p. A1.

So now, we are supposed to shed tears for them and help them get fair treatment? Where were they when  in the name of advancing their own economic wellbeing, smaller businesses were being destroyed without any compensation?

To see that ad, click here.

So here are some words of wisdom: What goes around, comes around.

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*   In the wretched Kelo case, the plan approved by the SCOTUS majority called a for taking of a 91-acre waterfront tract of land, displacing its lower middle-class population, razing it to the ground, and turning it over for 99 years (at $1 per year) to a redeveloper who intended to build upscale shops and condos. It didn’t work; the project proved to e a dismal failure after consuming some $100 million in public funds.

The Mother of All Lowballs

Having been involved in several airport inverse condemnation/nuisance cases in our younger days, as well as some direct eminent domain ones involving airports, we have difficulty  visualizing two more deserving opponents confronting each other than two airports. Still, reality is not to be denied, and we take note of Ontario (that’s Ontario, California, not Canada) and Los Angeles going at each other, with the City of Ontario, threatening Los Angeles with the use of the power of eminent domain to gain full possession and control of Ontario Airport which at the moment is owned by these two cities’ joint powers authority, but operated by Los Angeles.  See Katie Lucia, Spat Over Control of Ontario Airport Taxis Toward Court, L.A. Daily Journal, April 17, 2013.

Of late, the Ontario Airport has come on hard times, having suffered a 40% decline in air traffic between 2007 and 2012. Ontario claims this is no accident and avers that — according to one of Ontario’s lawyers — it is the fault of Los Angeles’ “siphoning resources from Ontario to [LAX] and causing airline passenger traffic to drop significantly in the past six years.” So Ontario wants to take over that airport and fend for itself. Since the Ontario Airport is owned by an LAX-Ontario joint powers authority this is not likely to be an amicable divorce.

The LAX folks who historically have been noted for abusive precondemnation practices (and still are) when it comes to using eminent domain, see Los Angeles v. Superior Court, 194 Cal.App.4th 210 (2011),  having found themselves in the position of would be condemnees, are  showing signs of being born again, and suddenly understanding the plight of a condemnee, at least compensation-wise.

LAX avers that the fair market value of the Ontario airport is “about” $475,000,000, give or take, which it would like to collect  as the price of turning it over to Ontario. On the other hand, Ontario, having duly consulted its experts, contends that the fair market value is in the range of minus $78,000,000 to minus $104,000,000 — that’s minus $78 mil to minus $104 mil. Ontario (the buyer) would thus appear to want to pay nothing, and beyond that to be relieved of a negative-value asset worth -78 million smackers just for the favor of taking that airport off LA’s hands.* We are trying to keep a straight face as we type these figures, but hey man, that’s what it says in the newspaper in black and white.

In the meantime, Ontario has lodged a claim against Los Angeles (which in California is a precondition to filing suit, other than a direct or inverse condemnation action, against a government entity), thus suggesting that the coming litigation is likely to ivolve issues other than just condemnation valuation.

At this point, we could easily launch into a bit of reminiscing which would have to be a lengthy, probably multi-volume tale of our litigational exploits against airport folks, but neither we nor you, dear reader, are young enough to pore through all that. By way of a sampling, see, e.g., Greater Westchester Homeowner’s Assn. v. City of Los Angeles, 26 Cal.3d 86 (1979), Stone v. City of Los Angeles, 51 Cal.App.3d 987 (1975), and for good measure, Nestle v. City of Santa Monica, 6 Cal.3d 920 (1972), Baker v. Burbank-Glendale-Pasadena Airport Authority, 39 Cal.3d 862 (1985), and Fields v. Sarasota-Manatee Airport Authority, 953 F.2d 1299 (11th Cir. 1992), to show you that we are not in the habit of picking on Los Angeles.

To sign off with our usual words of parting, stay tuned. This one should be fun.

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* Until other, more impressive figures appear on the scene, we propose to call this offer “The Mother of All Lowballs.”

 

The Undead Are On the March

Remember the recent caper whereby cities would condemn underwater mortgages — not the homes serving as security, but mortgages — for their depressed post-2008 crash value, and restructure the debt to bring the homes serving as security to a lower, more realistic level, thereby preventing homeowners from losing their homes by foreclosure? It all sort of petered out after protests by the financing folks who didn’t look kindly on the idea of having their mortgages taken for less than their nominal balance. You’d think that now, that depressed home prices are rising, that scheme would be doubly dead. But it turns out that this dead horse isn’t quite dead.

Reuters.com reports that a few small California towns are still studying it. They are El Monte, La Puente, San Joaquin, and over the state line, North Las Vegas (not to be confused with the real Las Vegas).

What the prospects are of succeeding this time, we cannot say, but we thought our readers may want to know that this scheme is not entirely dead — undead is more like it.

The Reuters.com story is Matthew Goldstein, Eminent Domain to Fix Troubled Mortgages Makes a California Comeback; click here.

“Sandbagging” Is With Us Again, Except In the Past No One Had the Chutzpa to Defend It

Your faithful servant is a man of limited intellectual powers, often amazed by what he learns from his betters. And so, once more we find ourselves amazed after reading a recent post of one of our fellow bloggers, Brad Kuhn who runs the California Eminent Domain  blog. Mr. Kuhn purports to tell us why condemnors submit one appraiser’s opinion of value in support of obtaining an order for [pretrial] possession, and then, when trial rolls around, offer a second appraisers’ testimony, in a lower amount. Why would they do that? Good question with a rational, if sneaky answer.

This practice, often known as “lowballing” or “sandbagging,” has nothing to do with fluctuations in market value, as Mr. Kuhn thinks. For one thing, when a condemnor makes a deposit, that freezes the date of value, so market fluctuations from that point on have no effect on valuation. Typically, condemnees withdraw the deposit so they can acquire substitute property to which to move when the subject property is physically taken from them by an OIP or otherwise. So when months later, trial takes place, and time comes to put on real, admissible evidence of value, condemnors can bring in another appraiser who testifies to a value lower than the earlier deposit value, thus putting the condemnee under unfair pressure. If he goes to trial now, he risks a verdict that may be lower than the deposit, which would require him to refund a part of the money he withdrew and probably spent on a replacement property.

This practice is so old that it was cautioned against by the late Dick Huxtable in the 1960 edition of the CEB California Condemnation Practice, CLE book, (§12.24, pp. 243-244) and was repeated in the 1973 edition. (§9.57, at pp. 244-245), as well as the current one. There have even been cases in which condemnors had the chutzpa to try and pull this “sandbagging” routine by using one appraiser who testified to one figure for purposes of fixing the deposit, and the same appraiser trying to use another [lower] figure in trial. County of Contra Costa v. Pinole Point Properties, 27 Cal.App.4th 1105 (1994), and see Community Redevelopment Agency v. World Wide Enterprises, No. B122176 (2000) (opinion vacated when condemnor settled).

 In spite of this history, Mr. Kuhn would have it that:

 “While some may wonder why the agency’s appraisal at the time of the expert exchange was significantly less than its initial appraisal and offer, this is actually becoming more and more common, especially over the last few years in a declining real estate market.  The reason is usually due to the parties’ using a date of value for the eminent domain action that is months (and sometimes over a year) after the completion of the initial appraisal, so as the market continued to dive, so did the impacted property’s value.  Also, agencies rarely use the same appraiser for trial that they use for the initial appraisal/offer, so with a new appraiser typically comes a difference in opinion.”

But if history is any guide, condemnors’ motivation is not necessarily so pure. Why would they knowingly use an outdated appraisal to establish a deposit?  Isn’t that deposit supposed to be a good faith estimate of the “just compensation” that is constitutionally due? And why did they also do that in the olden days when land values in California were going up? The reasons for condemnors’ value evidence manipulation usually have nothing to do with market conditions; as noted, it’s an unfair way of putting condemnees under pressure — not exactly something that is consistent with “fairness and justice” that the courts tell us is the essence of eminent domain proceedings. And besides, aren’t condemnors required by law to make offers that represent fair market value, which is statutorily defined as the highest value the subject property would bring in a voluntary market transaction?

California Zoningspeak

We quote the following passage from a Los Angeles Times editorial, Barlow Hospital’s Overreach, L.A. Times, April 14, 2013, at p. A21, referring to land that is zoned agricultural:

“That means a community center, a golf course, a park or the least dense kind of housing — a single house per 2 1/2-acre lot — could be built there.”

And here we thought that “agricultural” means growing patooties, raising piggies and stuff like that. Live and learn.

Bubble, Bubble, . . .

Today’s Los Angeles Times reports in a front-page, above-the-fold story that the symptoms of the ol’ housing bubble are back. The story reports that down in Huntington Beach (a nice but by no means posh community in Orange County) people have started camping in front of the sales office of a subdivision, advertised as offering homes from “$1,200,000 and up.” Alejandro Lazo, Building Boom is Back, L.A. Times, April 14, 2013, at p. A1. And as of February (as compared with last year’s February) the median price of a Southern California home has gone up 19%. The current median price is $401,000 — which means that one-half of Southern California homes go for more than that. And take our word for it, if you were to find a $401,000 or less home in our neck of the woods (the distinctly unfashionable Burbank/East San Fernando Valley area) you wouldn’t want to live in it.

The causes of the price increase are said to be (a) a lowered supply (especially of large homes) brought about by reduced construction following the 2008 collapse of the housing market, and (b) historically low interest rates that make mortgage payment cheaper. But whatever its causes, a bubble is a bubble and we feel that a frenzied seller’s market in million-dollar homes is not sustainable.  So stay tuned, and see what happens when interest rates go up, as they inevitably must, sooner or later.

California Choo-Choo — (Cont’d.)

Latest word on our proposed but misbegotten California “bullet train” is that our governor — in the words of a Los Angeles Times article subheading — “. . . hopes a booming nation will invest in California’s troubled rail project.” Anthony York, Brown Wants China Aboard, L.A. Times, April 12, 2013, p. AA1. Which nation might that be? China, of course; California isn’t exactly “booming.” In fact, it doesn’t have the proverbial two nickels to rub together by way of funding so major a project. To bring any newcomers to this blog up to date, the projected cost of the California “bullet” choo-choo hovers somewhere around $68 billion, while the voters, in their wisdom, having been duly snookered by overly optimistic politicians in the 2008 election, have approved only $9 billion. You can take it from there.

The L.A. Times article expresses vague platitudinous hopes about the prospects of a Chinese deal, but it is not clear what the Chinese “investment” would be. Rather, it sounds to us that what these guys are talking about is a deal in which the we would pay the Chinese for construction projects and maybe some rolling stock (since it seems like whenever anything comes up that requires any rolling stock, we have to buy it abroad because, it seems that these days nobody in America knows how to make a decent subway or railroad car). The Chinese would then “invest” our money, as is their wont, by putting it in their pockets, or using it to finance the People’s Red Army. But we digress. Or do we?

If you read the whole L.A. Times piece, it appears that the “investment” is nothing of the sort. What the Chinese are more likely after is our money — they may want to sell us rolling stock or maybe do some construction work which means that we would do the “investing” while they would pocket our money. That would get things done, but would also add to the balance-of-payments deficit and export more jobs across the Pacific. That may not be all bad, at least as seen by the global trade junkies. The Chinese do things cheaper, and — being unencumbered by our often absurd environmental laws (to say nothing of a hostile bureaucracy bound and determined to slow things down, stop major projects altogether) — faster.

Speaking of which (getting things done), don’t miss our governor’s quotable quote about how things are done in China:

“People here do stuff. They don’t sit around and mope and process and navel-gaze.”

We resist the urge to leap on that straight line by reminding the guv about the many California projects that languish for years while bureaucrats, courts and environmentalists use the law to “mope and process,” delaying construction of needed projects forever — or so it seems.  You don’t believe us? Try building something in the California coastal zone, or for that matter in any upscale community — e.g., check out our recent posts about Marin County frustrating the expansion of LucasFilm studios until Lucas gave up in disgust. And in Los Angeles, the legislature had to waive environmental laws in order to get a new football stadium built, even though we don’t have an NFL team. A case of  “If you build it, they’ll come,” if there ever was one.

So stick around and see how it goes. But don’t hold your breath while you’re at it. Remember, this is California, so as our governor concedes, we are in for some “moping and processing.”