Banned from Their Land

photo by MIKI Yoshihito

Realtor.com quoted me in Family Told They Can’t Live on Their Own Land (and You Won’t Believe Why). It opens,

One of the best perks of owning property—in fact, the main perk—is that you get to live on it. Or so we thought until we learned of a homeowner in Colorado who was told flat-out that her family can’t live on their own land. What’s going on?

Here’s the backstory: In June, an electrical fire left the Lafayette house of 70-year-old Marilyn Minor uninhabitable. Minor began repairs to her home so it would pass city inspections. But lacking the cash for a hotel or other accommodations, she and her home’s other residents—her son Wayne, daughter Charity, and Charity’s two kids—had nowhere to live. So they moved into their van, parked on their own land. It sounds reasonable enough, right?

Wrong.

Their living situation didn’t sit well with some neighbors, who alerted Lafayette city officials, who came back to Minor and told her that vacating her home wasn’t enough. Nope, until her place passed all inspections, the Minor family weren’t allowed to live anywhere on her property at all.

Why? That’s a question Minor is dying to get answered.

“Why can’t I live on the property that I pay taxes for and where I pay the mortgage?” she asked during an interview with Denver7. “I’ll go down fighting. This is my home.”

Although Minor anticipates her house will be fixed up in a few weeks, she’ll be dragged back into housing court next week and could face substantial fines if she remains on her property. And while some of her neighbors clearly disapprove, others are sympathetic.

“They shouldn’t have to be anywhere else,” one neighbor told Denver7. “This is their house.”

True, it’s their house, their land, their home. But according to experts we spoke to, that doesn’t mean they can live there however they please.

“Until the modern era, the common law was based on the understanding that, in many ways, every man’s home was his castle,” says David Reiss, a professor of law at Brooklyn Law School and academic program director at the Center for Urban Business Entrepreneurship.

“But for well over 100 years now, courts have acknowledged that governments have many legitimate reasons to restrict how property owners use their property. For instance, local governments regulate fire safety and sanitation issues, among other things, for the benefit of property owners themselves as well as their neighbors and the broader community.”

Inclusionary Housing: Fact and Fiction

photo by Bart Everson

The Center for Housing Policy has issued a policy brief, Separating Fact from Fiction to Design Effective Inclusionary Housing Programs. I am not sure fact was fully separated from fiction when I finished reading it.  It opens,

Inclusionary housing programs generally refer to city and county planning ordinances that require or incentivize developers to build below-market-rate homes (affordable homes) as part of the process of developing market-rate housing developments. More than 500 local jurisdictions in the United States have implemented inclusionary housing policies, and inclusionary requirements have been adopted in a wide variety of places—big cities, suburban communities and small towns.

Despite the proliferation of inclusionary housing programs, the approach continues to draw criticism. There have been legal challenges around inclusionary housing requirements in California, Illinois, Idaho, Colorado and Wisconsin, among others. In addition to legal questions, critics have claimed inclusionary housing policies are not effective at producing affordable housing and have negative impacts on local housing markets.

While there have been numerous studies on inclusionary housing, they unfortunately do not provide conclusive evidence about the overall effectiveness of inclusionary housing programs. These studies vary substantially in terms of their research approaches and quality. In addition, it is difficult to generalize the findings from the existing research because researchers have examined policies in only a handful of places and at particular points in time when economic and housing market conditions might have been quite different. Given these limitations, however, the most highly regarded empirical evidence suggests that inclusionary housing programs can produce affordable housing and do not lead to significant declines in overall housing production or to increases in market-rate prices. However, the effectiveness of an inclusionary housing program depends critically on local economic and housing market characteristics, as well as specific elements of the program’s design and implementation. (1, endnotes omitted and emphasis in the original)

The brief concludes that, in general, ” mandatory programs in strong housing markets that have predictable rules, well-designed cost offsets, and flexible compliance alternatives tend to be the most effective types of inclusionary housing programs.” (11, emphasis removed)

I have to say that this research brief does not give me a great deal of confidence that mandatory inclusionary zoning programs are going to be all that effective.  Indeed, the conclusion suggests that many ducks need to line up before we can count on them to make a real dent in affordable housing production. While this by no means should imply that they should be curtailed, we should continue to evaluate them carefully to see if they live up to their promise.

Friday’s Government Reports

  • Consumer Financial Protection Bureau (“CFPB”) announces access to the consumer complaint database where users can read consumer narratives and download complaint data as desired.  The CFPB describes it as an enhanced public-facing consumer complaint database, which includes for the first time over 7,700 consumer accounts of problems they are facing with financial services providers – including mortgages, bank accounts, credit cards, debt collection, etc.
  • U.S. Department of Housing and Urban Development’s (HUD) Semi-Annual Report to Congress (SAR) for the period ending March 31, 2015 – In which it details how: $1.2 billion in funds put to better use; more than $1.7 billion in questioned costs; and more than $457 million in collections through 38 audit reports were reported. HUD also reported more than $38 million in recoveries.
  • HUD’s Policy Development and Research Division (PD&R) publishes reports every quarter profiling 12-15 housing markets, the latest batch includes, amoung others: Denver-Aurora-Lakewood, Colorado; Savannah, Georgia; and Spokane, Washington.

 

Offering Opinions About MBS Exposure

The Tenth Circuit issued an opinion in MHC Mutual Conversion Fund, L.P. v. Sandler O’Neill & Partners, L.P. et al. (No. 13-1016 Aug. 1, 2014). The case concerns a 2009 stock offering by Bancorp. Bancorp was significantly exposed to mortgage-backed securities (MBS) and said as much in its securities filings. It also predicted that the market for MBS would rebound soon.

The highly readable opinion asks,

When does section 11 of the Securities Act of 1933 impose liability on issuers who offer opinions about future events? The statute prohibits companies from making statements that are false or misleading. Establishing that an opinion about the future failed to pan out in the end may go some way to meeting that standard but it doesn’t go all the way. After all, few of us would label a deeply studied, carefully expressed, and earnestly held opinion about the future as false or misleading at the time it’s made simply because later events proved it wrong. To establish liability for an opinion about the future more is required. But what? Answering that question is the challenge posed by this case.

The opinion provides a clear overview of what differentiates opinion from fact in securities offering statements. The Court does this by carefully walking through three theories of opinion liability under section 11:

  1. “no one should depend on the puffery of salesmen . . . especially when the salesman’s offering a guess about the future” (5-6)
  2. “an opinion can qualify as a factual claim by the speaker regarding his current state of mind.” (7)
  3. “some subset of opinions about future events contain within them an implicit factual warranty that they rest on an objectively reasonable basis” (13)

In this case, the Court found that the plaintiffs could not establish liability under any theory.

The opinion provides a nice, clean framework for understanding section 11 liability claims.  This framework should apply to offering statements for MBS that set forth opinions about future events as well as those for any other type of security that does the same.

Reiss on Predatory Online Lending

E-Commerce Times quoted me in CFPB Suit Targets Predatory Online Lending Practices. It reads in part:

The Consumer Finance Protection Bureau this week put online finance companies on notice that it will not overlook them merely because they operate in cyberspace. Specifically, the bureau sued CashCall for collecting money consumers allegedly did not owe.  In its suit, the bureau charged that CashCall and its affiliates engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void.

CashCall and the associated companies are reportedly owned by J. Paul Reddam, a race-horse owner and philosophy professor-turned-businessman.

The Background

Beginning in late 2009, CashCall and its subsidiary, WS Funding, entered into an arrangement with online lender Western Sky Financial, according to the CFPB. Western Sky Financial has asserted that the laws in the state in which it is based — South Dakota — did not apply to it because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.

The CFPB maintains Western Sky still must comply with state laws when it makes loans over the Internet to people in other states.

The loans ranged from US$850 to $10,000 and came with upfront fees, lengthy repayment terms and annual interest rates from nearly 90 percent to 343 percent, the CFPB said. Many of the loan agreements allowed payments to be debited directly from the borrower’s bank account.

By September 2013, Western Sky had become the subject of several states’ investigations and court actions, and it began to shut down its business. CashCall and its collection agency, Delbert Services, continued to take monthly installment payments from consumers’ bank accounts or otherwise sought to collect money from borrowers.

After its own investigation, the bureau concluded that the high-cost loans violated either licensing requirements or interest-rate caps, or both, in Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina, meaning the consumers did not owe that money that was being collected.

As part of its suit, the CFPB is seeking monetary relief, damages, and civil penalties.

The CFPB did not respond to our request for further details.

*     *     *

‘Particularly Weak’

 

While there might not be much controversy over the CFPB’s suit against an online lender, CashCall is certainly defending itself using other arguments.

Clearly, the action falls within the CFPB’s broad mission of protecting consumers from predatory behaviors in the financial services industry, asserted David Reiss, a professor of Law at Brooklyn Law School.

However, CashCall’s attorneys, Neil Barofsky and Katya Jestin, have said that the CFPB does not have a mandate to impose rate caps.

“Of all of CashCall’s arguments, this one seems particularly weak,” Reiss concluded, “as the CFPB is just seeking to enforce existing state laws that have been allegedly violated across the country.”