Protecting status: The mortgage crisis, eminent domain, and the ethic of homeownership

Fordham Law Review

Volumn 77, Issue 3, 2008, Pages 949-998

  Godsil, Rachel D ^a   Simunovich, David V ^b  

^a SETON HALL UNIVERSITY   (United States)

^b NONE

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[No Author keywords available]

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EID: 58749115778     PISSN: 0015704X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (315)

1. See, e.g., Margaret Jane Radin, Property and Personhood, 34 STAN. L. REV. 957, 967 (1982).
2. Our argument is focused upon the loss of homeowner status but is not intended to suggest that renters may not experience losses from the use of eminent domain that are substantial and worth compensating. However, this issue is beyond the scope of this Article.
3. United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950).
4. Eduardo M. Peñalver, Property as Entrance, 91 VA. L. REV. 1889, 1950 (2005).
5. CAROL M. ROSE, PROPERTY AND PERSUASION 147 (1994).
6. See generally Michael DeBow, Unjust Compensation: The Continuing Need for Reform, 46 S.C. L. REV. 579 (1995);
7. Thomas W. Merrill, Incomplete Compensation for Takings, 11 N.Y.U. ENVTL. L.J. 110 (2002).
8. But see Abraham Bell, Not Just Compensation, 13 J. CONTEMP. LEGAL ISSUES 29 (2003) (arguing for downward adjustment in compensation to combat moral hazard);
9. Nicole Stelle Garnett, The Neglected Political Economy of Eminent Domain, 105 MICH. L. REV. 101, 104 (2006) (noting that many scholars have "overstate[d] the [compensation] problem").
10. Stigmatized group in this context refers to "minority groups in the United States victimized by social stigma," which includes racial and ethnic minorities, and more broadly, the poor, the elderly, and politically disempowered groups. Shavar D. Jeffries, The Structural Inadequacy of Public Schools for Stigmatized Minorities: The Need for Institutional Remedies, 34 HASTINGS CONST. L.Q. 1, 2 n.1 (2006).
11. D. Benjamin Barros, Home as a Legal Concept, 46 SANTA CLARA L. REV. 255, 255-56 (2006).
12. 545 U.S. 469 (2005).
13. See id. at 488-89.
14. Edmund L. Andrews, Relief for Homeowners is Given to a Relative Few, N.Y. TIMES, Mar. 4, 2008, at C7.
15. Peñalver, supra note 4, at 1949.
16. Radin, supra note 1, at 959.
17. TIMOTHY SANDEFUR, CORNERSTONE OF LIBERTY: PROPERTY RIGHTS IN 21ST- CENTURY AMERICA 5-10, 12, 21-30 (2006) (recounting a variety of reasons why owners develop special bonds to a home they live in, and why that relationship should be protected by the government).
18. See HERNANDO DE SOTO, THE MYSTERY OF CAPITAL: WHY CAPITALISM TRIUMPHS IN THE WEST AND FAILS EVERYWHERE ELSE 6 (2000). Throughout his book, Hernando De Soto demonstrates the transformative power of asset ownership in a functioning capitalist society, and the necessity for an ordered, coherent property system to facilitate wealth accumulation.
19. The uses of the word "status" are many and varied. According to Sir Henry Sumner Maine, Status, a much discussed term which, according to the best modern expositions, includes the sum total of a man's personal rights and duties, or, to be verbally accurate, of his capacity for rights and duties. It is curious that the word "estate," which is nothing but the French form of "status," should have come to stand over against it in an almost opposite category. A man's estate is his measurable property; what we call his status is his position as a lawful man, a voter, and so forth. The liability of every citizen to pay rates and taxes is a matter of status; what a given citizen has to pay depends on his estate, or portions of it assigned as the measures of particular imposts. We have, too, an "estate" in land, which so far preserves the original associations of "status" that, as we have just noted, contract may not alter its incidents or nature. Again, as Professor Maitland has pointed out, the Roman Status has also become the State of modern public law, and in that form has refused to be reduced to a species of contract by the ingenious efforts of individualist philosophers, notwithstanding the widespread acceptance of the Social Contract for a century or more. SIR HENRY SUMNER MAINE, ANCIENT LAW: ITS CONNECTION WITH THE EARLY HISTORY OF SOCIETY AND ITS RELATION TO MODERN IDEAS 184-85 n.L (London, John Murray 1906) (citations omitted). Its more modern usage is often attributed to Max Weber.
20. See MAX WEBER, ECONOMY AND SOCIETY 305-07 (Guenther Roth & Claus Wittich eds., 1978).
21. Letter from John Adams to James Sullivan (May 26, 1776), in 1 THE FOUNDERS' CONSTITUTION 394, 394-96 (Philip B. Kurland & Ralph Lerner eds., 1987).
22. For a discussion of class and homeownership, see Dorothy A. Brown, Shades of the American Dream (unpublished manuscript, on file with author). Brown includes a table of homeownership rates by adjusted gross income with data from 2003. We have updated her list with data from 2005.
23. See Rachel D. Godsil, Viewing the Cathedral from Behind the Color Line: Property Rules, Liability Rules, and Environmental Racism, 53 EMORY L.J. 1807, 1847 (2004) (discussing the National Housing Act of 1937 and the Serviceman's Readjustment Act of 1944);
24. U.S. Census Bureau, Historical Census of Housing Tables-Homeownership, http://www.census.gov/hhes/www/housing/census/historic/owner.html (last visited Nov. 13, 2008).
25. Godsil, supra note 19, at 1847-48.
26. Id. at 1848.
27. Id.
28. See generally U.S. Department of Housing and Urban Development, Homes and Communities, http://www.hud.gov (last visited Nov. 13, 2008).
29. Brown, supra note 18, at 6 (citing I.R.C. § 163(h) (West Supp. 2008)).
30. Id.
31. Id. at 3.
32. Id. at 9.
33. Id at 11.
34. Id. at 7
35. (citing JOINT COMM. ON TAXATION, ESTIMATES OF FEDERAL TAX EXPENDITURES FOR FISCAL YEARS 2005-2009, at 33, available at http://www.house. gov/jct/s-1-05.pdf).
36. Edmund L. Andrews, The Housing-Loan Crisis, N.Y. TIMES, Oct. 26, 2008, at WK6;
37. see also Barack Obama and Joe Biden: The Change We Need, Economy, http://barackobama.com/issues/economy/index.php#home-ownership (last visited Nov. 13, 2008).
38. U.S. Census Bureau, Homeownership Rates by Race and Ethnicity of Householder: 1994 to 2006, http://www.census.gov/hhes/www/housing/hvs/annual06/ ann06t20.html (last visited Nov. 13, 2008).
39. MELVIN L. OLIVER & THOMAS M. SHAPIRO, BLACK WEALTH/WHITE WEALTH: A NEW PERSPECTIVE ON RACIAL INEQUALITY 30 (1995).
40. Thomas M. Shapiro, Race, Homeownership and Wealth, 20 WASH. U. J.L. & POL'Y 53 (2006).
41. Id. at 66.
42. 12 U.S.C. § 2901 (2006).
43. See Shapiro, supra note 33, at 66-67.
44. See id. at 67.
45. Sixth Annual Harvard Latino Law and Policy Conference: Latino Leadership and Collective Power, 7 HARV. LATINO L. REV. 75, 93 (2004).
46. Martin Feldstein, How to Stop the Mortgage Crisis, WALL ST. J., Mar. 7, 2008, at A15.
47. Edmund L. Andrews & Louis Uchitelle, Rescues Weighed as Homeowners Wallow in Debt, N.Y. TIMES, Feb. 22, 2008, at A1.
48. John Leland, Facing Default, Some Abandon Homes to Banks, N.Y. TIMES, Feb. 29, 2008, at Al.
49. Id.
50. A subprime mortgage loan is one that fails to meet the criteria for "prime" mortgages, and is determined to have a lower expected probability of full repayment. Creditors ostensibly make this assessment according to "the borrower's credit record and score, debt service-to-income (DTI) ratio, and/or the mortgage loan-to-value (LTV) ratio. Borrowers with low credit scores, DTIs above 55%, and/or LTVs over 85% are likely to be considered subprime." John Kiff & Paul Mills, Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets 3 (Int'l Monetary Fund, Working Paper No. 07/188, 2007), available at http://www.imf.org/external/pubs/ft/wp/2007/wp07188.pdf. In general, because they are seen as a greater credit risk, subprime borrowers pay higher interest rates, which translate into higher monthly costs. Lenders devised a series of instruments to incentivize subprime borrowers. The most well-known is the "adjustable rate mortgage" (ARM). An ARM refers to a loan for which the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly. ARMs are problematic for subprime borrowers for many reasons, but mainly because the monthly payments can fluctuate dramatically, leading to "payment shock" as the initial low interest rate increases.
51. FED. RESERVE BD., CONSUMER HANDBOOK ON ADJUSTABLE-RATE MORTGAGES (2006), available at http://www.federalreserve.gov/Pubs/arms/ armsbrochure.pdf. ARMs often seem attractive at first blush because of their stated lower interest rates, but they are often accompanied by "points," or loan fees.
52. Id. at 27. A subprime loan also is more likely to have a prepayment penalty, a balloon payment, or both. A prepayment penalty is a fee assessed against the borrower for paying off the loan early - either because the borrower sells the house or refinances the high-rate loan. A mortgage with a balloon payment requires the borrower to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. If the borrower cannot pay the entire amount when the balloon payment is due, the borrower has to refinance the loan or sell the house.
53. Id. at 20.
54. The causes of the subprime financial crisis are hotly disputed. Some claim that the confluence of falling home prices and skyrocketing interest rate increases for ARMs resulted in an unexpectedly high number of defaults. See Steven L. Schwarcz, Protecting Financial Markets: Lessons from the Subprime Mortgage Meltdown (Duke Law Sch. Legal Studies, Research Paper No. 175, 2007), available at http://ssrn.com/abstract=1056241. Other scholars disagree.
55. See Yuliya Demyanyk & Otto Van Hemert, Understanding the Subprime Mortgage Crisis (Aug. 19, 2008) (unpublished manuscript, on file with the Fordham Law Review), available at http://ssrn.com/abstract=1020396 ("[T]he quality of loans deteriorated for six consecutive years before the crisis and securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005."). Some place primary blame on the mortgage industry. Governor Bill Richardson of New Mexico argues, "[t]he mortgage crisis was not caused by the people who purchased homes but by how homes were financed."
56. Bill Richardson, Bring It Back to the Home, N.Y. TIMES, Mar. 2, 2008, at WK13.
57. See Bankrate.com, http://www.bankrate.com (last visited Nov. 13, 2008) (noting banks offering, on March 15, 2008, thirty-year fixed rate mortgages at 6% interest for borrowers with good credit ratings and 20% down). The interest rates in each of the subsequent examples were also obtained via Bankrate.com. The actual interest rate is irrelevant, however, as the examples are meant to demonstrate the relative effects on the principal loan amount and the total cost of the mortgage over the course of the mortgage.
58. Bloomberg, Bloomberg.com: Calculators, http://www.bloomberg.com/invest/ calculators/index.html (last visited Nov. 13, 2008) (offering a variety of fixed rate, adjustable rate, and interest-only loan calculators).
59. More specifically, the Johnsons would pay $959.28 each month; in the first year of the loan, this means that roughly $800 would pay down interest on the loan, and $159 would reduce the principal amount of the loan. After one year, the principal loan amount would be $158,035; after three years, the principal loan amount would be $153,734.
60. It is impossible to estimate the precise cost of any ARM because the interest rates fluctuate; the overall cost of the loan assumes a 25 basis point increase from year to year.
61. Again, this is only an assumption; the precise increase or decrease is largely irrelevant for this hypothetical.
62. Les Christie, Record 1.2 Million Homes Hit by Foreclosure, CNNMONEY.COM, Sept. 5, 2008, http://money.cnn.com/2008/09/05/real- estate/foreclosures-rise-again/index.htm.
63. Id.
64. Id. Subprime mortgages accounted for more than 50% of all foreclosure starts in 2007.
65. Jim Zarroli, Bernanke Urges Banks to Help Borrowers More, NAT'L PUB. RADIO, Mar. 4, 2008, http://www.npr.org/ templates/story/story.php?storyId=87898693.
66. Id.
67. Andrews, supra note 11.
68. Brown, supra note 18, at 26;
69. see Paul S. Calem, Kevin Gillen & Susan M. Wächter, The Neighborhood Distribution of Subprime Mortgage Lending (Univ. of Pa., Inst. for Law & Econ., Research Paper No. 03-39, 2003), available at http://ssrn.com/abstract=478581;
70. Richard Marsico, The Higher Cost of Being African-American or Latino: Subprime Home Mortgage Lending in New York City, 2004-2005 (N.Y. Law Sch., Pub. Law & Legal Theory, Research Paper No. 07/08-12, 2007), available at http://ssrn.com/abstract= 1034265.
71. Christopher L. Peterson, Over-Indebtedness, Predatory Lending, and the International Political Economy of Residential Home Mortgage Securitization: Comparing the United States' Subprime Home Mortgage Lending Crisis to Home Finance in the United Kingdom, Germany, and Japan, at n.4 (Jan. 11, 2008) (unpublished manuscript, on file with the Fordham Law Review), available at http://ssrn.com/abstract=1083184.
72. Alan Zibel, 40 Percent of Mortgages Given to Blacks, Hispanics 'High Cost,' S. FLA. TIMES, Mar. 17, 2008, http://www.sfltimes. com/index.php?option=com-content& task=view&id=595&Itemid=38.
73. Id.
74. Evidence is surfacing that suggests that Michigan lenders "steered minority homeowners into high-risk subprime mortgages." Eric Campbell, Cox's Ties to Mortgage Firms May Explain Inaction on Foreclosures, MICH. CITIZEN, Mar. 2, 2008, at Al. "Homeowners in the primarily Black Detroit neighborhood, with a median income of $49,000, received subprime loans at a rate of 70%[;] in the mostly white Plymouth neighborhood, with a median income of $51,000, subprime loans reached only 17%."
75. Id.
76. Al Heavens, Mortgage Lending to Minorities Drops in 2006, REALTY TIMES, Oct. 11, 2007, http://realtytimes.com/rtpages/ 20071011-mortgagelending.htm.
77. Shawnda Hines, Poorest Counties Hardest Hit by Mortgage Crises, REUTERS, Feb. 27, 2008, http://www.reuters.com/article/pressRelease/ idUS189623+27-Feb-2008+PRN 20080227.
78. See Amanda W. Goodin, Note, Rejecting the Return to Blight in Post-Kelo State Legislation, 82 N.Y.U. L. REV. 177, 193-98 (2007).
79. Among the most vocal critics of the use of eminent domain, Dana Berliner documents a recent five-year period that included 10,282 actual or "threatened" takings across all fifty states and the District of Columbia. See DANA BERLINER, CASTLE COAL., PUBLIC POWER, PRIVATE GAIN: A FIVE-YEAR, STATE-BY-STATE REPORT EXAMINING THE ABUSE OF EMINENT DOMAIN 2 (2003), available at http://castlecoalition.org/pdf/report/ED-report.pdf. While this number is not insignificant, it is approximately forty properties per state per year. This amounts to a tiny fraction of properties in each state - and this number includes "threatened" as well as actual takings. More generally, Berliner asserts that the use of eminent domain disparages the "very strong [American] ethic that you work hard so that some day you or your children can own a home."
80. Diane Cardwell, Bloomberg Says Power to Seize Private Land Is Vital to Cities, N.Y. TIMES, May 3, 2006, at B1. Our status-preserving plan honors this American ethic.
81. Garnett, supra note 6, at 122-23 (recounting a state agency's internal audit revealing that "relocation assistance [to homeowners] routinely exceeded the statutory limits" of the Uniform Relocation Assistance and Real Property Acquisition Act);
82. id. at 142 (explaining that compensation above the minimum required may reflect the acquiring agency's attempt to "limit resistance" and to "avoid costly and politically damaging battles in both courts of law and courts of public opinion"). For example, Forest City Ratner Companies, the developer of the multibillion dollar Atlantic Yards Project in Brooklyn, New York, paid $1.1
83. million for an apartment that was purchased for $419,000 one year earlier. Nicholas Confessore, Forced to Move, Some Find Greener Grass, N.Y. TIMES, Apr. 10, 2006, at Bl. The owners of the apartment referred to the developer as a "fair but savvy negotiator."
84. Id. Another displaced resident who described the payment he received as a "very good price" for his property lauded the developer for devoting the time and resources to "treat us as humans."
85. Id.
86. See Dan Baum, The Lost Year: Behind the Failure to Rebuild, NEW YORKER, Aug. 21, 2006, at 46.
87. Cornell University, New Orleans Planning Initiative, Physical, Economic, and Social Attributes of the Lower Ninth Ward, http://www.aap.cornell.edu/crp/ outreach/nopi/index.cfm (last visited Nov. 17, 2008).
88. Id.
89. Id.
90. U.S. Census Bureau, Highlights from the Census 2000 Demographic Profiles, http://factfinder.census.gov (last visited Nov. 11, 2008). Rachel Godsil has written about Camden elsewhere. See Godsil, supra note 19, at 1823 (citing CAMConnect and the National Neighborhood Indicators Database).
91. HEALTH VISIONS, INC., CAMDEN CITY HEALTH NEEDS ASSESSMENT: PERSPECTIVES OF CONSUMERS IN THE CITY OF CAMDEN, NEW JERSEY 20 (1995), available at http://www.camconnect.org/resources/documents/healthneedsassessmentvl-8-2.pdf.
92. S. JERSEY ENVTL. JUSTICE ALLIANCE, FACT SHEET - CAMDEN ENVIRONMENTAL CONDITIONS (2006), available at http://www.njeja.org/PDF/ SJEJA%20ToxicTour% 20Factsheet9-06.pdf.
93. Id. at 1-2.
94. Id.
95. Id.
96. Id.
97. Id.
98. Howard Gillette, Camden After the Fall: Decline and Renewal in a Post-industrial City 1-2 (manuscript, on file with authors).
99. See National Association of Realtors, http://www.realtor.com (last visited Nov. 15, 2008) (search Camden ZIP code "08102"; search Pennsauken ZIP code "08109").
100. David Simunovich has written that the way in which the Road Home has been administered should entitle homeowners to the benefits of the URA. David Simunovich, Comment, The Quiet of Dissolution: Post-Disaster Redevelopment and Status-Preserving Compensation, 38 SETON HALL L. REV. 331 (2008).
101. LA. RECOVERY AUTH., THE ROAD HOME HOUSING PROGRAMS ACTION PLAN AMENDMENT FOR DISASTER RECOVERY FUNDS 6-7 (2006), available at http://web.archive.org/web/20061001152419/http:// lra.louisiana.gov/assets/roadhome/Housi ngActionPlanAmendment050306.pdf. The rebuild restriction was never formally implemented; however, the provision worked its inequitable harm in the months immediately following the storm, when displaced residents made relocation decisions.
102. Simunovich, supra note 79, at 352-56.
103. CITY OF CAMDEN, WATERFRONT SOUTH BROWNFIELDS REDEVELOPMENT PROJECT (2000), available at http://www.ci.camden.nj.us/departments/Waterfront%20South%20 Brownfield%20Redevelopment%20Project.pdf.
104. Dwight Ott, Camden Judge Rejects Waterfront South Redevelopment Plan, PHILA. lNQ., May31, 2007, at B3.
105. U.S. CONST. amend. V.
106. Groups fight about status because they are fighting about their relative social identities. J.M. Balkin, Constitution of Status, 106 YALE L.J. 2313, 2315 n.2 (1997);
107. see also Bernardo A. Huberman, Christoph H. Loch & Ayse Önçüler, Status as a Valued Resource, 67 SOC. PSYCH. Q. 103, 103 (2004) ("Humans strive not only for access to resources and material benefits but also for intangibles such as status, which is characterized by a rankordered relationship among people associated with prestige and deference behavior." (citation omitted)).
108. 2 POWELL ON REAL PROPERTY § 16B.04[2] (Michael Allan Wolfed., 2000).
109. In a recent popular exploration of the link between status and health, epidemiologist Michael Marmot posits that status is linked with increased longevity and general well-being because those with higher status have more autonomy and control over their lives as well as better opportunities for full social engagement. MICHAEL MARMOT, THE STATUS SYNDROME: HOW SOCIAL STANDING AFFECTS OUR HEALTH AND LONGEVITY 2 (2004).
110. See generally IRENE HARDILL, GENDER, MIGRATION AND THE DUAL CAREER HOUSEHOLD (2002).
111. Id. at 48.
112. See id.
113. Id.
114. See HUD USER, URBAN POLICY BRIEF NO. 2 (1995), http://www.huduser.org/publications/txt/ hdbrf2.txt.
115. See, e.g., ROBERT D. DIETZ, H OMEOWNERSHIP ALLIANCE, THE SOCIAL CONSEQUENCES OF HOMEOWNERSHIP (2003), available at http://www.new towncdc.org/pdf/social-consequences-study.pdf (reviewing studies);
116. id. at 9
117. (citing Scott Southdale & Kyle Crowder, Escaping Distressed Neighborhoods: Individuality, Community, and Metropolitan Influences, 102 AM. J. SOC. 1040 (1997), for the conclusion that homeowners are less likely to relocate from distressed neighborhoods);
118. Joseph M. Harkness & Sandra J. Newman, Effects of Homeownership on Children: The Role of Neighborhood Characteristics and Family Income, ECON. POL'Y REV., June 2003, at 87 (reviewing studies).
119. Harkness & Newman, supra note 92, at 99.
120. Id. at 93-94. Specifically, Joseph Harkness and Sandra Newman found that children of homeowners are estimated to complete a half year more of education, to have a 13% higher graduation rate, a 6% likelihood of completing some post-secondary education, and a 9% less likelihood of being economically idle.
121. Id. They found these results to be highly statistically significant even if controls for neighborhood features are added in. The estimates for out-of-wedlock childbearing are favorable but weak.
122. Id. at 94.
123. DIETZ, supra note 92, at 1.
124. Id. at 4-5 (citations omitted).
125. See id. at 12-13 (citations omitted).
126. Id.
127. Id. at 4;
128. see LEE ANNE FENNELL, THE UNBOUNDED HOME: PROPERTY BEYOND THE PARCEL (forthcoming) (on file with authors) (delinking home value from neighborhood characteristics).
129. DIETZ, supra note 92, at 6-9 (citing list of studies).
130. Id. at 13 (citing Andrew Oswald, Theory of Homes and Jobs (Sept. 18, 1997) (unpublished manuscript, on file with the Fordham Law Review)).
131. In earlier work, Godsil explores the role of affluent white Not in My Backyard (NIMBY) behavior in leading to the disproportionate burden of environmentally adverse land uses upon communities of color. See, e.g., Godsil, supra note 19; Rachel Godsil, Note, Remedying Environmental Racism, 90 MICH. L. REV. 394 (1991 ).
132. See generally Brown, supra note 18, at 24.
133. Id.
134. Brown cites research showing that homes owned by blacks and Latinos appreciate less partially because of continued racism in the housing market: "Homes lose about sixteen percent of their value when more than 10% of the neighborhood is black." Id. at 23.
135. Harkness & Newman, supra note 92, at 96.
136. See Brown, supra note 18, at 27.
137. Harkness & Newman, supra note 92, at 98.
138. For a thoughtful discussion of defamation law, see Robert C Post, The Social Foundations of Defamation Law: Reputation and the Constitution, 74 CAL. L. REV. 691 (1986).
139. Id. at 694
140. (quoting JOEL HAWES, LECTURES ADDRESSED TO THE YOUNG MEN OF HARTFORD AND NEW HAVEN, AND PUBLISHED AT THEIR UNITED REQUEST 112 (Hartford, Oliver D. Cooks & Co. 1828)).
141. Id. at 697-99.
142. 1 SACK ON DEFAMATION: LIBEL, SLANDER AND RELATED PROBLEMS § 2.8.1 (3d ed. 2008).
143. Post, supra note 109, at 699.
144. JOHN DAVIS, PEOPLE OF THE M EDITERRANEAN: AN ESSAY IN COMPARATIVE SOCIAL ANTHROPOLOGY 98 (1977).
145. See Robert N. Bellah, The Meaning of Reputation in American Society, 74 CAL. L. REV. 743, 745 (1986) (discussing reputation as "a public good, not merely a private possession").
146. See Post, supra note 109, at 699.
147. Post suggests an honor code continues to prevail in the military and that roles such as medical doctors continue to have reputational advantages solely as a result of their status. Id. at 707.
148. The term "eminent domain" was not coined by the Romans; however, evidence suggests that compulsory takings did exist in some form at this early point in history. Matthew P. Harrington, "Public Use " and the Original Understanding of the So-Called "Takings" Clause, 53 HASTINGS L.J. 1245, 1249 n.10 (2002) (citations omitted).
149. John F. Hart, Colonial Land Use Law and Its Significance for Modern Takings Doctrine, 109 HARV. L. REV. 1252, 1282-83 (1996).
150. Kimball Laundry v. United States, 338 U.S. 1, 5 (1949).
151. Id.
152. United States v. 564.54 Acres of Land, 441 U.S. 506, 516 (1979)
153. (quoting Olsen v. United States, 292 U.S. 246, 255 (1934)).
154. United States v. Reynolds, 397 U.S. 14, 16 (1970).
155. Monongahela Navigation Co. v. United States, 148 U.S. 312, 326 (1893).
156. United States v. Miller, 317 U.S. 369, 373 (1943)
157. (citing Monongahela, 148 U.S. at 326);
158. Seaboard Air Line Ry. Co. v. United States, 261 U.S. 299, 304 (1923)
159. (citing Monongahela, 148 U.S. at 327).
160. Kirby Forest Indus, v. United States, 467 U.S. 1, 10 (1984). Assessing compensation awarded on the date the property is actually taken creates a problem known as condemnation blight, discussed below, where the condemner artificially lowers its acquisition costs through announcement of plans to condemn a predetermined area. Bell, supra note 6, at 67. Christopher Serkin details a variety of possible mechanisms for valuing property according to the fair market value standard.
161. See Christopher Serkin, The Meaning of Value: Assessing Just Compensation for Regulatory Takings, 99 NW. U. L. REV. 677, 687-703 (2005). Serkin uncovers the theoretical subtexts that may be hidden beneath compensation debates. However, as we state above, we are not hostile to government use of eminent domain. We only seek to ensure that the price paid by the individual affected is not to relegate them to a propertyless status. Our goal is consistent with the argument made by property scholars that takings jurisprudence may reasonably be used as a means to further distributive justice.
162. See, e.g., id. at 721.
163. 54 Acres of Land, 441 U.S. at 511
164. (quoting Miller, 317 U.S. at 374).
165. United States v. Sioux Nation of Indians, 448 U.S. 371, 417 n.30 (1980)
166. (citing Monongahela, 148 U.S. at 327).
167. United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950).
168. Kelo v. City of New London, 545 U.S. 469, 489 n.21 (2005).
169. For a more detailed analysis of competing compensation plans as compared to a status-preservation scheme, see Rachel D. Godsil & David Simunovich, Just Compensation in an Ownership Society, in PRIVATE PROPERTY, COMMUNITY DEVELOPMENT, AND EMINENT DOMAIN 133 (Robin Paul Malley ed., 2008).
170. Coniston Corp. v. Vill. of Hoffman Estates, 844 F.2d 461, 464 (7th Cir. 1988).
171. An Internet search confirms the notion that property rights are a more salient concern for "conservative groups." Conservative legal groups and think tanks (i.e., the Federalist Society, Pacific Legal Foundation, Center for Individual Rights) invariably list "property rights" as among their primary areas of concern while liberal and progressive groups (i.e., American Constitution Society, NAACP Legal Defense Fund, ACLU) fail to mention property or property rights at all. Among academics, a robust scholarship exists challenging the Right's hegemony over property rights. Notable works include JEREMY WALDRON, THE RIGHT TO PRIVATE PROPERTY (1990), and the thoughtful review of Waldron's book, Jeremy Paul, Can Rights Move Left?, 88 MICH. L. REV. 1622 (1990) (book review).
172. See, e.g., RICHARD D. EPSTEIN, TAKINGS: PRIVATE PROPERTY AND THE POWER OF EMINENT DOMAIN 184 (1985);
173. Barros, supra note 8, at 300;
174. Robert C. Ellickson, Alternatives to Zoning: Covenants, Nuisance Rules, and Fines as Land Use Controls, 40 U. CHI. L. REV. 681, 736-37 (1973). Although Robert C. Ellickson was offering his compensatory plan to resolve issues of regulatory takings, the plan is equally applicable to instances of eminent domain takings.
175. EPSTEIN, supra note 134, at 184.
176. Id.
177. Barros, supra note 8, at 300;
178. Ellickson, supra note 134, at 736-37;
179. John Fee, Eminent Domain and the Sanctity of Home, 81 NOTRE DAME L. REV. 783, 814-15 (2006).
180. Hanoch Dagan, Takings and Distributive Justice, 85 VA. L. REV. 741, 753-56 (1999).
181. Gideon Parchomovsky & Peter Siegelman, Selling Mayberry: Communities and Individuals in Law and Economics, 92 CAL. L. REV. 75, 141 (2004).
182. Lee Anne Fennell, Taking Eminent Domain Apart, 2004 MICH. ST. L. REV. 957, 993-94.
183. Parchomovsky & Siegelman, supra note 139, at 139-40.
184. Id. at 141-42.
185. See Brief of Amici Curiae NAACP et al. in Support of Petitioners at 7-8, Kelo v. City of New London, 545 U.S. 469 (2005) (No. 04-108). Parchmovsky and Siegelman acknowledge that communities lacking amenities that are characterized by high turnover rates would not necessarily merit a community premium.
186. Parchomovsky & Siegelman, supra note 139, at 141-42.
187. Godsil, supra note 19, at 1875.
188. Michelle Adams, Stifling the Potential of Grutter v. Bollinger: Parents Involved in Community Schools v. Seattle School District No. 1, 88 B.U. L. REV. 937 (2008).
189. See generally Steve P. Calandrillo, Eminent Domain Economics: Should "Just Compensation " Be Abolished, and Would "Takings Insurance " Work Instead?, 64 OHIO. ST. L.J. 451, 500-04 (2003);
190. Fennell, supra note 140, at 995-1002.
191. See generally Michael Heller & Rick Hills, Land Assembly Districts, 121 HARV. L. REV. 1465, 1491 (2008);
192. James J. Kelly, "We Shall Not Be Moved": Urban Communities. Eminent Domain and the Socioeconomics of Just Compensation, 80 ST. JOHN'S L. REV. 923, 980-81 (2006).
193. Calandrillo, supra note 146, at 495-99.
194. Bell, supra note 6, at 32-33;
195. Calandrillo, supra note 146, at 495-99, 505, 513.
196. Abraham Bell & Gideon Parchomovsky, Taking Compensation Private, 59 STAN. L. REV. 871 (2007);
197. Fennell, supra note 140, at 995-96.
198. Fennell, supra note 140, at 995-96.
199. Id. at 995.
200. Id. at 996.
201. Fennell, supra note 140, at 997.
202. Bell & Parchmovsky, supra note 150, at 903.
203. Kelly, supra note 147, at 928-29.
204. James E. Krier & Christopher Serkin, Public Ruses, 2004 MICH. ST. L. REV. 859, 867.
205. See Christopher Serkin, Local Property Law: Adjusting the Scale of Property Protection, 107 COLUM. L. REV. 883 (2007).
206. See id. at 910-11.
207. See Brief for Brooklyn United for Innovative Local Development et al. as Amici Curiae Supporting Respondents at 2, Kelo v. City of New London, 545 U.S. 469 (2005) (No. 04-108) (describing plans for redevelopment of the Atlantic Yards in Brooklyn, New York to expand the supply of affordable housing).
208. Id. at 3-4.
209. See id. at 8.
210. 42 U.S.C. § 4622(a)(1)-(3) (2000).
211. Id. §§ 4622-4624.
212. 49 C.F.R. § 24.2(a)(6) (2007).
213. 42 U.S.C. § 4626(a);
214. see also Garnett, supra note 6, at 122-23.
215. Condemnation blight describes the reduction in value of a property that occurs after it is announced that the property will be condemned. Bell, supra note 6, at 67. Condemnation blight artificially lowers acquisition costs because fair market value is measured by '"what a willing buyer would pay in cash to a willing seller' at the time of the taking."
216. United States v. 564.54 Acres of Land, 441 U.S. 506, 511 (1979)
217. (quoting United States v. Miller, 317 U.S. 369, 374 (1943)).
218. L. Randall Wray, Lessons from the Subprime Meltdown 44 (Levy Econ. Inst. of Bard Coll., Working Paper No. 522, 2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1070833 (quoting President Franklin Roosevelt).
219. Ignoring for the moment arguments of imperfect information and claims of predatory lending.
220. Edmund L. Andrews, Fed Offers Wall St. Banks New Loans to Ease Crisis, N.Y. TIMES, Mar. 12, 2008, at A1.
221. Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, 122 Stat. 3765.
222. The discussion below focuses on efforts to address the current mortgage crisis, not those that seek to prevent the recurrence of a similar situation. A number of preventative measures have been put forward, and they are generally directed at recalibrating the balance of information between borrower and lender and increasing governmental regulation of the mortgage lending industry. The Mortgage Reform and Anti-Predatory Lending Act of 2007 would establish a national licensing system for mortgage lenders and a duty of care standard for home loan originators, require the lender to make a finding of the borrower's "reasonable ability to repay" a home loan, and proscribe refinancing unless a creditor determines a net tangible benefit would accrue to the borrower. Mortgage Reform and Anti-Predatory Lending Act of 2007, H.R. 3915,
223. Press Release, Office of the Press Sec'y, Fact Sheet: Helping American Families Keep Their Homes (Dec. 6, 2007), available at http://www.whitehouse.gov/news/releases/2007/12/20071206-7.html.
224. Id.
225. Id.
226. Ruth Simon & Tom McGinty, Earlier Subprime Rescue Falters-December Plan Has Done Little to Help Borrowers in Dire Circumstances, WALL ST. J., Feb. 13, 2008, at A3.
227. Id.
228. William Heisel, Marc Lifsher & Maura Reynolds, Defaults Slide as State Puts on the Breaks, L.A. TIMES, Oct. 24, 2008, at C1.
229. David C. John & Alison Acosta Fraser, HOPE NOW: One Step to Resolve the Subprime Mortgage Crisis, HERITAGE FOUND. WEB MEMO, Dec. 13, 2007, http://www.heritage.org/Research/ Regulation/upload/wm-1742.pdf.
230. Heisel, Lifsher & Reynolds, supra note 178.
231. Simon & McGinty, supra note 176.
232. Id.
233. Id.
234. Id.
235. Damian Paletta & James R. Hagerty, Lenders Step Up Efforts to Avert Foreclosures, WALL. ST. J., Feb. 12, 2008, at A3.
236. U.S. Department of Housing and Urban Development, FHA Secure Fact Sheet-Refinance Options, http://portal.hud.gov/portal/page?-pageid=73, 1827972&-dad=portal&-schema=PORTAL (last visited Nov. 15, 2008).
237. Fannie Mae and Freddie Mac are government-sponsored entities that are the largest buyers of American home mortgages.
238. Vikas Bajaj, Regulators, Trying to Help Housing, Ease Limits on Loan Giants, N.Y. TIMES, Feb. 28, 2008, at C1.
239. Id.
240. Mortgage Forgiveness Debt Relief Act of 2007, Pub. L. No. 110-142, 121 Stat. 1803 (excluding the amount of loan forgiveness exceeding two million dollars).
241. Federal Housing Administration, HOPE for Homeowners, http://portal.hud. gov/portal/page?-pageid=73,7601299&-dad=portal&-schema=portal (last visited Nov. 17, 2008).
242. Id.
243. Id.
244. Id. The equity and appreciation sharing works on a sliding scale. If the borrower sells the home within one year of the workout, the Federal Housing Administration (FHA) takes 100% of the equity and appreciation; after one year, the government takes 90%; after two years, 80%, and so on. After five years, the scale stops sliding, and the FHA's share in any equity and appreciation in the home is fixed at 50% for the life of the loan.
245. Id.
246. The policy of not permitting a bankruptcy workout on a mortgage secured by a primary residence is "'intended to encourage the flow of capital into the home lending market.'" Adam J. Levitin & Joshua Goodman, The Effect of Bankruptcy Strip-Down on Mortgage Markets 4 (Georgetown Univ. Law Ctr., Research Paper No. 1087816, 2008) (quoting Nobelman v. Am. Sav. Bank, 508 U.S. 324, 332 (1993) (Stevens, J., concurring)), available at http://ssrn.com/abstract= 1087816. That is, by providing greater security to investors via the foreclosure option, it is possible for lenders to offer lower interest rates on primary residences, thereby encouraging the expansion of homeownership among borrowers who would be otherwise unable to afford payments based on higher interest rates.
247. Foreclosure Prevention Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654;
248. see also Emergency Home Ownership and Mortgage Equity Protection Act of 2007, H.R. 3609, 110th Cong. (2007).
249. Foreclosure Prevention Act, 122 Stat. 2654.
250. Id.
251. Nick Timiraos, Candidates Differ on Housing-Clinton Embraces Direct Intervention on Certain Issues, WALL ST. J., Feb. 20, 2008, at A7.
252. American Home Ownership Preservation Act of 2008, S. 2114, 110th Cong. § 5 (2008).
253. Barack Obama and Joe Biden: The Change We Need, Protect Homeownership and Crack Down on Mortgage Fraud, http://barackobama.com/issues/economy/index. php#homeownership (last visited Nov. 15, 2008).
254. John D. Geanakoplos & Susan Koniak, Op-Ed, Mortgage Justice Is Blind, N.Y. TIMES, Oct. 30, 2008, at A39.
255. However, one of us is wary of sacrificing federal judicial oversight for administrative efficiency in this situation. This concern is motivated by evidence suggesting that some lenders targeted vulnerable groups for exotic, high-cost loans; without proper oversight, the independent contractors could continue to exploit these at-risk homeowners.
256. Foreclosure Prevention Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654.
257. National Affordable Housing Trust Fund Act of 2007, H.R. 2895, 110th Cong. (2007).
258. Expanding American Homeownership Act of 2007, H.R. 1852, 110th Cong. (2007).
259. FHA Modernization Act of 2007, S. 2338, 110th Cong. (2007).
260. Expanding American Homeownership Act, H.R. 1852.
261. FHA Modernization Act, S. 2338.
262. Maeve Reston, McCain Pitches a Mortgage Plan, L.A. TIMES, Apr. 11, 2008, at A17.
263. Andrews, supra note 30.
264. Id.;
265. see also JohnMcCain.com, Immediate Relief for American Families: Gas and Food Prices, http://www.johnmccain.com/issues/jobsforamerica/relief.htm (last visited Nov. 15, 2008).
266. William Yardley, Foreclosure Aid Rising Locally, as Is Dissent, N.Y. TIMES, Feb. 26, 2008, at A1.
267. Id.
268. Id.
269. Id.
270. Manny Fernandez, Bill Would Set Foreclosure Moratorium, N.Y. TIMES, Mar. 3, 2008, at B3.
271. Patrick McGeehan, Spitzer to Present a Plan to Reduce Foreclosures, N.Y. TIMES, Mar. 4, 2008, at B3.
272. Michael Corkery & Ruth Simon, As Houses Empty, Cities Seek Ways to Fill the Void, WALL ST. J., Feb. 6, 2008, at B1.
273. Azam Ahmed & Ofelia Casillas, Sheriff: I Will Stop Enforcing Evictions; Legal, Real Estate Experts Wonder How Dart's Promise Will Play Out, CHI. TRIB., Oct. 9, 2008, at 1.
274. Azam Ahmed, Cook County to Resume Foreclosure Evictions; Dart: Tenants to Be Notified in Advance, CHI. TRIB., Oct. 17, 2008, at 27.
275. Paul Kane, Republicans Block Consideration of Housing Relief Package in Senate, WASH. POST, Feb. 29, 2008, at A3 (quoting Sen. Dick Durbin).
276. Les Christie, Foreclosure Prevention Plan Under Attack, CNNMONEY.COM, Feb. 22, 2008, http://money.cnn.com/2008/02/21/real- estate/cram-downs-coming/.
277. Id.;
278. see also Martin Crutsinger, Paulson Rejects Government Bailouts, USATODAY.COM, Feb. 28, 2008, http://www.usatoday.com/ news/washington/2008-02-28-3286029141-x.htm.
279. Christie, supra note 223 (quoting Ellen Harnick).
280. Id.
281. Crutsinger, supra note 224 (quoting Treasury Secretary Henry Paulson).
282. Edmund L. Andrews, Bush Vows to Veto a Mortgage Relief Bill, N.Y. TIMES, Feb. 27, 2008, at C4.
283. Id.
284. Christie, supra note 223.
285. Ronald D. Utt, H.R. 3915 Would Impose New Burdens and Limits on Moderate Income Borrowers, HERITAGE FOUND. WEB MEMO, Nov. 14, 2007, http://www.heritage.org/research /economy/upload/wm-1703.pdf.
286. See Edmund L. Andrews, A 'Moral Hazard' for a Housing Bailout: Sorting the Victims from Those Who Volunteered, N.Y. TIMES, Feb. 23, 2008, at C1 (describing a proposal by Bank of America advocating a massive federal intervention by creating a Federal Homeowner Preservation Corporation to "buy up billions of dollars in troubled mortgages at a deep discount").
287. Ronald D. Utt, President's Homeownership Proposals Should Be Sent Back to the Drawing Board, HERITAGE FOUND. WEB MEMO, Feb. 7, 2008, http://www.heritage.org/Research/Economy /upload/wm-1802.pdf.
288. Timiraos, supra note 199.
289. Carolyn Lochhead, Candidates on Offensive as Final Debate Looms; Obama Pitches Relief: Foreclosure Freeze and Tax Breaks-but Vague on Funding, S.F. CHRON., Oct. 14, 2008, at A12.
290. Douglas Elmendorf, What Should Be Done to Help Households Facing Foreclosure?, BROOKINGS INSTITUTION, NOV. 2007, http://www.brookings.edu/opinions/2007/11-mortgages-elmendorf.aspx.
291. Id.
292. Yardley, supra note 213.
293. Michael R. Sesit, Subprime Mess Highlights Need for Tough Rules, BLOOMBERG, Feb. 28, 2008, http://www.bloomberg.com/apps/news?pid= 20601039&refer=columnist-sesit&sid=a2um5kMtLCLM;
294. see also Damian Palette, Worried Bankers Seek to Shift Risk to Uncle Sam, WALL ST. J., Feb. 14, 2008, at A2;
295. Kathleen M. Hawley, Wall Street Embraces Government to Avoid Recession, BLOOMBERG, Feb. 1, 2008, http://www.bloomberg.com/apps/ news?pid=newsarchive&sid=aBahn5eH-8cI.
296. The risk of moral hazard is likely even greater in the wake of the government's recent market intervention, including rescue packages for Bear Stearns, Fannie Mae, Freddie Mac, and AIG. In addition, the $700 billion package, passed as the Emergency Economic Stabilization Act, gives the Treasury Secretary broad authority to respond to the credit and housing crisis. See Peter Baker, When 535 Take on Number 1, N.Y. TIMES, Oct. 5, 2008, at WK1. The package was originally introduced "as an effort to rescue banks by buying their troubled mortgage-related assets."
297. David Cho, Binyamin Appelbaum & Zachary Goldfarb, Bailout Expands to Insurers, WASH. POST, Oct. 25, 2008, at A1. However, the sheer magnitude and fluidity of the economic crisis has forced a reevaluation of both the means and the ends of the bailout.
298. Id.
299. See, e.g., CTR. FOR RESPONSIBLE LENDING, SOLUTION TO HOUSING CRISIS REQUIRES ADJUSTING LOANS TO FAIR MARKET VALUE 1 (2008), available at http://www.responsiblelending.org/pdfs/court-supervised-modifications-would- make-large-scale-foreclosure-prevention-possible.pdf.
300. David Streitfeld, Mortgage Plan May Aid Many and Irk Others, N.Y. TIMES, Oct. 31, 2008, at Al (quoting Countrywide Spokesman Rick Simon).
301. Id. (quoting Federal Reserve Chairman Ben Bernanke, FDIC Chairman Sheila Blair, and Treasury Secretary Henry Paulson).
302. See Andrews & Uchitelle, supra note 40.
303. Radin, supra note 1, at 959.
304. For example, WalkAwayHome.com proclaims, "You wouldn't keep a losing or worthless stock would you? . . . No equity? . . . [W]alk away!" Walk Away Home, http://walkawayhome.com (last visited Nov. 15, 2008). Similarly, Walk Away Plan stresses that "walking away is a viable option." Walk Away Plan, http://www.walkawayplan.com/walk-away-plan.html (last visited Nov. 16, 2008) (emphasis omitted).
305. Leland, supra note 41. Professor Ted Sinai fails to mention the adverse credit risks of foreclosure; however, it seems that these risks are outweighed at the time of purchase by the prospect of large gains in home equity.
306. See FENNELL, supra note 99.
307. See id. (manuscript at 229 n.10, 250)
308. (citing ANDREW CAPLIN ET AL., SHARED EQUITY MORTGAGES, HOUSING AFFORDABILITY, AND HOMEOWNERSHIP, FANNIE MAE FOUNDATION REPORT 9-10 (2007), available at http://cess.nyu.edu/caplin/ SEM2007.pdf;
309. ANDREW CAPLIN ET AL., HOUSING PARTNERSHIPS: A NEW APPROACH TO A MARKET AT THE CROSSROADS (1997)). Methods for allowing homeowners to share the risk of depreciation include the creation of tradeable futures and options based upon housing indexes, shared appreciation mortgages and shared equity mortgages, limited equity cooperatives, and housing partnerships.
310. Id. (manuscript at 229). Each of these alternatives allows an occupying homeowner to limit her investment in her property and to share both the upside and downside risk with investors.
311. Id.
312. Id. (manuscript at 228-29 & nn.8-9).
313. Id. (manuscript at 281).
314. Nicole Gelinas, The Rise of the Mortgage 'Walkers,' WALL ST. J., Feb. 8, 2008, at A17.
315. James Madison, Property (Mar. 29, 1792) reprinted in 1 THE FOUNDERS' CONSTITUTION, supra note 17, at 598, 598-99.