Limiting the Collective Right to Exclude

For decades, society’s disparate interests and priorities have stymied attempts to resolve issues of housing affordability and equity. Zoning law and servitude law, both of which have been robustly empowered by decades of jurisprudence, effectively grant communities the legal right and ability to exclude various sorts of residences from their wealthiest neighborhoods. Exclusion by housing type results in exclusion of categories of people, namely, renters, the relatively poor, and racial minorities. Although our society’s housing woes may indeed be intractable if we continue to treat a group’s right to exclude with the level of deference that such exclusionary efforts currently enjoy, this treatment is unjustifiable. Courts should acknowledge and consider the broad public and private costs that are created by a group’s unfettered right to exclude. A more balanced approach would weigh individual autonomy to control property and various public harms resulting from community exclusions against legitimate community needs to exclude certain residents and uses. Judicial limits of the collective right to exclude may enable real progress toward fair and affordable housing to be achieved at last

Community Collateral Damage: A Question of Priorities

Today\u27s soaring mortgage default rate and the uncertainty and delay associated with mortgage foreclosure proceedings threaten to cause financial tragedies of the commons in condominiums and homeowner associations across the country. Assessment defaults in privately governed communities result in an inequitable allocation of upkeep costs-a phenomenon that current law has failed to prevent. But the collateral damage caused by delayed foreclosures and insufficient recoveries can be minimized by increasing the payment priority of the association lien. In a majority of states, association liens are completely subordinate to the first mortgage lien. At foreclosure of the mortgage lien, the junior priority assessment lien will be extinguished whether or not there are sufficient proceeds to reimburse for community charges. Assessment delinquencies grow over time, so the longer it takes to complete foreclosure, the greater the costs to the neighborhood. Although several states have adopted a limited lien priority for up to six months\u27 worth of unpaid assessments, foreclosures today take far longer than six months, and the amount ultimately owed to a community can be significant and far exceed that cap. Federal housing policy affects the resolution of the issue because the Federal Housing Administration ( FHA\u27), Fannie Mae and Freddie Mac only permit qualifying mortgages to be subject to a six-month assessment lien priority. The decelerating pace of foreclosure further exacerbates the already unjustifiable financial impact borne by non-defaulting neighbors. The lien priority status quo fails to adequately protect communities in today \u27s context of widespread, delayed foreclosures andunder-collateralized mortgage loans. Decreasing the first mortgage lien\u27s priority during a foreclosure delay would mitigate the harm. Lien priority statutory changes could protect association finances in the future, and such provisions might be applied retroactively as well. In other contexts, states have held that changes to a lien priority regime could apply to existing associations and existing mortgages without unconstitutionally impairing contract or property rights. This has been particularly true where the association\u27s lien was deemed to have been created on the date the community\u27s organizational documents were recorded (prior to any unit\u27s mortgage). Historically, bank lobbyists have opposed any enhanced assessment lien priority. However, supporting property upkeep and making assessments more predictable and collectible would actually benefit lenders by shoring up the value of their collateral. Moreover, increased certainty with respect to homeowner payment obligations would enable more responsible credit underwriting and contribute to economic recovery. Shoring up assessment lien priority would not only ensure a fair allocation of community costs, but also would help to contain the current housing market decline

Laudable Goals and Unintended Consequences: The Role and Control of Fannie Mae and Freddie Mac

The United States is struggling to emerge from an era of loose mortgage underwriting standards – lapses in credit analysis that led to origination and securitization of toxic loans. The fallout has been crippling, costing borrowers their homes, investors their money, and the government its taxes. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) passed last summer was the first comprehensive effort to address the problems in the system that led – in sequence – to the subprime crisis, the housing crisis, and the financial crisis. The Dodd-Frank Act, which contains over 2,300 pages of legislation, is very broad as well as very detailed – even though hundreds of rulemakings have yet to completely define its parameters. But this extensive legislation deliberately did not deal with the biggest elephant (or perhaps elephants) in the room: Fannie Mae and Freddie Mac. These government sponsored enterprises (GSEs), behemoths of the secondary mortgage market, are currently in conservatorship and have (so far) cost taxpayers over $130 billion. Yet our current residential mortgage market is utterly dependent upon them for credit and liquidity. With political pressures to stop taxpayer bailouts and the reality of a frozen mortgage market should Fannie Mae and Freddie Mac cease to exist, when it comes to the GSEs, the administration feels damned if they do and damned if they don’t. For decades, the U.S. mortgage finance system was the envy of the world – the only industrialized nation to have a significant segment of housing costs covered by private capital through a securitization investment system. The United States is the only country to routinely offer homebuyers 30-year fixed-rate pre-payable mortgage loans. Better capital accessibility has made more homeownership opportunities more available to more Americans. The GSEs have performed a vital role in financing the production of rental housing as well. Our real estate capital markets set the gold standard worldwide for what is possible in freeing trapped asset values and increasing the wealth of borrowers and investors alike. Over the past decade, this system undoubtedly became unhinged – and it is critical to reform its failings. But a complete wind-down of the government sponsored enterprises that are the linchpin of our housing finance system goes too far. Subtracting Fannie Mae and Freddie Mac from the finance equation may very well be market suicide, and the repercussions for borrowers, communities and investors would be dire indeed. Furthermore, this extreme step is unnecessary: the system’s failures can be adequately (and better) addressed within the GSE framework. Undoubtedly there is still ample dirty “bathwater” to throw out as we reform the mortgage finance market system. But it would be an excruciating mistake to bow to political pressures and throw out the “baby” too. Current and future mortgage borrowers will only be adequately “protected” if they are empowered through access to capital, appropriately constrained by valid underwriting criteria. A well functioning market – rather than political scapegoating – is the best way to emerge from the recession and protect future buyers and investors alike. This article first discusses the history and purposes of the GSEs and what went wrong with the system that led to the 2008 conservatorship and bailout. With reference to the Obama Administration’s February 2011 Report to Congress, “Reforming America’s Housing Finance Market,” Part II analyzes proposals to reform and wind down the GSEs in light of their likely legal and market impact. Part III offers some general suggestions on better approaches to crafting America’s future mortgage market and advocates for solutions more precisely tailored to remedy apparent systemic problems while achieving the identified policy goals

Side by Side: Revitalizing Urban Cores and Ensuring Residential Diversity

Fifty years ago, the Reverend Martin Luther King, Jr. expressed a hope that someday people of all races would “live side by side in decent, safe, and sanitary housing.” Residential patterns in America today, however, remain highly segregated by race and income. The Fair Housing Act outlawed overt housing discrimination and unjustified discriminatory impacts, but zoning laws and housing finance structures have continued to impede housing integration, leaving communities nearly as racially homogenous as they were in the mid 20th century. These separate neighborhoods are far from equal. The majority of people who reside in financially distressed city-center neighborhoods are non-white. Historically, efforts to renovate city centers have perpetuated racial housing segregation by moving impoverished minority residents out of gentrifying areas. City-center revitalization is a key way to promote community health, wealth, and safety, but revitalization efforts must improve diversity as well as infrastructure. Revitalization efforts that include housing for all income levels and amenities that enrich all residents can help combat not only continuing racial disparity of opportunity in this country, but also the indicia of un-resolved racial animus that both geographically and psychologically divides the nation. Failing urban cores represent one of today’s biggest societal problems. Decades of population and income loss have left many urban neighborhoods trapped in a physical, economic, and social death spiral. Cities present great potential sources of wealth and culture for society. It will be challenging for municipalities, regions, and states to create and execute plans to rebuild decaying urban neighborhoods in a way that will both generate economic opportunity and sustainably integrate people of different races, ethnicities, and income levels. Federal financing structures and local zoning laws should be harnessed to achieve that vision. At the very least, financing and zoning programs and policies must be reformed so that they are no longer barriers to integrated gentrification. Market trends support the city investment effort. The “American dream” concept of home is no longer unitary, focused solely on single-family detached homes on large lots in far-flung suburbs. Housing preferences seem to be shifting toward denser, more walk-able, urban-feel mixed-use neighborhoods; provided, however, that those neighborhoods are safe and provide adequate amenities and services. The market’s renewed demand for quality urban housing presents an opportunity for urban revival. Municipalities can salvage their city centers by aligning their land use laws and affordable housing policies to catch and ride this wave of consumer demand. Financial institutions and zoning approaches need to modernize in order to encourage and enable the creation of multi-use neighborhoods and properties. Innovative zoning and financial tools can be employed not only to achieve a redesigned city’s integrated physical infrastructure, but also its income, racial, and cultural diversity. This article discusses the need to reform financial structures and zoning approaches in the context of needed urban redevelopment. Part I explains the inadequacy of historic affordable housing programs, pointing out that these have been insufficient to provide equitable housing opportunities and have, in fact, entrenched the problems of city-suburb divide and racial and income segregation. Part II posits that federal housing assistance should be re-imagined in a more holistic way, focused first on improving a neighborhood rather than individual renters or units. It also discusses some creative ways that federal and local agencies may enlist private investment and involvement in community revitalization efforts while retaining necessary control. Part III advocates that city planners move away from use-segregated zoning approaches and embrace inclusionary approaches that will promote neighborhoods that are diverse with respect to property uses and types of residential housing options. With the proper foresight and incentive structures, urban gentrification can be channeled to maximize housing integration and neighborhood stability

Structural Precarity and Potential in Condominium Governance Design

This Article examines a condominium’s legal structure in the context of ensuring construction and upkeep quality in a multifamily building and explores possible systemic improvements. Part I considers three latent vulnerabilities inherent in the condominium governance structure: (1) overprotection of developers; (2) unwillingness of members to ensure optimal upkeep; and (3) association financial precarity. Part II critiques some suggested legal responses to the Surfside disaster and discusses the swift and dramatic impacts on condominium governance caused by changed underwriting requirements of Fannie Mae and Freddie Mac. Finally, this Article concludes by calling for more effective stabilization of condominium governance to remediate its inherent structural weaknesses