Monthly Archives: November 2012

California Tops List of Least Affordable Cities

The above headline shouldn’t come as a surprise, but the specific numbers may. Accorning to CNN Money — click here — of the ten most expensive cities, five are in California: San Francisco, Santa Ana, Los Angeles, San Jose, and San Diego. These appear to be the “usual suspects,” except for Santa Ana.

The other five are — what else? — New York, followed by Bridgeport, Honolulu, Newark and El Paso.  Bridgeport?! Newark? That’s what it says.

The surprises are Santa Ana on the California list, as well as Bridgeport and El Paso on the list of the rest. We are also surprised to note that Boston and Washington are not on the list, but then again, what do we know?

Whatever Happened to Condemnation of Underwater Mortgages?

It has been a while since the surfacing of the idea of taking underwater mortgages by eminent domain– that’s the mortgages, not the homes encumbered by them — then reducing the principal to less than its nominal balance, and letting the homeowners continue living in their homes while allowing them to make lower monthly payments based on a new, adjusted mortgage loan balance. Homeowners may find that speaking to a broker similar to this Red Deer mortgage broker may be the best option for them if they are looking into getting an underwater mortgage. This would help them to continue to afford things like homeowners’ insurance (see the best company) which will provide them with peace of mind and keep them product so they can continue to work and afford that adjusted mortgage. We have written about that from time to time, but now it appears that the would-be movers and shakers behind this caper may be having second thoughts. So says Reuters — see Matt Goldstein and Jennifer Ablan, Eminent Domain or Principal Reduction, the Bottom line Is Reducing Mortgsage Deb,, Nov. 26, 2012.

It turns out that the bloom is off the rose and the mortgage condemnation train has slowed down. Why? We don’t know for sure, but it seems likely that the realization has sunk in that the exercise of the power of eminent domain requires payment of just compensation. Evidently no one has thought through what that would entail quantitatively, and no one is eager to put up the money required to find out. Remember that the statutory “fair market value” that is the usual measure of “just compensation” requires payment of the highest price the property in question would bring if sold in a voluntary transaction by a knowledgeable but unpressured seller to a knowledgeable but unpressured buyer. And, as far as we can tell, nobody knows what the highest price of an underwater but performing mortgage is. When it comes to underwater mortgages your home may not have the equity credit needed, so it is important that you know what you’re looking for when it comes to understanding equity release, should you want to do so.

Our perception is that at first, the promoters of this scheme saw it as easy pickings; they would pick up some performing but underwater mortgages at way below their value and clean up by letting the occupant-homeowners take over the debt service using a lower mortgage balance. But apparently, performing mortgages cannot be picked up for peanuts even if they are underwater. They represent a cash stream which no one is going to give away. You might find that this is helped by having targeted mortgages, for instance, mortgages for medical professionals that provide services that could help with their personal housing finances. It is something that is slowly becoming common among professionals who are seeking mortgages in the hopes that they will not be tied down by other services.

So stay tuned and see what happens.

Follow up. It seems that the promoters of this scheme are also getting antsy about the aparent loss of interest (or at least the decline of press coverage of this caper) so they’re out there, beating the drums, and informing us that this lull in coverage is just a temporary thing, and just you wait ’til next year. And so we shall. In the meantime to read about what the world looks like from their point of view, check out the story by Joe Nelson, Arguments Over Eminent Domain Mortgage Seizure Program Ramp Up for 2013, San Bernardino Sun, Dec. 1, 2012 — click here.

Lowball Watch — Louisiana

A worthy entry into our “Lowball Watch” department comes from Louisiana. It’s State DOT v. Monteleone, La. Ct. of Appeal (5th Cir.), No. 11-CA-1013, filed November 13, 2012. This was a taking of a 153-acre tract of land for highway improvement. For purposes of valuation it was subdivided by the appraisers and the court into three parcels. As a result the opinion is long and fact-intensive, so if you want to understand the controversy fully, you should read it in its entirety. The date of value was 1987.

The DOT’s deposit was only $46,558, whereas after two trials (see 967 So.2d 798 for the first appellate opinion which reversed the first award of an additional $45,114 with no severance damages, because of jury misconduct). The final award for the taking, after the second trial, came to $214,534.14. plus $1,416,466.40 in severance damages, plus $1,584,442.54 in accrued interest (and counting), plus $173,030 in costs, plus $900,000 in attorneys fees for the trial. The case was remanded for calculation of attorneys fees for the appeal, to be added to the attorneys fees for the trial.

The controversy centered on DOT’s contention that the highest and best use was only the land being left in a natural state as “recreational,” whereas the owners contende that a part of it was developable as industrisl. Note also that this condemnation action was filed — are you ready? — in 1987, which accounts for the high interest figure. No explanation for this long delay (other than the first trial and first appeal which still makes this delay pretty long).

This post was edited on November 26, 2012

Lowball Watch — New York

Here is a dispatch from Rockland County, New York. The local Sewer District brough a condemnation action to take a 64-acre tract of vacant land located in Ramapo, and offered the owner $244,000. The owner declined it, so the case went to trial. At trial, the condemnor upped its evidence of value to $320,000. The owner’s appraiser opined to compensation of $8,850,000 based on a market data analysis. The trial judge (there are no juries in New York eminent domain cases) awarded $8,100,000, plus interest from February 15, 2005. In other words, the award was thirty-three times the offer.

The case is Split Rock Partnership v. Rockland County Sewer District, Rockland County Supreme Court, Index No. 7604/04.

The controversy centered on the property’s highest and best use. The owners contended that the subject property was suitable for development of a large commercial building. Condemnor disagreed.

If you have an interest in valuation evidence, we recommend you reard this entire lengthy opinion which is fact-intensive.

SCOTUS Grants Certiorari in Another Inverse Condemnation Case

The US Supreme Courtt has granted certiorari in a taking case. It’s a type of exaction case in which California raisin growers are required to give 47% of their crops to a government entity as a condition to being permitted to sell the rest of their raisins on the open market. Horne challenged the constitutionality of that provision when the government brought an enforcement action. The case is Horne v. U.S. Department of Agriculture, opinion below is 673 F.3d 1077 (9th Cir. 2011), now SCOTUS docket No. 12-236.

For additional details go to that contains a link to the SCOTUS docket sheet, and some useful commentary by our fellow blogmeister, Robert H. Thomas.

The issue is one of remedies. The 9th Circuit held that the raisin growers could not challenge the constitutionality of the regulation by way of a taking defense in a federal enforcement action brought by the government in District Court, but should have yielded to the unlawful government demand and then sued for just compensation in the U.S. Court of Federal Claims under the Tucker Act. In other words, this looks sort of like the “Tucker Act shuffle” to which SCOTUS subjected the owners in the Preseault case (with an eventual happy ending, albeit in the U.S. Court of Federal Claims and the Federal Circuit after the owner lost in the U.S. District Court).  Except this case is more like a cross between Preseault and Sackett. So stay tuned.

For additional commentary check out SCOTUSblog — click here to read Lyle Denniston, Court to Rule on Raisin Program, Nov. 20, 2012.

How the City of San Bernardino Went Bankrupt

We commend to our readers a special report published by Reuters, explaining how San Bernardino rendered itself insolvent, and had to file for bankruptcy. Read Tim Reid, Cezary Podkil and Ryan McNeill, How a Vicious Circle of Self-Interest Sank a California City, November 13, 2012 — click here. If you have an interest in municipal financing (and municipal misrule), this report is must reading.

Simply stated, these folks have been shoveling money at municipal unions, and allowing chosen municipal employees, notably police and firefighter retirees to knock off work while in their fifties at large six-figure pensions, plus generous accumulated sick time, etc. We urge you to click on the link above and actually read this report. It’s one of those things that defies credulity, but Reuters is a major, established news service, and there is no reason to believe that it is misreporting this situation.

Incidentally, we wrote on this subject on October 10, 2012. We were replying to an absurd op-ed piece by a former Mayor of Ventura who was peddling the notion that municipal bankruptcies are caused, not by reckless municipal spending, but by — are you ready? — sprawl. The less said about that theory, the better, but you may want to check out our response to it in the form of an op-ed piece of our own, appearing in the Los Angeles Daily Journal of October 25, 2012. It explains how sprawl came about, and you won’t be surprized to learn that the government had a hand in it big time, by providing incentives in the form of low-cost home financing, favorable tax laws, suburban highways, etc. You could say that the government — national and local — de facto bribed the urban population to move out of cities and create suburban sprawl, which is another story that you should read if you haven’t already.

Anyway, do read that Reuters report. It demonstrates that there are no limits to human greed and recklesness. The terrifying question is how a city could possibly descend to such low levels of misgovernance. But it evidently did.


California Choo-Choo – (Cont’d.)

It has been a while since we had anything to say about the progress (or the lack thereof, as the case may be) of the planned California high-speed train that — the Lord willin’ — will some day connect Los Angeles and San Francisco, but for now will be started in the middle of the Central Valley, which is to say in the middle of nowhere, if you’ll pardon the redundancy. If you haven’t been following this controversy, here is a capsule summary.

Governor Jerry  Brown wants to have one of those schmaltzy high-speed trains (like in Europe and Japan) that will allow Californians to go betewen LA and San Francisco in a couple of hours, thereby taking a load off north-south freeways which, so goes the plan, will also save energy, reduce emissions  and sharply reduce highway traffic. Make no mistake we are all for such a happy state of affairs, but there are big problems involved here that by our lights have not been properly considered. Like whence cometh the electrical power to run all those trains — estimated to require about a quarter of the output of Hoover Dam. Then there is the question of whether actual ridership  figures will be sufficiently high to make this scheme work out economically. California is broke and her prospective sugar daddy (Uncle Sam) is even broker ($16 trillion in debt and counting), which raises the question of where all those billions are going to come from and whether, given the prevailing economic conditions, this is the best time to start a project of that magnitude.

California voters, many of whom are now wondering if they were snookered, approved a $9 billion bond issue to finance this high-speed railroad, about a half-dozen years ago. What is wrong with that, you ask? For openers, estimates have been running to — not $9, but $68 billion. Moreover, instead of routing the new railroad through populated parts of the state where the prospective riders are, the line is being laid out on the east side of the Central Valley, an agricultural area that has lots of fruits and veggies, but few people, and offers prospects of meager ridership figures.

Then there are the usual problems with timing. Indeed, that’s what this post is about. The California High Speed Rail Authority has just revealed “that it was adding 12 months to the construction schedule for 130 miles of track in the Central Valley,” the first segment going in between Madera and Bakersfield.  And bear in mind that so far these folks haven’t yet turned over a single spadeful of dirt. But not to worry. We are assured that the railroad builders will make it up with lower overtime figures, though they still plan to be spending $3.5 million per day (we have no doubt they can do that part with one arm tied behind their back).

So keep your eye on the progress of this project, and mark December 2017 on your calendars, for that is the time when that first segment of the California high-speed train is supposed to be completed.

You can read up on all that in Ralph Vartabedian, Bulet Train Leg to Finish Later, L.A. Times, Nov. 16, 2012, at p. AA1.

Follow up. In the meantime, a trial court in Sacramento denied a preliminary injuction that would have stopped work on the railroad until completion of a full review of the environmental impact report – click here. The lawsuit challenging the EIR  was brought by a gr oup of Central Valley farmers.

Taps for 10 Los Angeles Courthouses.

The Los Angeles Times reports that ten Los Angeles County courthouses will close during the next eight months due to reduced funding. Amomng them are the courthouses in: Beverly Hills, West Los Angeles, Malibu, Avalon, Huntington Park, Whittier, Pomona and San Pedro. These courthouses will continue handling “some administrative matters, such as ticket payments, but will no longer hear cases.” Andrew Blankstein & Matt Stevens, 10 L.A. County Courthouses to Close, L.A. Times, November 14, 2012 –,0,4405776.story