Housing Finance Reform Endgame?

The Hill published my column, There is Hope of Housing Finance Reform That Works for Americans.  It opens,

The Trump administration released its long awaited housing finance reform report and it is a game changer. The report makes clear that it is game over for the status quo of leaving Fannie Mae and Freddie Mac in their conservatorship limbo. Instead, it sets forth concrete steps to recapitalize and release the two entities. This has been a move that investors, particularly vulture investors who bought in after the two companies entered into their conservatorships, have clamored for.

It is not, however, one that is in the best interests of homeowners and taxpayers. The report recognizes that there are better alternatives. Indeed, it explicitly states that the “preference and recommendation is that Congress enact comprehensive housing finance reform legislation.” But the report also states that the conservatorships, which are more than a decade old, have gone on for too long. So the report throws down a gauntlet to Congress that if it does not take action, the administration will begin the formal process of implementing the next best solution.

Does Historic Preservation Limit Affordable Housing?

By Stefan Kühn - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=9413214

I answer that it can in CQ Researcher’s Historic Preservation:  Can The Past Escape The Wrecking Ball?

Many people fail to realize that land use policies like historic preservation involve big trade-offs. The most important one is that if you want to protect existing structures from demolition and modification, you can’t replace them with bigger ones that could house more people. Consider:

  • Historic preservation equals height and density restrictions. New building technologies (think steel girders and elevators) allow buildings to be built higher as time goes by. If a city landmarks a large percentage of its inner core, it restricts the ability of that core to go higher. This can lead to sprawl, as a growing population is pushed farther and farther from the city center.
  • Historic preservation favors the wealthy. Limited supply drives up housing prices and apartment rents, benefiting owners. And low-income and younger households are likely to suffer, as they are least able to bear the cost of the increases compared to other households. Future residents — think Midwesterners, Southerners and immigrants seeking to relocate to a city like New York for job opportunities — will also suffer.
  • It isn’t easy for historic preservation to be green. It feels environmentally responsible to protect older, low-density buildings in city centers because you have no dusty demolition, no noisy construction. But it actually comes at a big environmental cost. Denser construction reduces reliance on cars and thereby lowers carbon emissions. People living in a dense city have a much smaller carbon footprint than those in a car-oriented suburb.

Just because preservation comes at a cost does not mean it is bad. Much of our past is worth protecting. Some places benefit from maintaining their identities — think of the European cities that draw the most tourists year in and year out. But it is bad to deploy historic preservation indiscriminately, without evaluating the costs it imposes on current residents and potential future ones.

Cities that want to encourage entrepreneurship and affordable housing should deploy historic preservation and other restrictive land use tools thoughtfully. Otherwise, those cities will be inhabited by comparatively rich folks who complain about the sterility of their current lives and who are nostalgic for “the good old days” when cities were diverse and hotbeds of creativity.

If they fail to understand the trade-offs inherent in historic preservation, they won’t even understand that a part of the problem is the very policy they support to “protect” their vision of their community.

Two Positions at Detroit Mercy School of Law

Professor Belian asked me to post the following:

Announcement: Property Law Position

University of Detroit Mercy School of Law seeks a proven or aspiring scholar and teacher with an interest in teaching first-year Property Law for a tenured or tenure-track position beginning 2020-2021.  Applicants must have a law degree and strong academic background and must demonstrate either a record of or potential for both teaching excellence and high scholarly achievement in any area of law.  The balance of the teaching package will be determined in conversation with the successful candidate.

To Apply

Applicants should send a cover letter, which should include a brief description of their ideal teaching package and a general indication of their areas of scholarly interest.  Please direct the cover letter, a current CV, additional supporting materials (if any), and any questions you may have to:

Professor Julia Belian, Chair of Faculty Recruitment

University of Detroit Mercy School of Law

651 East Jefferson

Detroit, Michigan 48226

(belianju@udmercy.edu, 313-596-0225)

Materials will be accepted via email or regular mail.  Review of applicants will begin in July 2019 and will continue until the position is filled.

About Our Program of Legal Education

Detroit Mercy Law offers a unique curriculum that complements traditional theory- and doctrine-based course work with intensive practical learning.  Students must complete at least one clinic, one upper-level writing course, one global perspectives course, and one course within our Law Firm Program, an innovative simulated law-firm practicum.  Detroit Mercy Law also offers a Dual J.D. program with the University of Windsor in Canada, in which students earn both an American and a Canadian law degree in three years while gaining a comprehensive understanding of two distinct legal systems.  Interested Dual J.D. students are fully integrated into upper-level U.S. courses.  The program’s first-year U.S. Property Law module could form a component of the teaching package if desired.

Detroit Mercy Law is located one block from the riverfront in Downtown Detroit, within walking distance of federal, state, and municipal courts, the region’s largest law firms, and major corporations such as General Motors, Quicken Loans, and Comerica Bank.  The School of Law is also uniquely situated two blocks from the Detroit-Windsor Tunnel, an international border crossing linking Detroit with Windsor and Canada.

Detroit offers a dynamic variety of culinary, cultural, entertainment, and sporting attractions.  See https://www.youtube.com/watch?v=DO4J_PC1b5M and learn more at https://www.nytimes.com/2017/11/20/travel/detroit-michigan-downtown.html.

Michigan’s largest, most comprehensive private university, University of Detroit Mercy is an independent Catholic institution of higher education sponsored by the Religious Sisters of Mercy and Society of Jesus.  The university seeks qualified candidates who will contribute to the University’s urban mission, commitment to diversity, and tradition of scholarly excellence.  University of Detroit Mercy is an Equal Opportunity Affirmative Action Employer with a diverse faculty and student body and welcomes persons of all backgrounds.

*************************************************

Announcement: International Intellectual Property Clinic Director

University of Detroit Mercy School of Law seeks applicants for a tenured or tenure-track position to teach in and direct the International Intellectual Property Law Clinic starting with the 2020-21 academic year.

The Clinic

The International Intellectual Property Law Clinic is certified by the USPTO for both patent and trademark law and serves the burgeoning creative and entrepreneurial community in Detroit.  In 2012, the USPTO chose Detroit as the location for its first satellite office because Detroit and its surrounding communities are home to one of the largest concentrations of intellectual property attorneys in the United States.  Part of a growing Intellectual Property program at Detroit Mercy Law, the International Intellectual Property Law Clinic hosts the annual International Patent Drafting Competition, which is held at the Elijah J. McCoy Midwest Regional USPTO each February.  The Competition attracts teams from law schools across the United States and Canada.  Detroit Mercy Law also offers an on-line Certificate in Law – Intellectual Property. This non-JD program meets the needs of professionals and organizations for knowledge of intellectual property and cybersecurity laws.

Requirements

Applicants must

  • Have a law degree and strong academic background.
  • Demonstrate either a record of or potential for both teaching excellence and high scholarly achievement.
  • Be either a registered patent attorney, a patent agent in good standing with the USPTO, or a licensed attorney in good standing with the highest court of any state.

Ideal candidates will also possess at least three years’ experience (within the past five years) prosecuting patent applications before the USPTO.  Applicants with some experience teaching in a law clinic are preferred, and applicants who are excited about continuing to grow our Intellectual Property Law program, in addition to directing the existing Clinic, are of particular interest.

To Apply

Applicants should send a cover letter with a current CV and any additional supporting materials (or any questions) to:

Professor Julia Belian, Chair of Faculty Recruitment

University of Detroit Mercy School of Law

651 East Jefferson

Detroit, Michigan 48226

(belianju@udmercy.edu, 313-596-0225)

Materials will be accepted via email or regular mail.  Review of applicants will begin in July 2019 and will continue until the position is filled.

About Our Program of Legal Education

Detroit Mercy Law offers a unique curriculum that complements traditional theory- and doctrine-based course work with intensive practical learning.  Students must complete at least one clinic, one upper-level writing course, one global perspectives course, and one course within our Law Firm Program, an innovative simulated law-firm practicum.  Detroit Mercy Law also offers a Dual J.D. program with the University of Windsor in Canada, in which students earn both an American and a Canadian law degree in three years while gaining a comprehensive understanding of two distinct legal systems.

The Detroit Mercy Law Clinical Program is one of the oldest in the United States, having opened our doors as the Urban Law Clinic in 1965. Today, we offer eleven clinics, including the Criminal Trial Clinic, Environmental Law Clinic, Family Law Clinic, Federal Pro Se Legal Assistance Clinic, Housing Law Clinic, Immigration Law Clinic, Juvenile Appellate Clinic, International Intellectual Property Law Clinic, Trademark and Entrepreneurial Clinic, Veterans Appellate Clinic, and Veterans Law Clinic. Each year our clinics represent more than 1,000 clients and provide more than 20,000 hours of free legal services.

Detroit Mercy Law is located one block from the riverfront in Downtown Detroit, within walking distance of federal, state, and municipal courts, the region’s largest law firms, and major corporations such as General Motors, Quicken Loans, and Comerica Bank.  The School of Law is also uniquely situated two blocks from the Detroit-Windsor Tunnel, an international border crossing linking Detroit with Windsor and Canada.

Detroit offers a dynamic variety of culinary, cultural, entertainment, and sporting attractions.  See https://www.youtube.com/watch?v=DO4J_PC1b5M and learn more at https://www.nytimes.com/2017/11/20/travel/detroit-michigan-downtown.html.

Michigan’s largest, most comprehensive private university, University of Detroit Mercy is an independent Catholic institution of higher education sponsored by the Religious Sisters of Mercy and Society of Jesus.  The university seeks qualified candidates who will contribute to the University’s urban mission, commitment to diversity, and tradition of scholarly excellence.  University of Detroit Mercy is an Equal Opportunity Affirmative Action Employer with a diverse faculty and student body and welcomes persons of all backgrounds.

In Spite of It All

By Chris Hamby - https://www.flickr.com/photos/chrishamby/8294571901, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=35347913

Realtor.com quoted me in 3 Most Mind-Boggling Housing Turf Wars Ever—and What They Can Teach Us All. It opens,

Welcome to turf wars! No, it’s not the latest reality TV show—it’s just a way to describe two (or more) parties insisting that a particular piece of property is their own.

Turf wars are as old as the hills, and the existence of people who could lay claim to them. And they’re at the center of some surprisingly fascinating stories of wealth, greed, and pettiness. It seems that no property is too small to inspire a bitter rivalry—including one about the size of a floor lamp—that could go unresolved for decades.

As proof, check out some of the strangest turf tales below, and the lessons we can all learn from them to avoid the same ugly fate.

1. The smallest land grab ever

In Manhattan on the corner of Christopher Street and 7th Avenue lies a 500-square-inch piece of private property in the shape of a triangle.

The backstory: In 1910, the city demolished a building owned by David Hess to build a subway, but the surveyors missed this small patch in their measurements. Later on, once this error was discovered, the city asked the Hesses to donate it, but the family refused.

For good measure, the family laid a mosaic reading, “Property of the Hess Estate Which Has Never Been Dedicated for Public Purposes.”

Per the New York Times, it’s “one of the smallest pieces left in private ownership as a result of the cutting through a few years ago of the Seventh Avenue extension. It has been assessed on the tax books for $100.”

In 1938 the family sold this parcel to the cigar shop a few feet behind it for $1,000.

Lesson learned: Land survey mistakes—or not bothering with a survey at all—can cost you big-time!

“If there’s any question about who owns what, it’s better to be safe than sorry and get a good survey done,” says David Reiss, a law professor at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

On a more human level, we can learn this: “Spite is about as powerful as an immovable object,” says Reiss. “If you try to dislodge it, you will in all likelihood lose.”

Unfair, Unlawful and Abusive

I signed on to a Memorandum in Support of a bill to amend New York’s consumer protection law to make it consistent with the laws of 39 other states and the federal government.  St. John’s Gina Calabrese led this effort.  The Memorandum opens,

STATEMENT OF SUPPORT: The undersigned consumer law professors support S.2407/A.679, which would expand the scope and improve enforcement of General Business Law §349 (“GBL 349”), New York’s statute prohibiting deceptive business acts and practices. By adding unfair, unlawful and abusive to the categories of prohibited conduct, this bill would make New York’s consumer protection policy consistent with the laws of 39 other states and the federal government, reflecting policies integral to a well-functioning marketplace.

BACKGROUND: Enacted almost 50 years ago, GBL 349 prohibits “deceptive” acts and practices. However, it does not currently prohibit unfair, unlawful, and abusive business acts and practices. Most states and the federal government recognize that unfair, unlawful, and abusive acts and practices cause great harm to the public. Traditional businesses have long-standing methods that take advantage of consumers. Modern business developments, products, and services have increased the public’s vulnerability to various harms that may not be encompassed by prohibitions against “deceptive” acts. Technology, collection of personal data, and complex business models (e.g., several entities handling different aspects of a transaction) all play a role. For example:

 Wells Fargo opened millions of unauthorized bank accounts using customer data already in its possession. The Consumer Financial Protection Bureau fined Wells Fargo $100 million using its power to address unfair and abusive practices, not its power to punish deceptive practices.

 New York’s law fails to prevent unfair tactics well-known to consumer experts, including high pressure sales tactics in automobile sales and illegal fees charged by mortgage servicers. Law school clinics have assisted elderly car buyers who were persuaded to relinquish their keys to car dealership staff then detained for hours until they were “worn down” and bought cars or add-ons they didn’t want or need with expensive financing.

Dozens of other states already prohibit unfair practices, such as New York’s neighbors Connecticut, Pennsylvania, and Massachusetts. Even states like Mississippi, Georgia, Tennessee and West Virginia permit consumers to sue for unfair practices. Contrary to fears stoked by business groups, there is no evidence that that has led to an explosion of litigation. And the federal Dodd-Frank Act proscribes abusive consumer financial practices. S.2407/A.679, is not a broad expansion of consumer rights, but more like having New York catch up.

The bill would eliminate the “consumer-oriented” requirement that the courts grafted onto the law. It does not appear in the text of GBL 349. It prevents consumers from holding businesses accountable because meeting the requirement often involves substantial pre-suit investigation. We know of no other state that requires “consumer-oriented” conduct before a court can impose liability.

The bill would improve compliance with and enforcement of GBL 349 because it increases the outdated $50 cap on statutory damages, codifies organizations’ standing to sue, permits class actions, and ensures that a successful plaintiff will be able to recover fees to pay her attorney. Very few consumers will bother to sue for $50, meaning that many bad actors do not have to fear private claims and the law will not be properly enforced. The bill would permit statutory damages of $2,000, which seems modest compared to penalties consumers can obtain under Kansas law of up to $10,000. Strengthening the ability of individuals and organizations to sue businesses for unfair, unlawful, deceptive, and abusive acts ensures that the public will be protected when government agencies do not act to stop illegal practices, whether the reason be different priorities, lack of resources, or lack of impact on a large number of people.

The bill would empower the Attorney General to ensure New Yorkers enjoy a fair and just marketplace and private persons to better protect themselves from unfair, unlawful, abusive, and deceptive practices engaged in by businesses with greater bargaining power and protect the public from ever-evolving anticompetitive and harmful business practices.

Financing The American Dream

I published Financing The American Dream in the May/June 2019 issue of the ABA’s Probate & Property magazine.  it opens,

Two movie scenes can bookend the last hundred years of housing finance. In Frank Capra’s It’s a Wonderful Life (RKO Radio Pictures Inc. 1946), George Bailey speaks to panicked depositors demanding their money back from Bailey Bros. Building and Loan. This tiny thrift in the little town of Bedford Falls had closed its doors after it had to repay a large loan and temporarily ran out of money to return to its depositors. George tells them:

You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house…right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can.

Local lenders lent locally, and local conditions caused local problems. And in the early 20th century, that was largely how Americans bought homes.

In Adam McKay’s movie The Big Short (Plan B Entertainment 2015), the character Jared Vennett is based on Greg Lippmann, a former Deutsche Bank trader who made well over a billion dollars for his employer by betting against subprime mortgages before the market collapse. Vennett  demonstrates with a set of stacked wooden blocks how the modern housing finance market has been built on a shaky foundation:

This is a basic mortgage bond. The original ones were simple, thousands of AAA mortgages bundled together and sold with a guarantee from the US government. But the modern-day ones are private and are made up of layers of tranches, with the AAA highest-rated getting paid first and the
lowest, B-rated getting paid last and taking on defaults first.

Obviously if you’re buying B-levels you can get paid more. Hey, they’re risky, so sometimes they fail. . . .

Somewhere along the line these B and BB level tranches went from risky to dog [excrement]. I’m talking rock-bottom FICO scores, no income verification, adjustable rates. . . dog [excrement]. Default rates are already up from one to four percent. If they rise to eight percent—and they will—a lot of these BBBs are going to zero.

After the whole set of blocks comes crashing down, someone watching Vennett’s presentation asks, “What’s that?” He responds, “That is America’s housing market.”

Global lenders lent globally, and global conditions caused global and local problems. And in the early twenty-first century, that was largely how Americans bought homes. This article provides an overview of the strengths and weaknesses of each aspect of the housing finance system in order to enable discussion of how to design a stronger system for the rest of the 21st Century. For a much more extensive treatment of this topic, see the author’s forthcoming book, Paying for The American Dream: How To Reform The Market for Mortgages (Oxford University Press, 2019).

Skyscraper’s Future up in The Air

skyscrapers

The New York Law Journal quoted me in Upper West Side Skyscraper’s Future Uncertain After NY State Court Ruling. The story opens,

The development at 200 Amsterdam Ave. in Manhattan is slated to be the tallest building on the Upper West Side, with its 51 stories rivaling the skyscrapers located further downtown.

But whether this will ever happen has now become questionable, after a state court ruling that found city officials were wrong to follow an interpretation of city zoning law used by the developer to achieve the project’s awesome height.

Supreme Court Justice Franc Perry of Manhattan sided with local community groups looking to halt the building underway at the site. The plaintiffs—the Committee for Environmentally Sound Development and the Municipal Arts Society of New York—were joined by numerous local state and city elected officials in opposing what they say is not only an out-of-character monster development in the Manhattan neighborhood, but one that relied on a faulty zoning law interpretation to move forward.

“It is finally a declaration that zoning law means something and developers can’t make it up as they go along,” said Emery Celli Brinckerhoff & Abady name attorney Richard Emery, who represented the plaintiffs.

Since 1978, developers and city buildings officials have relied on the so-called Minkin Memo, named after the former head of the city’s Department of Buildings’ Irving Minkin, for guidance on what experts call an ambiguity in the city’s zoning law towards so-called tax lots. These are additional subdivisions of city real estate, which can overlap with or be included inside a zoning lot.

Under the Minkin memo, developers have been able to pull together extra vertical building rights that nearby property owners aren’t using, offering the opportunity to boost the size of a project such as 200 Amsterdam beyond what would normally be allowed.

“The zoning resolution is ambiguous about when a zoning lot can be formed from partial tax lot; it never deals with that problem,” said Stewart Sterk, the Mack Professor of Real Estate Law and director of the Center for Real Estate Law & Policy at the Cardozo School of Law.

Initially, city officials had no problem with the move. DOB issued a permit to the developers for a residential and community facility building at the site of the Lincoln Towers condos on the Upper West Side. The developers relied on the Minkin memo as the basis for the acquisition tax lots that combined partial and whole lots to provide the developers with the vertical building rights needed for their skyscraper.

Shortly after DOB green lighted the project, the Committee for Environmentally Sound Development challenged the DOB’s decision. The challenge snowballed, and soon seemingly every local elected official, from state Assemblyman Richard Gottfried to borough president Gale Brewer, were opposed to the plan. The project’s permit was appealed by both CESD and the Municipal Arts Society to the city’s Board of Standards and Appeals.

In March 208, DOB made an official about-face on the project. In a letter from assistant general counsel to the BSA, the department said the Minkin memo provided an incorrect interpretation and that zoning regulations did not in fact intend for zoning lots to consist of partial tax lots.

The BSA was not persuaded by the arguments and in July 2018 voted 3-1 not to grant the appeal, with one board member abstaining. The plaintiffs soon after pursued a review of the BSA’s decision in state Supreme Court.

In subjecting the developers’ permit to further review, Perry pointedly took issue with BSA view of the process.

“BSA found that the Subject Zoning lot is ‘unsubdivided,’ within the meaning of the [New York City Zoning Resolution], simply because Developer has declared it to be so,” the judge wrote.

Noting that the referenced law states that a zoning lot is defined by being “unsubdivided” within a single block, Perry said BSA’s interpretation would render the term “superfluous,” and run “afoul of elementary rules of statutory construction.”

Since DOB saw the light on the Minkin memo during the appeal process, the court said the department’s statutory basis for the issuance of the permit to begin with was undermined. BSA’s decision was nullified and vacated, and the board was directed to review the project’s permit application “in accordance with the plain language” of the zoning regulation and Perry’s order.

As Cordozo’s Sterk noted, the development at 200 Amsterdam was far from the first to use the Milkin memo to justify partial tax lot usage in a building plan. Perry’s decision has the ability to throw uncertainty around zoning and building issues into a business sector highly adverse to such things, Sterk said.

But just as important for Sterk is the question now of when a government agency becomes estopped from changing its mind after it’s already induced people to rely on its existing interpretation.

“That’s a big problem in this case, because clearly developers have put millions of dollars into this project in reliance on an existing interpretation,” he said.

Brooklyn Law School professor David Reiss, who is the research director of the school’s Center for Urban Business Entrepreneurship, said he saw the case as less of a “good guy vs. bad guy” dynamic as much as one of whether the assurances of government officials can be binding.

“There’s a reliance on government statements and government permissions,” Reiss said, while noting the project has already commenced.

Should the case stand, he predicted it would serve to rattle developers’ confidence in their dealings with the city going forward.

“It’s more uncertainty in a process that’s already pretty uncertain,” he said.