Foreclosed, Distressed and Abandoned Properties

Transcription

Presenting a live 90‐minute webinar with interactive Q&A
Foreclosed, Distressed and Abandoned Properties: Legal Challenges for Municipalities
Leveraging Ordinances, Judicial and Agency Proceedings, Land Banks and Other Tools to Minimize Burdens and Maximize Opportunities
TUESDAY, AUGUST 23, 2011
1pm Eastern
|
12pm Central | 11am Mountain
|
10am Pacific
T d ’ faculty
Today’s
f
l features:
f
Dwight H. Merriam, Partner, Robinson & Cole, Hartford, Conn.
David S. Silverman, Partner, Ancel Glink Diamond Bush DiCianni & Krafthefer, Chicago
Julie A. Tappendorf, Partner, Ancel Glink Diamond Bush DiCianni & Krafthefer, Chicago
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
opened….”5 In the end, the public officials all recognized
that economic distress was not a basis for a variance:
“Ron Pizer–Planning Commissioner, said the Planning
Commission could not make the findings for the variance
either; said the Pavilion project had other elements, such as
being a distressed property that had been vacant for many
years.”6
Overlay Districts
For other than the smallest communities, I prefer overlay
districts because they:
• allow for great variation in the criteria for
designation;
• may vary in the size of the area;
• are, as map amendments, usually characterized
as “legislative” and, as such, are most easily
defended; and
• can permit site-specific determinations when
coupled with a somewhat discretionary approval
process, such as a special use, or conditional use,
permit.
For example, Springettsbury Township, Pennsylvania,
has adopted a flexible development overlay district—a
floating zone—to enable assembly of distressed properties
so as to facilitate redevelopment. It was adopted as part
of zoning regulation changes enacted in June, 2007. The
purpose section of the regulations states:
§ 325-88. Purpose. The Flexible Development
District (F-D) is hereby established as a district
in which regulations are intended to permit and
encourage flexibility in development to encourage
H
ow about that old aphorism, “when all you’ve got is
lemons, make lemonade?” There are opportunities with
distressed properties to turn them into beneficial uses, but,
in most instances, some type of zoning relief will be necessary. It is
axiomatic that distressed properties are likely to be older properties
that are physically, functionally, and economically obsolescent in
some form. Along with such obsolescence typically comes the
unhappy status of being a nonconforming use. And along with that
comes the inability to expand or alter the use because one or more
of the dimensional requirements at the site have been exceeded, or
the use proposed is simply not permitted.
The alternatives for relief are several. They start with the most
conventional approaches and run to the possibility of a new type
of zone, created especially for these recent times of the credit crisis
and distress in the real estate economy.
Conventional Rezoning
Usually, the best place to start is in the world of the status quo,
the as-of-right, and the zoning ordinance as it exists. If you have
an underdeveloped, older group of apartments that is economically
distressed and the zoning allows a higher density in a preferable
layout, then an as-of-right application would be the typical first
choice. The instances where this is possible are few and far
between.
Permits for Nonconforming Uses
A special use or conditional use permit—same thing, different
name—can provide a helpful avenue of escape from the constraints
of the nonconforming use. These site-specific discretionary
approvals can allow for limited physical expansion, and even some
change in use for properties that predate the existing zoning. For
example, a two- or three-family house that is nonconforming as to
the number of units, and nonconforming as to side yards and lot
coverage, might be allowed to expand its footprint to add a muchneeded first-floor bathroom, or a deck to the rear of the building.
Modest improvements to existing nonconforming properties can
assist in keeping them from becoming obsolescent and strengthen
them economically.
Similarly, such site-specific discretionary approvals can be
applied to distressed properties to reposition them. Criteria for the
application of the distressed properties special use permit might
include location in a designated area and evidence that the current
size, layout, or use is uneconomic. Economic hardship is never a
basis for a variance, but it can be for a special use permit. Speaking
of variances ….
Variances
Variances are the Swiss Army Knife™ of land-use permitting.
Intended by the drafters of the Standard State Zoning Enabling Act
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(1921—published 1924) to save regulations from constitutional
attack when an individual property was rendered valueless, they
have, instead, become the easy way out of many ordinary zoning
limitations, except when someone challenges their issuance. The
applicant for a variance can seldom truly meet the “practical
difficulty” and “unnecessary hardship” requirements. However,
most variances that are granted are never appealed and, thus,
escape scrutiny.
Variances have come into play in dealing with distressed
properties. In Long Beach, California, a property owner recently
requested a variance to eliminate the three-foot side-yard setback,
in order to further the reconstruction of a nonconforming duplex.
There was some discussion during the hearing as to whether the
work could have been done without the variance. However, one
commissioner “…commented that the benefit of doubt should
be given especially when upgrading a distressed property.”1
Ultimately, the Planning Commission granted the variance 5-0,
subject to the condition that the applicant demonstrate that a
structural alternative was not possible.2
Gardner, Massachusetts, in its list of distressed properties, makes
a point of giving information on where to get a zoning variance.3
And in Hermosa Beach, California, following the recommendations
of the Director of Community Development and the City Manager,
the City Council upheld the denial of a variance for a banquet
facility.4 Testimony in support of the variance included claims
of economic need, supported by the Executive Director of the
Hermosa Beach Chamber of Commerce and Visitors’ Bureau,
who said “the business was important to the economic health of
the City, because $500,000 had gone toward sales tax since [it]
Kansas Government Journal • July 2009
reinvestment and redevelopment. In promoting
such development, the specific intent of this article
is to allow for the use of vacant and under-utilized
lands and buildings through the use of flexible
development and redevelopment standards;
sustainable development practices, including
compatible architectural design; environmental
performance standards, and by strictly prohibiting
any use that would substantially interfere with the
development, continuation or expansion of such
uses within this district.7
Apparently, the first use of that flexible overlay district
was in the fall of 2007, when a pharmacy, Rite Aid, applied
for approval to assemble four properties, one of them
developed with a Jiffy Lube business, and the three others
vacant.8
The Los Angeles Approach
The City of Los Angeles, California, has had an Adaptive
Reuse Ordinance since 1999. The ordinance is intended to
“incentivize” the conversion of underutilized commercial
buildings into housing in the downtown area. Since its
adoption, numerous older commercial buildings have been
converted into thousands of apartments, condominiums,
live-work units, artists’ lofts, and other housing. The
concept has been extended into other areas of the city,
including Chinatown, Lincoln Heights, the Hollywood
and Koreatown CRA project areas, and Central Avenue
between the Santa Monica Freeway and Vernon Avenue
(enabled by a specific plan for that area).9 Here is the
purpose section for the downtown adaptive reuse area:
26. Downtown Adaptive Reuse Projects
(a) Purpose. The purpose of this Subdivision is to
revitalize the Greater Downtown Los Angeles Area
and implement the General Plan by facilitating
the conversion of older, economically distressed
or historically significant buildings to apartments,
live/work units or visitor-serving facilities.
This will help to reduce vacant space as well as
preserve Downtown’s architectural and cultural
past and encourage the development of a live/
work and residential community Downtown, thus
creating a more balanced ratio between housing
and jobs in the region’s primary employment
center. This revitalization will also facilitate the
development of a “24-hour city” and encourage
mixed commercial and residential uses in order to
improve air quality and reduce vehicle trips and
vehicle miles traveled by locating residents, jobs,
hotels and transit services near each other.10
Eligible buildings in the downtown project area include
buildings constructed in accordance with building and
zoning codes in effect prior to 1974; buildings constructed
after 1974 are eligible if they meet the specified criteria,
including the zoning administrator’s finding that the
building “is no longer economically viable in its current
uses or uses.”11
In addition to the findings otherwise required, the zoning
administrator is required to find that the uses of property
surrounding the proposed location of the adaptive reuse
project “will not be detrimental to the safety and welfare
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of prospective residents;” that the project will not displace viable
industrial uses; and that the project complies with the standards for
dwelling units, joint living and work quarters, and guest rooms, as
set forth in the Code.12
Nashville and Davidson County
The Metropolitan Government of Nashville and Davidson
County is fortunate to have one of the country’s leading landuse planners, Rick Bernhardt, as the Executive Director of the
Metro Planning Department. The regulations for adaptive reuse
of commercial areas within the Urban Zoning Overlay District
along arterial and collector streets are exemplary.13 The Metro
Planning Commission, by the way, really likes overlay zones. In
my review of the Zoning Code, I came across ten other overlay
districts, including a Historic Overlay District, Greenway Overlay
District, Floodplain Overlay District, Airport Overlay District,
Adult Entertainment Overlay District, Urban Design Overlay
District, Institutional Overlay District, Impact Overlay District,
and a Neighborhood Landmark District.14
The Urban Zoning Overlay District ordinance starts with this
preamble:
WHEREAS, there are existing, vacant non-residential
buildings and underutilized properties along arterials and
collector roadways within the Metropolitan Government
of Nashville and Davidson County as shown on the Major
Street Plan;
WHEREAS, residential uses would benefit existing,
marginally viable commercial and retail areas by fostering
pedestrian-oriented neighborhoods due to daily services,
amenities, and shops being located within walking
distance, if not within the same building as one lives
thereby reducing traffic on local roads and interstates and
in turn, improving the regional air quality by providing
residential densities along major transit commercial
corridors; and,
WHEREAS, encouraging residential development where
growth can be easily accommodated due to the longterm capital investment by the Metropolitan Government
of Nashville and Davidson County in services and
infrastructure will help to preserve Nashville’s singlefamily neighborhoods and increase Nashville’s housing
stock.15
The design standards are remarkably loose, being:
a. All Residential Uses: The standards of this section shall
apply only to a building or portion thereof converted to
residential use, and any addition to an existing building
for residential use, where a minimum of 40% of the
building’s gross floor area is devoted to residential use,
as explicitly shown on the approved final site plan under
the authority of Section 17.40.170.A of this title, except
as provided below for new construction. The standards of
this section shall not apply to any building proposing to
devote less than 40% of the gross floor area to residential
uses.
b. Single-Family and Two-Family Residential Uses:
Single-family and twofamily uses shall be permitted only
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in an existing building or as part of a new mixed-use
development within a single-structure.
Otherwise, all other requirements and standards
established by other chapters of this title, as well as
any other applicable metropolitan government, state or
federal regulation, shall apply to the development and use
of properties shown on
the final site plan. In case of conflict between the standards
of this section and other chapters of this zoning code, the
provisions of this section shall control, except for Council
approved plans such as planned unit developments, urban
design overlay districts, and redevelopment districts.16
If further relief is needed, alternative design standards are
provided for where a proposed residential development cannot
comply with the standards, and allow an applicant to seek a special
exception from the Zoning Board of Appeals. That board—and
this is smart—is prohibited from granting some variances and,
where the variance would involve a PUD, the board must consider
the Planning Commission’s recommendation.17
A slide show in PDF from a 2004 presentation to the Metro
Planning Commission, explaining how the Adaptive Reuse
Ordinance works, is available online.18
Conclusion
Most distressed properties are physically, functionally,
and economically obsolescent. They will almost certainly be
nonconforming dimensionally, and probably as to use. Repositioning
these properties to restore their economic viability requires zoning
relief. Conventional map changes and text amendments under the
existing ordinance are possible in many cases, and the as-ofright
or existing discretionary approval approach frequently may work.
However, it may be necessary to create a somewhat discretionary
and site-specific approach using the special use or conditional
use permit. The availability of this type of relief for older,
nonconforming properties may help prevent them from becoming
obsolete and economically distressed by enabling modest changes
in dimension, bulk, and use.
The traditional variance is always available, but may not be
legally defensible in most cases.
An approach for most communities that has proved workable
is the overlay district, designating targeted areas in advance, and
qualifying individual buildings and properties under definitive
criteria. The overlay district approach may include a quasidiscretionary, site-specific review process by incorporating the
special use or conditional use permit.
(Author’s Note: This article was originally prepared for ALI-ABA
Land Use Institute, in August 2008.).
IMLA is a non-profit, professional organization that has been an
advocate and resource for local government attorneys since 1935.
IMLA serves more than 2,500 member municipalities and local
government entities in the United States and Canada, and is the
only international organization devoted exclusively to addressing
the needs of local government lawyers. Further information about
IMLA is available at IMLA’s website, www.imla.org
About the Author
Dwight H. Merriam founded Robinson & Cole’s Land Use Group
in 1978. He represents governments, land owners, developers,
and individuals in land use matters. Dwight is a Fellow and Past
President and of the American Institute of Certified Planners, a
former Director of the American Planning Association, Vice-Chair
of the American Bar Association of State and Local Government,
a Fellow of the Royal Institution of Chartered Surveyors, a Fellow
of the American Bar Foundation, a Fellow of the Connecticut Bar
Foundation, a Counselor of Real Estate, a member of the AngloAmerican Real Property Institute, and a member of the American
College of Real Estate Lawyers. He teaches land use law at the
Vermont Law School, and has published five books and 200
articles. Dwight received his B.A (cum laude) from the University
of Massachusetts, his Masters of Regional Planning from the
University of North Carolina, and his J.D. from Yale.
1. Long Beach, Ca., City Planning Commission Minutes (July 19, 2007), available at
http://www.longbeach.gov/civica/filebank/blobdload.asp?BlobID=16842, or Google “Long
Beach Planning Commission Minutes, July 19, 2007,” and scan the hits.
2. Id.
3. City of Gardner, Department of Community Development and Planning, Distressed Property
List (2006), available at http://www.gardner-ma.gov/forms/DistressedProperty.pdf.
4. Hermosa Beach, Ca., Resolution No. 05-6389, To Deny the Conditional Use Permit and Variance
for Union Cattle Company (Apr. 26, 2005).
5. Hermosa Beach, Ca., Minutes of the Regular Meeting of the City Council (Apr. 26, 2005) available
at http://www.hermosabch.org/departments/cityclerk/agenmin/cca20050426/minutes.html.
6. Id.
7. Springettsbury Township, Pa., Zoning Ordinance 07-08, art. XX F-D, § 325-88 (2007). A copy
of the ordinance is available at http://springettsbury.govoffice.com/vertical/Sites/%7B4CA0C2A383C3-431C-8CE2-5C40D45B8BA2%7D/uploads/%7B3A51BB12-1EA3-4674-A968F2D3F0A4967C%7D.PDF or, to avoid this impossibly-long address, just Google “Springettsbury
zoning.” It’s probably worth taking a look at and saving for future reference.
8. Rite Aid gets green light for Springetts site, THE YORK DISPATCH, Nov. 27, 2007.
9. Los Angeles City Council Expands Adaptive Reuse Incentives, available at http://livableplaces.
org/policy/adaptive.html.
10. LOS ANGELES, CA., CODE, ch. I, art, 2, § 12. 22-A, 26 (2001). The entire Code is available
at http://www.amlegal.com/nxt/gateway.dll?f=templates&fn=default.htm&vid=amlegal:lapz_ca
or just Google “Los Angeles zoning code” and click on “planning and zoning code.” A 229-page
Los Angeles Zoning Code Manual and Commentary can be found at http://www.ladbs.org/zoning/
zoning_manual.pdf. A particularly useful resource is the book, City of Los Angeles, Adaptive
Reuse Program (Feb. 2006) at http://www.scag.ca.gov/Housing/pdfs/summit/housing/AdaptiveReuse-Book-LA.pdf. For the downtown program, go to http://lafd.org/prevention/pdfforms/
adaptive_reuse_ord.pdf, or Google, “Los Angeles downtown adaptive reuse.”
11. LOS ANGELES, CA., CODE, ch. I, art, 2, § 12. 22-A, 26(d) (2001). According to the Los
Angeles Adaptive Reuse Program book mentioned in the preceding endnote, “In making this finding,
the Zoning Administrator shall consider the building’s past and current vacancy rate,
existing and previous uses, and real estate market information.” Id. at 30.
12. Los Angeles, Ca., Adaptive Reuse Incentive Areas Specific Plan, Ordinance No. 175,038, §
6 (2003).
13. Metropolitan Government of Nashville and Davidson County, Tenn., Ordinance No. BL2004492 (Feb. 02, 2005), available at http://www.nashville.gov/mc/ordinances/term_2003_2007/
bl2004_492.htm, or go to www.nashville.gov and search “BL2004-492.”
14. METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY, TENN.,
CODE, ch. 17.36, Overlay Districts (2008). The Code is available using the Online Library at
www.municode.com.
15. Metropolitan Government of Nashville and Davidson County, Tenn., Ordinance No. BL2004492 (Feb. 02, 2005).
16. Id. at § 2.
17. Id. at § 11.
18. See ftp://ftp.nashville.gov/web/mpc/Adaptive_Reuse_Ordinance.pdf.
This article was first published by the International Municipal
Lawyers Association (IMLA), 7910 Woodmont Ave., Bethesda,
MD. 20814, and is reproduced with the permission of IMLA.
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Can Public Nuisance Law Protect Your Neighborhood from Big
Banks?
Kermit J. Lind1
I. INTRODUCTION
This article considers how the law of public nuisance might be applied to
protect neighborhoods from the destructive forces of the mortgage crisis.2 For
more than thirty years I have been a close observer and a participant in
community development at the neighborhood level in Cleveland, Ohio.3 I now
supervise a law school clinical practice that provides legal counsel to an array
of nonprofit community development corporations that, for more than thirtyfive years, have been renewing housing and neighborhood sustainability in a
city going through major social and economic change.4
1. Clinical Professor of Law, Assistant Director of the Urban Development Law Clinic, ClevelandMarshall College of Law, Cleveland State University. I acknowledge with thanks the help of my research
assistant, David Moore, and the helpful suggestions of colleagues Tom Wagner and Joe Schilling. This article
is the product of years of clinical practice and has been nourished by contributions from many students and
professional colleagues. The responsibility for errors or omissions, however, is mine alone.
2. The term “foreclosure crisis” is frequently used to describe the phenomenon that I refer to as the
“mortgage crisis.” The difference between the two terms is significant. The increase in foreclosure actions has
produced stresses on, and demonstrated inadequacies in, the various procedures for foreclosing the right of
redemption held by borrowers, as well as the procedures for selling property that is subject to mortgage or
judgment liens. The flood of foreclosures is only a symptom of a broader, more complicated set of problems
that starts with bad lending and borrowing practices and is exacerbated by the pooling and servicing of
mortgages for securitization of various investment products. This problem is further exacerbated by borrowers’
and lenders’ abandonment of care of the collateral, and results in the contamination of whole neighborhoods by
the spread of abandoned, blighted houses. Foreclosure is but one part of this larger crisis.
3. The history of community development in Cleveland has been documented in numerous articles,
lectures, and classes by my colleagues Professors Norman Krumholz and Dennis Keating. See generally
REBUILDING URBAN NEIGHBORHOODS: ACHIEVEMENTS, OPPORTUNITIES, AND LIMITS (W. Dennis Keating &
Norman Krumholz eds., 1999); Norman Krumholz & W. Dennis Keating et al., The Long-Term Impact of
CDCs on Urban Neighborhoods: Case Studies of Cleveland’s Broadway-Slavic Village and Tremont
Neighborhoods, COMMUNITY DEV., Dec. 2006, at 33; see also, Kermit J. Lind, The Perfect Storm: An
Eyewitness Report from Ground Zero in Cleveland’s Neighborhoods, 17 J. AFFORDABLE HOUSING &
COMMUNITY DEV. L. 237 (2008).
4. The Urban Development Law Clinic is an integral part of the academic program at Cleveland State
University’s Cleveland-Marshall College of Law. Serving as a teaching law practice, the Urban Development
Law Clinic provides advanced law students with supervised experience advising nonprofit community
development organizations whose mission involves housing and community development. Students enrolled in
the Urban Development Law Clinic have opportunities to: (a) engage in real estate, transactional, and
corporate governance matters with small nonprofit community developers; (b) work on the development and
enactment of public policies and programs designed to advance and protect the community development
Electronic copy available at: http://ssrn.com/abstract=1796063
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No city has mounted a more determined effort to restore its housing stock
and sustain neighborhood vitality than Cleveland.5 This effort has included the
investment of hundreds of millions of dollars in public funds and private
donations, including resources provided by some of the banks whose business
practices undercut the value and benefit of their investments.6 It is within the
context of that struggle that I look to the law of public nuisance as a tool to
remedy the physical condition of real property standing in violation of local and
state laws and, in addition, as a tool to stop the business practices of
commercial property owners that perpetuate the harmful conditions prohibited
by state and local nuisance abatement laws.
The profession of law involves engaged, informed, and skilled thinking
coupled with disciplined action on matters critical to the welfare of human
kind. The critical societal problems of each epoch set the agenda for the study
and practice of law. With the advent of the mortgage crisis in the 1990s, the
practice of community development law in Cleveland came to include, then to
focus on, protecting neighborhood residents from the impact of abusive home
financing schemes.7 Representing both public and private clients, community
investments of our clients; and (c) litigate nuisance abatement actions against absentee owners of abandoned
and blighted buildings. See Cleveland-Marshall Coll. of Law, Urban Development Law Clinic, CLEV. ST. U.,
http://www.law.csuohio.edu/academics/curriculum/clinics/urban.html (last visited Jan. 12, 2011).
5. Since 2006, the City of Cleveland and Cuyahoga County have allocated resources aimed at restoring
the housing stock in Cleveland, sustaining the vitality of local neighborhoods, and containing the contamination
caused by public nuisance properties. In 2009, the Cuyahoga County Land Reutilization Corporation
(CCLRC), colloquially known as the “Land Bank,” began operating in Cleveland as a strategic response to the
mortgage crisis. Working with cities, federal, state, and local governments, mortgage lenders, and individual
property owners, the CCLRC seeks to acquire troubled real estate and transition this property to productive use.
In its first year, the CCLRC acquired title to more than 200 vacant properties, and through arrangements with
the United States Department of Housing and Urban Development and the Federal National Mortgage
Association, the CCLRC is expected to acquire an additional 700 to 1,000 properties in its second year of
operation.
See generally Cuyahoga Cnty. Land Reutilization Corp., CUYAHOGA LAND BANK,
http://www.cuyahogalandbank.org (last visited Jan. 12, 2011).
6. Officials at Neighborhood Progress, Inc., reported to me that, since 1989, public, public interest, and
for-profit entities have invested more than $750 million in neighborhood development. Nuisance abatement
efforts since 2005 have, to a large extent, been aimed at protecting their investment in better housing and
residential neighborhoods. See generally NEIGHBORHOOD PROGRESS, INC., CELEBRATING 20 YEARS (2009),
http://www.neighborhoodprogress.org/uploaded_pics/NPI_Report_June_2009_file_1249651518.pdf.
7. Although the first symptoms of the mortgage crisis—the exponential increase in real estate prices over
a short period of time, the increased use of exotic and nontraditional mortgage products, and the prevalent
business practice of originating “no-documentation mortgages” or “no-down-payment mortgages”—were
observed in many housing markets during the early part of the twenty-first century, their original catalyst
stems, in part, from the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA), passed
by Congress in 1992. See Federal Housing Enterprises Financial Safety and Soundness Act of 1992, Pub. L.
No. 102-550, §§ 1301-1395, 106 Stat. 3672, 3941-4012 (codified as amended at 12 U.S.C. §§ 4501-4642
(2000)). Most notably, FHEFSSA established low and moderate-income housing goals for the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation, colloquially known as
Fannie Mae and Freddie Mac, respectively. See id. § 1302 (codified at 12 U.S.C. § 4501(7)). Although there
are many consequences of establishing these housing goals, FHEFSSA largely facilitated the creation of a
liquid secondary market for mortgage loans originated to low-income and moderate-income borrowers. It
thereby confirmed the plausibility of a secondary market for mortgages of all types, including mortgages
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CAN PUBLIC NUISANCE LAW PROTECT YOUR NEIGHBORHOOD?
91
development lawyers in Cleveland were tasked with protecting decades of
housing and community renewal from the rising tide of vacant and abandoned
houses, which threatened the health, safety, and welfare of residents and the
public. That effort led to new state and local public policies and to creative use
of both criminal and civil litigation using public nuisance abatement doctrine.
More generally, the task raised the question of whether, and in what capacity,
nuisance law can effectively abate nuisance conditions and the business
practices that destroy stable neighborhoods. This article attempts to illustrate
the view that knowledge of and practical experience with public nuisance law is
critical to the discussion of the topic.
The article begins by surveying the litigation experience in Cleveland and
Cincinnati, Ohio, over the past twelve years—a period during which nuisance
abatement by traditional housing code enforcement to remedy serious
residential nuisances became obsolete and insufficient. The second part looks
at the development of the doctrine of public nuisance and its current status in
both scholarly and judicial writing. The third part applies a test for public
nuisance litigation advocated by opponents of public nuisance litigation against
producers of products and byproducts that do harm. The question is whether
bank business practices of owning and maintaining nuisance real estate would
be actionable under this test intended to limit the application of public nuisance
doctrine. The final part offers an assessment of the possibility of using public
nuisance law to protect neighborhoods that are being threatened by large scale
bank-owned housing.
II. TWELVE YEARS OF NUISANCE ABATEMENT LITIGATION IN THE MORTGAGE
CRISIS
A. The Insufficiency of Traditional Housing Code Enforcement8
The prevailing legal process for abating public nuisances starts with
inspection of dwellings and issuance of notices of violations to the parties
responsible along with an order to comply with the statute or ordinance
prohibiting the nuisance. Failure to comply or to successfully appeal the order
results in a summons to an administrative or judicial hearing on the issue of the
failure to comply with the administrative order.9 This exercise of the police
secured by commercial and residential properties and mortgages issued to both prime and subprime borrowers.
By the late 1990s, many cases involving binge-buying investors in distressed houses purchased with inflated
loans were showing up in multiple cases on the foreclosure and housing code violation dockets in Cleveland.
8. I have benefited greatly from a decade of collegial collaboration with Joe Schilling; he wrote an
essential work on code enforcement. See generally Joseph Schilling, Code Enforcement and Community
Stabilization: The Forgotten First Responders to Vacant and Foreclosed Homes, 2 ALB. GOV’T L. REV. 101
(2009).
9. The charge is failure to comply with the order to abate nuisance conditions as required by law.
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power to protect the public health, safety, and welfare imposes criminal
penalties for failing to comply with the requirements of specific codes as well
as failing to comply with a police order. The court in such proceedings has
jurisdiction over the individual or individuals responsible for the property
condition and for the failure to comply, but lacks jurisdiction over the property
itself. The court may sentence a person for the offense—to a fine and
sometimes jail time—but the nuisance conditions are not abated.
Criminal enforcement of housing, zoning, health, and safety codes has
certain limitations. The purposes of criminal prosecution for noncompliance
with housing codes are punishment and behavior modification. Prosecution
may elicit remedial compliance by a defendant who wants to avoid or mitigate
a sentence.10 That assumption generally works well in circumstances where
homeowners live or work in the property where code violations are cited and
have the means to comply. In fact, the rate of voluntary compliance with
housing and building code citations has traditionally been very high. However,
neither that assumption nor the reliability of voluntary compliance is the norm
in neighborhoods with a high degree of mortgage failures, absentee owners,
and vacant houses. Indeed, the possibility of achieving any meaningful
compliance with the traditional policing methods for housing, health, and safety
codes diminishes where owners are not present or are not financially able to
maintain their houses.11
Traditional code enforcement methods designed for maintenance of owneroccupied housing are essentially obsolete in the neighborhoods most affected
by mortgage failures. Vast numbers of houses serving as mortgage collateral
are chronically vacant and the repair of dwellings falls on owners who may
lack the means or the will to keep a house from becoming dangerously
harmful.12 Abandoned, vacant houses in the process of foreclosure are a
10. See City of Cleveland v. Franklin Inn, Ltd., No. 2000 CRB 54786, slip op. at 1 (Ohio Cleveland Mun.
Ct. Housing Div. 2003), aff’d 2005–Ohio–508 (Ct. App.).
The primary goal of most sentences imposed in the Housing Court is to encourage owners to bring
their properties into compliance with city codes despite the fact that the owners failed to do so within
the time the city set for compliance in a violation notice issued to the owner. Therefore, when
sentencing a defendant, the court first considers whether the defendant has brought the property up
to code. If not, the court generally imposes a sentence it believes sufficient to motivate the owner to
make the needed repairs.
Id. This statement of judicial policy is restated in numerous judgment entries of the housing court over the past
seven years.
11. See Matthew J. Samsa, Note, Reclaiming Abandoned Properties: Using Public Nuisance Suits and
Land Banks to Pursue Economic Redevelopment, 56 CLEV. ST. L. REV. 189, 198 (2008); see also James J.
Kelly, Jr., Refreshing the Heart of the City: Vacant Building Receivership as a Tool for Neighborhood
Revitalization and Community Empowerment, 13 J. AFFORDABLE HOUSING & COMMUNITY DEV. L. 210, 214
(2004).
12. See RANDELL MCSHEPARD & FRAN STEWART, POLICYBRIDGE, REBUILDING BLOCKS: EFFORTS TO
REVIVE CLEVELAND MUST START BY TREATING WHAT AILS NEIGHBORHOODS 6 (2009), http://www.policy-
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communicable disease that diminishes the benefit to neighbors of keeping up or
restoring their own houses.13 Furthermore, although judges generally prefer
compliance rather than punishment in housing code enforcement cases, many
are frustrated with the limited punishments available to force abatement of
serious and expensive nuisance conditions. Finally, the volume and the
increased level of work required to inspect dwellings, cite owners, and bring a
criminal prosecution is a growing financial burden on municipalities.14
Effective code enforcement to require compliance with nuisance abatement
codes in any large American city is a very rare thing. The spreading scourge of
abandoned vacant housing is overwhelming the archaic and arthritic methods of
traditional code enforcement. In the face of this crisis, new housing code
enforcement methods and strategies are required.
B. Ohio’s Civil Residential Nuisance Abatement Statute
An alternative to criminal prosecution of serious nuisance conditions is the
civil action. In civil cases, statutes or the common law provide injunctive relief
whereby the court directs compliance with its order to abate a nuisance
condition.15 Civil liability for public nuisances does not focus on punishment;
rather, civil actions expand the available tools that a court may use to directly
deal with the conduct causing nuisance conditions and to remedy the offending
conditions. Permanent injunctions by a court eliminate the necessity of
multiple prosecutions for repeated offenses. Additionally, because a court in a
civil action has jurisdiction over property and persons, it has a sure way of
permanently abating nuisance conditions. It is an action available to both
municipal prosecutors and private persons. Many states and municipalities
have codified laws that grant private persons the right to bring suit individually
or as a private attorney general for an injunction to abate conditions the statute
declares to be public nuisances.16
bridge.org/uploaded_files/NeighborhoodReport_10_05_09_file_1255630039.pdf (concluding up to 20% of
residential properties in Cleveland’s inner-city neighborhoods vacant and abandoned).
13. One recent study assessed the impact of foreclosures on neighboring residential property values in
Cuyahoga County. See generally Timothy F. Kobie, Residential Foreclosures’ Impact on Nearby SingleFamily Residential Properties: A New Approach to the Spatial and Temporal Dimensions (July 28, 2009)
(unpublished Ph.D. dissertation, Levin College of Urban Affairs, Cleveland State University),
http://etd.ohiolink.edu/send-pdf.cgi/Kobie%20Timothy%20F.pdf?csu1268073662. Utilizing a hedonic pricing
model, the study evaluated this relationship in ninety-day increments beginning in 2005. See id. at 39, 68-69.
The study revealed that for properties valued at $140,000, a surrounding foreclosure will erode property values
by an average of $2400 over a one-year period, or 1.66%, while a corresponding sheriff’s sale will erode
property values, on average, by $4000, or 2.89%. See id. at 108 tbl.X.
14. Alan C. Weinstein, Current and Future Challenges to Local Government Posed by the Housing and
Credit Crisis, 2 ALB. GOV’T L. REV. 259, 267-68 (2009).
15. See, e.g., OHIO REV. CODE ANN. § 3767.41(C)(1) (West 2010) (granting court power to abate
nuisance); Ypsilanti Charter Twp. v. Kircher, 761 N.W.2d 761, 775 (Mich. Ct. App. 2008) (discussing court’s
legitimate power to abate public nuisance).
16. See, e.g., OHIO REV. CODE ANN. § 3767.41 (authorizing private cause of action for nuisance under
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Ohio’s residential nuisance abatement statute is an example of a state statute
authorizing civil nuisance abatement actions.17 Not only does the statute
authorize civil actions to abate public nuisance conditions, it authorizes nongovernmental persons to be plaintiffs in the action along with the municipal
government.18 This is a clear departure from the traditional notion that only the
sovereign may vindicate rights belonging to the public. Unlike the enforcement
of building and housing codes in criminal actions against owners, a nuisance
abatement action initiated pursuant to the Ohio statute is a civil action whereby
the court—either following the plaintiff’s motion or sua sponte—can issue an
injunction requiring the property owner to abate any adjudicated nuisance
conditions or issue any order necessary or appropriate to cause the abatement of
the public nuisance.19 Additionally, either in response to a plaintiff’s motion or
through its own action, the court may offer to all parties having an interest in
the property an opportunity to undertake the work and furnish the materials
necessary to abate the public nuisance conditions or appoint a receiver to take
control of the nuisance property and implement a court-approved abatement
plan.20
Key provisions of the statute start with definitions that narrow its application
to residential buildings21 not occupied by the owner primarily as a residence
and that are in a nuisance condition22 making them harmful to the public and
state code); SAN LUIS OBISPO, CAL., MUNICIPAL CODE § 8.24.190 (2010) (authorizing private cause of action
for nuisance under city code).
17. OHIO REV. CODE ANN. § 3767.41.
18. See id. § 3767.41(C)(1). Additionally, either in response to a plaintiff’s motion, or through the
court’s own action, the court may offer to all parties having an interest in the property an opportunity to
undertake the work and furnish the materials necessary to abate the public nuisance conditions or appoint a
receiver to take control of the nuisance property and implement a court approved abatement plan. Id. § 3767.41
(C)(2).
19. See id. § 3767.03.
20. Id. § 3767.41(C)(2).
21. OHIO REV. CODE ANN. § 3767.41(A)(1) (West 2010) (defining “building”).
“Building” means, except as otherwise provided in this division, any building or structure that is
used or intended to be used for residential purposes. “Building” includes, but is not limited to, a
building or structure in which any floor is used for retail stores, shops, salesrooms, markets, or
similar commercial uses, or for offices, banks, civic administration activities, professional services,
or similar business or civic uses, and in which the other floors are used, or designed and intended to
be used, for residential purposes. “Building” does not include any building or structure that is
occupied by its owner and that contains three or fewer residential units.
Id. I suggested amending the statute to expand and augment this definition to include other types of buildings
and vacant lots, but the legislative proposals to which the amendment was attached did not survive committee
hearings.
22. See id. § 3767.41(A)(2) (defining “public nuisance” in two contexts and distinguishing public
nuisance as it applies to subsidized housing).
“Public nuisance” means a building that is a menace to the public health, welfare, or safety; that is
structurally unsafe, unsanitary, or not provided with adequate safe egress; that constitutes a fire
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unfit for habitation. The statute does not apply to ordinary wear and tear
acceptable to a reasonable homeowner in his or her residence. The statute
defines abatement to mean either a complete rehabilitation or demolition of a
building found to be a public nuisance.23 Its definition of “neighbor”
recognizes as neighbors only owners of property within 500 feet of the property
subject to the nuisance allegation.24 A neighboring tenant is not recognized and
cannot be a plaintiff in the action. However, residential tenants in the nuisance
building, municipalities or townships, and nonprofit corporations having a goal
of improvement of housing conditions in the county or municipality where the
building is located are all authorized to sue.25 The specific inclusion of private
persons is a significant departure from the traditional notion that only the
sovereign could vindicate the rights of the public. Giving private persons,
especially nonprofit developers, the power to be plaintiffs is a critical provision
of the statute.
A court upholds the due process rights of others with a legal interest in the
property because the notice required by the statute is given in accordance with
the standards the U.S. Supreme Court mandated by its 1983 decision in
Mennonite Board of Missions v. Adams26 and the case’s progeny.27 This is
hazard, is otherwise dangerous to human life, or is otherwise no longer fit and habitable; or that, in
relation to its existing use, constitutes a hazard to the public health, welfare, or safety by reason of
inadequate maintenance, dilapidation, obsolescence, or abandonment.
Id. § 3767.41(A)(2)(a) (defining “public nuisance” outside of subsidized housing context).
23. See id. § 3767.41(A)(3) (defining “abatement”).
“Abate” or “abatement” in connection with any building means the removal or correction of any
conditions that constitute a public nuisance and the making of any other improvements that are
needed to effect a rehabilitation of the building that is consistent with maintaining safe and habitable
conditions over its remaining useful life. “Abatement” does not include the closing or boarding up
of any building that is found to be a public nuisance.
Id.
24. See id. § 3767.41(A)(5).
25. See id. § 3767.41(B)(1)(a) (conveying standing to neighbors, tenants, municipalities, and nonprofits).
In any civil action to enforce any local building, housing . . . or safety code . . . by a municipal
corporation or township in which the building involved is located, by any neighbor, tenant, or by a
nonprofit corporation that is duly organized and has as one of its goals the improvement of housing
conditions in the county or municipal corporation in which the building involved is located, if a
building is alleged to be a public nuisance, the municipal corporation, township, neighbor, tenant, or
nonprofit corporation may apply in its complaint for an injunction or . . . the appointment of a
receiver . . . or for both . . . .
Id.
26. 462 U.S. 791 (1983).
27. See generally id. The Mennonite Board decision confirmed that in order to satisfy the Due Process
Clause of the Fourteenth Amendment, only reasonably identifiable mortgagees are entitled to receive more than
constructive notice of a pending foreclosure sale. Id. at 798. In particular, the Supreme Court confirmed that
providing or attempting to provide actual notice is a precondition to satisfying a mortgagee’s due process
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important for the remedy phase of the public nuisance abatement action
because owners—and later, lien holders—have an opportunity to abate the
public nuisance. The owner’s failure to answer the complaint or unwillingness
to comply with court-ordered abatement gives rise to the truly significant
feature of this statute. If no one with a legal interest in the property is willing
or able to abate the nuisance conditions, the court can then appoint a receiver to
undertake that task at the owner’s expense.28 The statute entitles a receiver
who completes the court-approved rehabilitation but is not paid to a judgment
lien for all the costs of rehabilitation, plus a fee.29 That judgment lien has
priority over all other liens, including all mortgages as well as taxes and
judgments of any state or local government.30
The provision of financing from a source other than a party with a legal
interest in the property is made possible by granting a first-priority lien on the
property in return. Without this provision, the statute would be ineffective and,
as a result, the taxpayers would be stuck with the costs of abatement and the
public and neighbors subjected to continued harm. When the court grants a
receiver a judgment lien, the receiver becomes a judgment creditor and may
execute on the judgment by foreclosure and sale or by a judicial sale under the
nuisance abatement statute’s provisions.31 Thus, the procedure required for
nuisance abatement directs that, after receiving notice, the abandonment of
financial responsibility for the nuisance by those with a legal interest be placed
on the record. The result of this abandonment, after due notice, is a reordering,
by operation of the statute, of the priority of interests in favor of the external
source of financing of the nuisance abatement.
C. Early Cases
Nonprofit development corporations in Cleveland participating in the
Cleveland Housing Receivership Project filed the earliest cases brought under
Ohio Revised Code section 3767.41 in the late 1980s. The Cleveland Housing
Receivership Project was a pilot program established to demonstrate the
effectiveness of the new statute. The nonprofit corporation that brought the suit
targeted vacant houses in a nuisance condition as candidates for rehabilitation.
Grants and borrowed funds initially advanced the legal costs and the
rights. Id. at 799-800; see Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950) (affirming
due process requires notice reasonably calculated to inform interested parties and opportunity to object).
28. See OHIO REV. CODE ANN. § 3767.41(C)(2) (West 2010) (authorizing appointment of receiver). The
statute identifies eligibility requirements for becoming a receiver, specifies the receiver’s powers and duties,
and provides receivers with immunity from personal liability except if they engage in misfeasance,
malfeasance, or nonfeasance in the performance of their duties. See id. § 3767.41(C)-(G). The statute also
specifies the contents of the financial and construction plan prior to the receiver’s appointment. See id.
29. See id. § 3767.41(H)(2).
30. Id.
31. See id. § 3767.41(I) (authorizing court-supervised sale and distribution of proceeds); see also id. §
3767.03.
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rehabilitation expenses incurred by the plaintiff-receivers. The nonprofit
receiver then acquired the property by way of a foreclosure auction using its
receiver’s lien as the credit bid at the sheriff’s sale.32 After obtaining title to the
rehabilitated houses, the nonprofit receiver’s goal was to sell them to moderateincome buyers committed to occupying the house.
These initial cases proved successful as a means of converting an
abandoned, vacant nuisance into an asset occupied and maintained by a family
with limited income. The targeted houses were chosen for their potential
rehabilitation and resale. Owners of the targeted houses were either unable or
unwilling to abate their nuisances and did not contest the litigation by the
nonprofit developers. Nor did mortgagees assert any defenses or cross-claims.
As implied by its name, Cleveland Housing Receivership Project, the
presumption was that these cases would all result in court-ordered receivership.
The key factor for the plaintiffs and those financing the rehabilitation of
properties in these cases is the receiver’s acquisition of control of vacant,
abandoned properties in order to obtain a clear title to convey to a new
homeowner.
Lawyers and laypeople alike often refer to the nuisance abatement statute as
“the receivership statute” and to nuisance abatement cases as “receivership
cases.” The question is frequently posed to me, “Can we do a receivership on
this house?” There is a tendency to ignore the role of nuisance abatement and
code enforcement as a legal prerequisite to the plaintiff’s primary goal of
controlling and rehabilitating the targeted property. The power exercised by a
court to seize control of the property and reorder the lien priority to compensate
for the expense of nuisance abatement is an exercise of the police power to
protect public health, safety, and welfare. In that regard, it is distinct from
other types of receiverships established to preserve an asset during a dispute
between parties or during a crisis. It is also distinct from a taking. The
receivership is a means to nuisance abatement, not an end in itself.
These initial cases were brought in the Housing Court Division of the
Cleveland Municipal Court.33 Without exception, the court found the subject
32. The process is analogous to how a bank would bid its mortgage lien at a foreclosure sale, in that the
nonprofit organization would institute a bid at the foreclosure sale in an amount equal to the value of its
receivership lien.
33. The Ohio Revised Code provides that the housing court division of a municipal court is afforded
exclusive jurisdiction to hear public nuisance abatement actions. There are currently only two cities in Ohio—
Cleveland and Toledo—that have established a housing court division within their respective municipal court
systems. See OHIO REV. CODE ANN. § 1901.181(A)(1); see also State ex rel. Davet v. Pianka, No. 76337, 1999
WL 754511, at *4 (Ohio Ct. App. Sept. 16, 1999) (interpreting section 1901.181(A)(1) and establishing the
jurisdictional boundaries of the Housing Court Division of the Cleveland Municipal Court). See generally,
Robert Jaquay, Cleveland’s Housing Court, SHELTERFORCE, May/June 2005, http://www.nhi.org/online/issues/
141/housingcourt.html (describing housing court’s role in spurring rehabilitation of one-time nuisance
properties). In pertinent part, section 1901.181(A)(1) provides that the housing division of a municipal court
“has exclusive jurisdiction . . . in any civil action as described in division (B)(1) of section 3767.41 of the
Revised Code that relates to a public nuisance.” OHIO REV. CODE ANN. § 1901.181(A)(1).
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houses to be public nuisances and, because no owner or lien holder appeared in
the cases, appointed the plaintiff nonprofit development corporation to be the
receiver with orders to abate the nuisance conditions by rehabilitating the
properties in accordance with a court-approved construction and financing
plan.34 Because the provisions of section 3767.41, dealing with judicial sales
of property at the request of the receiver holding a judgment lien, do not
provide the purchaser in the judicial sale with a title clear of mortgages, it was
necessary in these early cases to transfer the receiver’s judgment to the
common pleas court and commence a separate foreclosure action during the
pendency of the nuisance abatement case in the Housing Division of the
Cleveland Municipal Court.35 Until the receiver’s costs and fees were paid, the
nuisance abatement case could not be closed. The lack of a title-clearing sale
under the section 3767.41 procedures meant there had to be two cases in which
two different courts simultaneously had jurisdiction over the same property.
The awkwardness of this situation was partially mitigated by the fact that all
persons with a legal interest in the property had abandoned that interest and
defaulted—first in the nuisance abatement case and then again in the
foreclosure case. However, the additional legal costs had to be absorbed by the
receiver in order to acquire complete title to the property.36
The nuisance abatement cases, litigated with the support of the Cleveland
Housing Receivership Project, demonstrate that when dealing with individual
properties needing substantial rehabilitation, the requisite financing usually
exceeds the fair market value of the house when the abatement is finished.
Without the subsidy provided by the Cleveland Housing Receivership Project,
the nuisance conditions would not have been replaced by sustainable owneroccupied houses. This limitation became clear when, after the funding for the
receivership project ended, nonprofit development corporations wanting to use
the procedure for acquisition of dilapidated housing were unable to finance the
legal and construction costs necessary to do the job. Few cases were filed in
the 1990s.
34. A party’s obligation to absorb substantial legal fees and costs prior to being appointed a receiver is a
deterrent to bringing cases where the facts of nuisance conditions would be disputed. I am not aware of any
section 3767.41 case in Ohio where the facts of nuisance conditions were disputed.
35. Ohio’s residential nuisance abatement statute provides that in a judicial sale, the purchaser of a
property that was previously controlled by a receiver assumes title to the property free and clear of all liens
owed to the state that are not satisfied by the judicial sale. See OHIO REV. CODE ANN. § 3767.41(K) (West
2010). Comparatively, the Ohio statute also provides that “[a]ll other liens and encumbrances with respect to
the building and the property shall survive the [judicial] sale.” Id.
36. This situation changed when the housing court determined that Ohio legislatively granted the
Cleveland Municipal Court, and only that municipal court, exclusive jurisdiction in foreclosure cases within its
geographic jurisdiction. It issued a local rule to guide foreclosure procedures and proceeded to hear foreclosure
cases in addition to the judicial sales permitted by section 3767.41. The housing court is not used for mortgage
foreclosures, however, probably because the court’s foreclosure case management involves more work and
costs to plaintiffs than is the case in the common pleas court.
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D. Post-1999 Cases
In September 1999, Slavic Village Development Corporation, a
neighborhood-based organization in Cleveland, asked our law school clinic to
help with a more complicated nuisance situation. This situation involved an
owner who invested in thirteen residential properties, varying from one-family
dwellings to four-family dwellings. The owner was simultaneously a party to
criminal code enforcement proceedings in the Cleveland Municipal Housing
Court, foreclosure proceedings in the common pleas court, and bankruptcy
proceedings in bankruptcy court. Each of these thirteen houses was in a
dilapidated condition, with some occupied by squatters. Each blighted house
was mortgaged well beyond its fair market value, even if it had been in good
condition.37 Moreover, each of these properties had been encumbered with a
loan greater than the inflated purchase price of the houses so that there was no
equity at all.38 The trustee in bankruptcy abandoned the houses to the
mortgagees. The property owner, desperate to rid himself of these liabilities,
offered to give the thirteen properties to Slavic Village Development
Corporation. That was impossible, however, because of the outstanding
mortgages encumbering the titles.
The proposed solution was for Slavic Village Development Corporation to
file a nuisance abatement action against the owner on all thirteen properties.39
The owner appeared in housing court for an expedited hearing on a preliminary
injunction and confirmed for the record that all of his properties were in a
nuisance condition as defined in the Ohio residential nuisance abatement statute
and that he had no means to abate the nuisance condition. The court then
issued an emergency order giving the plaintiff control of each of the houses
while the various mortgagees completed foreclosures. Because these properties
were either subject to other courts’ jurisdiction in foreclosure proceedings, or
soon would be, the housing court did not order rehabilitation, but it did
supervise the securing and maintenance of the houses to protect the neighbors.
While the houses were subject to foreclosure proceedings controlled by
creditors, they were checked, re-boarded when necessary, and otherwise kept
free of trash, graffiti, and criminal activity by the development corporation’s
37. Records indicate that some of the mortgages were granted after the borrower had already stopped
payment on earlier loans. Only one or two payments were made on some of the loans.
38. Fraudulent mortgaging schemes involving “investors” were rampant in Cleveland by this time, but
those of us who saw it did not know then how extensive it was, nor did we find much help from law
enforcement agencies at that time. Gradually, we learned that this property flipping and mortgage fraud was
perpetuated by a ring of affiliated individuals who would repeatedly buy and sell a specific home, or group of
cheap houses, to jack up the price until it could be mortgaged by a duped buyer with credit, or by falsifying
loan documents, for an inflated value with proceeds of the loan benefiting everyone in the group.
39. I was counsel of record for the plaintiff in this case with the clinic students providing assistance. One
of those students, Heather Veljkovic, was hired by the housing court upon her graduation and is now, a decade
later, a magistrate.
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staff. The court granted the receiver a judgment for most of its cash
expenditures up to a $500 limit. Within three years, all the nuisance conditions
were abated. Eventually, the city demolished most of the houses, which left the
lots vacant of any buildings. Three houses were sold at sheriff’s sales and
rehabilitated. A few of the titles to vacant lots currently remain in the owner’s
name because the mortgagees abandoned their interest without releasing the
lien.40
This case revealed to the plaintiff and its counsel the enormity and
complexity of predatory business operations in the mortgage financing industry
and the connection of those business operations to the spread of blight in lowincome neighborhoods. We saw investors, borrowers, appraisers, and
mortgage brokers defrauding lenders who did not seem very concerned about
being robbed. Unscrupulous mortgage brokers peddled bad loans to naïve and
deluded buyers often motivated by seminars, television infomercials, and
internet sites, which extolled the ease of making money fast in the real estate
market. Lenders were willing to loan money without regard to the condition of
the collateral and without attention to the buyers’ inability or lack of intention
to repay the loan. The new system of packaging bundles of loans as securities
left a void between the mortgaged property and the mortgagee, except for the
purpose of allowing the mortgagee to collect on loan guarantees or insurance
after the borrower’s default.41
Soon after 2005, Slavic Village in Cleveland was internationally regarded as
the epicenter of the mortgage crisis.42 A rising tide of abandoned, vacant
houses undermined the development corporation’s successes in rehabilitating
old houses and stimulating new, market-rate construction. Whole streets were
40. This is a condition I call a “toxic title.” No one can obtain a financial benefit from any transaction or
legal action. Abandoned real estate eventually becomes property tax delinquent, which leads to a tax
foreclosure within two to three years. Problems of service on various obscure, remote, or nonexistent debt
collectors, who ended up with the mortgage, delay title-clearing tax foreclosures on abandoned property.
41. There are numerous recent books and articles that explain, after the fact, how America’s mortgage
market came to be such a disaster. See generally, e.g., DAN IMMERGLUCK, FORECLOSED: HIGH-RISK LENDING,
DEREGULATION, AND THE UNDERMINING OF AMERICA’S MORTGAGE MARKET (2009) (containing excellent
description and analysis of mortgage crisis); James Charles Smith, The Structural Causes of Mortgage Fraud,
60 SYRACUSE L. REV. 433, 436-37 (2010) (noting distance between mortgage creditors and their collateral
limits likelihood of scrutiny of both borrower and collateral). Kurt Eggert, Professor of Law at Chapman
University, after more than a decade of research on the subject, concludes that “[a] central element of the
subprime lending model in the age of securitization is that many subprime lenders were designed so that they
could profitably fail, at least profitably for the individuals who operated the subprime lending institutions.”
Kurt Eggert, The Great Collapse: How Securitization Caused the Subprime Meltdown, 41 CONN. L. REV.
1257, 1263 (2009).
42. See CLEVELAND VS. WALL STREET (Saga-Productions et al. 2010); see also Lind, supra note 3; Alex
Kotlowitz, All Boarded Up, N.Y. TIMES, Mar. 4, 2009, http://www.nytimes.com/2009/03/08/magazine/
08Foreclosure-t.html. Cleveland vs. Wall Street, by Swiss director Jean-Stephane Bron, was shot documentarystyle during several trips to Cleveland and spotlights foreclosures and evictions in Cleveland’s Slavic Village
neighborhood. See CLEVELAND VS. WALL STREET, supra. The film was entered in the Cannes International
Film Festival in April, 2010.
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vacant. Many owners who had the means to do so fled and either abandoned
their houses or sold them to speculators to use for fast-money business
schemes. Bank debt collectors purchased and repossessed houses at sheriff’s
sales for resale to a new type of speculator: out-of-town investors who, in
some cases, live on the other side of the planet. In 2005, the housing data that
could be gathered showed a grim picture of mounting nuisance conditions—
abandoned, vacant houses stripped of fixtures, plumbing, siding, or anything
else portable. Predatory and subprime lending, skyrocketing foreclosure
filings, and systematic failure to comply with local health, safety, and housing
codes essential to stable neighborhoods pervaded the inner city. By that year,
this phenomenon was a major force, not just in Cleveland but also in virtually
every major midwestern city and older suburb. Cleveland’s nonprofit
development leadership recognized this force and its threat to three decades of
their neighborhood stabilization and rebuilding efforts. Control and abatement
of nuisance conditions required a strategic approach with substantial resources
just to protect the progress made in rebuilding neighborhoods.
E. The Rising Tide of Abandoned, Vacant Bank Real Estate Owned (REO)
Housing
For neighborhoods and cities trying to cope with abandoned housing, the
most frustrating part of the mortgage crisis is when banks as debt collectors
take title to the residence at the foreclosure sale. The property then goes into a
state of legal limbo in which its condition is not regarded as anyone’s
responsibility. In order to grasp the nature of the problem regarding houses
owned by banks, one must start with the “pooling and servicing agreement”
(PSA) and the role of servicers.43 Each pool of mortgage loans is managed or
serviced in accord with a master agreement. The agreement provides for one or
more servicers to exercise authority on behalf of, and for the benefit of, a
trustee for the loan pool and the investors who purchased fractional interests in
the entire pool. The PSA delegates to servicers the responsibility to collect
payments, escrow taxes, and insurance, and to handle loss mitigation,
foreclosure, and REO administration—all in the best interest of the investment
pool members, none of whom have an interest in a specific loan or its
collateral. The servicer may, in the event of default, acquire the property in the
name of the trustee of the loan pool. The huge surge of foreclosures in the
43. See generally Stergios Theologides, Servicing REO Properties: The Servicer’s Role and Incentives,
in FED. RESERVE BANKS OF BOS. & CLEVELAND & THE FED. RESERVE BD., REO & VACANT PROPERTIES:
STRATEGIES FOR NEIGHBORHOOD STABILIZATION 77 (2010) [hereinafter REO & VACANT
PROPERTIES], available at http://www.clevelandfed.org/Community_Development/publications/REO/REO_
WEB.pdf. Theologides is senior vice president and general counsel for CoreLogic, a provider of consumer,
financial, and property information, analytics, and services to business and government. Id. at 84. He
previously was general counsel for financial institutions making and holding subprime and securitized loans.
Id.
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mortgage crisis has resulted in significant growth in the number of properties
that banks repossess at the end of foreclosure proceedings. The weakened
housing market has too few buyers of used houses at this time. Moreover,
servicers are frequently finding that repossessed houses need significant repair
due to borrowers’ failure to maintain them or the natural deterioration of
chronically empty buildings.
When servicers of REO properties find their contractual responsibility for
the banks’ properties involves the expenditure of significant amounts for
repairs in order to comply with local housing codes, they protect their profit
and that of the banks by abandoning their responsibility to comply with housing
codes.44 As a leading expert points out,
This is an important area in which the interests of local governments and
nonprofits diverge from the contractual obligations of servicers. If a servicer
reasonably believes future repairs, maintenance, and improvements would be
“nonrecoverable” advances, it would arguably be breaching its PSA obligations
if it were to incur those expenses rather than execute a rapid “as is” sale or even
45
avoid taking title.
Maintaining seriously defective property in a nuisance condition for months
waiting for sheriffs’ deeds to be issued and for buyers to record their deeds of
purchase means that servicers are in violation of state and local laws against
maintaining housing in a nuisance condition. Frank Ford, a senior vice
president of a Cleveland nonprofit community developer with millions of
dollars invested in inner-city housing and neighborhood renewal says, “What
we now have taking place in Cleveland is an ‘REO Race’, i.e. can financial
institutions ‘unload’ or ‘dump’ their liability before the local municipal code
enforcement officials catch up with them?”46 Research on the growth and the
disposition of bank REO in Cleveland has documented that banks buy and own
thousands of houses appraised for sale at $10,000 or less and then sell them in
bulk sales in “as is” condition for extremely distressed prices.47 This
phenomenon, occurring in economically and demographically weak markets,
results in a large growth in the number of houses owned by banks and
maintained unlawfully in a public nuisance condition until sold so that
investors in mortgage-backed securities will make more money. For local code
enforcement agencies and nonprofit developers investing in neighborhood
44. Id. at 79-80.
45. Id. at 84-85 n.15.
46. Frank Ford, Cleaning Up After the Foreclosure Tsunami: Tackling Bank Walk-Aways and Vulture
Investors, SHELTERFORCE, Fall/Winter 2009, http://www.shelterforce.org/article/1864/cleaning_up_after_the_
foreclosure_tsunami_tackling_bank_walk-aways_and_vult.
47. See Claudia Coulton et al., REO and Beyond: The Aftermath of the Foreclosure Crisis in Cuyahoga
County, Ohio, in REO & VACANT PROPERTIES, supra note 43, at 47, 50.
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renewal, the profit financial institutions make by illegally compromising the
public’s legal right to health, safety, and welfare becomes a forced subsidy by
taxpayers, who are stuck with nuisance abatement costs, and by neighbors,
whose houses lose value by being near abandoned, vacant houses titled to
banks.48
F. Neighborhood Progress, Inc., and Land Assembly for Neighborhood
Renewal
In 2004, Neighborhood Progress, Inc. (NPI), a Cleveland-based nonprofit
community development financial and technical assistance intermediary,
developed what it calls the Land Assembly Program.49 It is essentially a
multidisciplinary program that provides detailed property information, financial
assistance, and legal services to a set of high-performing, neighborhood-based
nonprofit development corporations. The program deploys technical assistance
to help those neighborhood developers to systematically acquire and assemble
vacant, abandoned, tax-delinquent properties needed to complete major housing
developments already underway or to remove blight that interferes with
marketing rehabilitated or newly constructed housing. Acquisition methods
vary depending on the circumstances of individual properties. A key feature of
this program is the assembly and analysis of all available records about the
property and those persons with a legal interest in it. Hundreds of individual
houses or lots in seven different neighborhoods were painstakingly researched.
Armed with information, NPI and its affiliates can execute a number of options
to deal with distressed houses. Willing and able homeowners or landlords on
designated streets are offered help with repairs and improvements. Absentee
owners are approached with offers, financed with grants or loans, to buy their
homes.50 Assistance is provided to the city’s code enforcement officials in
support of requests for inspection and citation of vacant, abandoned houses.51
A significant component of the Land Assembly Program is the use of the
Ohio residential nuisance abatement statute where vacant houses or apartments
buildings are totally abandoned and unmarketable. Between 2005 and 2008,
more than forty suits were filed. In nearly all of the cases, the building was
48. Ford, supra note 46. Alex Kotlowitz further described the impact of this business practice at the
neighborhood level in a New York Times article entitled “All Boarded Up,” published in the New York Times
Sunday Magazine on March 4, 2009. See Kotlowitz, supra note 42. Kotlowitz focused attention on the
personal stories of people battling the big banks’ business practices. See id.
49. Kermit J. Lind, A New Program to Help CDCs Acquire and Assemble Vacant, Abandoned, and Tax
Delinquent Properties for Redevelopment (2005) (paper presented at the ABA Forum on Affordable Housing
and Community Development) (on file with author).
50. Village Capital Corporation, Inc., a wholly-owned subsidiary of NPI and an organization actively
involved in this process, is a community development financial institution. See Village Capital Corporation,
NEIGHBORHOOD PROGRESS, http://www.neighborhoodprogress.org/vcc.php (last visited Jan. 12, 2011).
51. The inspection system is generally complaint-driven, which requires strategic filing of complaints to
achieve results.
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declared a public nuisance and the housing court ordered abatement by
demolition because it was not feasible to rehabilitate and market the house. In
a few cases, the city demolished houses before the court ordered it. In most
cases, NPI used grant funds for demolitions. The receiver’s total cost to
demolish a single-family or two-family house is indicated in the receiver’s
judgments, which were generally between $12,000 and $20,000. In the few
cases involving apartment buildings, the cost was more than $50,000. And one
building requiring asbestos abatement ran up a bill in excess of $110,000. The
vacant lots, the only source of cost recovery for the receiver, were rarely worth
more than $5,000.
This disparity between what it costs to abate nuisance conditions in vacant,
abandoned houses and apartments and the recovery of the costs of doing so is
exacerbated by weak market conditions, which are characteristic of
neighborhoods with older and low-value housing. The demolition and
abatement costs shown in these forty cases of civil nuisance abatement under
section 3767.41, however, are miniscule when compared with the public costs
of municipalities stuck with thousands of abandoned dwellings for which there
is only a speculative market—which extends the nuisance conditions—or no
market at all. Taxpayers in cities like Cleveland, Buffalo, Flint, Detroit, St.
Louis, Pittsburgh, and Cincinnati spend millions every year demolishing
unusable housing stock, and so far, the pace of abandonment is running ahead
of the pace of demolition. The Land Assembly Program experience
demonstrates that the legal proceedings for nuisance abatement litigation are
very expensive and that the program could only be applied to deal with
abatement by demolition when external financing for both the abatement and
the legal costs are available. NPI and its partners use every means possible to
control or abate nuisances before filing suit, and they turn down many more
cases than are filed. This experience demonstrates that private nuisance
abatement litigation is viable only in limited circumstances and for very
strategic purposes.
One result of these cases led us to a different approach. Our easiest
successes and fastest settlements occurred when suit was filed against a bank as
owner of vacant, abandoned houses purchased with credit liens at foreclosure
sales. The title was at that point uncluttered. There was typically only one
party to serve and that party was likely to answer and engage in the process.
When local attorneys for banks were apprised of the facts of the case, they
were, in several instances, able to get title to the property delivered directly to
the plaintiff in advance of a hearing and judgment by the court. The attorneys
for the banks were the same attorneys who represent mortgagees in foreclosure
cases. We found it possible to discuss bank REO properties with some of these
attorneys before filing suit and occasionally they were able to persuade their
client to either donate the property or sell it for a minimal price. Recognizing
that bank REO portfolios were increasing at a drastic rate and that the bank
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REO properties in inner-city neighborhoods were being sold by the banks in
bulk to absentee investors for a pittance, we developed a new litigation strategy
that would be more efficient in getting vacant, abandoned houses demolished at
the owner’s expense.
G. The Wells Fargo Case
On December 15, 2008, a nonprofit subsidiary of NPI, Cleveland Housing
Renewal Project, Inc. (CHRP), filed two lawsuits52 in the Cleveland Municipal
Court’s Housing Division against the two big banks that owned the greatest
number of residential dwellings in Cleveland: Wells Fargo Bank and Deutsche
Bank National Trust Company.53 The claims against the banks in each of the
two suits were essentially identical.
First, a number of specifically identified vacant, abandoned houses in
seriously defective condition were alleged to be public nuisances as defined by
section 3767.41.54 The complaints asked the housing court to declare them
public nuisances and to order the respective defendants in each case to abate
the nuisance conditions in accord with the statute’s requirements. Further, the
complaints described each defendant’s business practices as owners of the
houses at sheriff’s sales. The complaints alleged that the practice of ignoring
housing codes and maintaining houses in dangerous conditions while
mortgage-servicing agents attempted to market and sell the homes was a public
nuisance. The complaints characterized this business practice as the practice of
(1) owning dangerously defective housing in violation of the laws of Ohio and
the City of Cleveland for (2) the commercial purpose of dumping the houses,
which were liabilities, onto third-party owners before the nuisance conditions
could be identified and liability could attach, as would be determined by
municipal code enforcement procedures.55 In support of this claim, the plaintiff
52. See generally Plaintiff’s Verified Complaint for Abatement of Public Nuisance, Injunction, &
Receivership (R.C. 3767.41) & for Declaration of Business Practices as Public Nuisance, & for Equitable
Relief Therefrom, Cleveland Hous. Renewal Project v. Wells Fargo Bank, No. 08-CVH-31391 (Ohio
Cleveland Mun. Ct. Housing Div. Dec. 15, 2008) [hereinafter Wells Fargo Complaint]; Plaintiff’s Verified
Complaint for Abatement of Public Nuisance, Injunction, & Receivership (R.C. 3767.41) & for Declaration of
Business Practices as Public Nuisance, & for Equitable Relief Therefrom, Cleveland Hous. Renewal Project v.
Deutsche Bank Trust Co., No. 08-CVH-31389 (Ohio Cleveland Mun. Ct. Housing Div. Dec. 15, 2008)
[hereinafter Deutsche Bank Complaint].
53. The City of Cleveland was also named as a defendant in each case because certain provisions of
Ohio’s residential nuisance abatement statute require that notice be provided to any person with an interest in
the property. See OHIO REV. CODE ANN. § 3767.41(B) (West 2010). In virtually all nuisance abatement cases
we file, the City of Cleveland either has unrecorded claims against the nuisance property for unpaid
assessments and water bills or will incur nuisance abatement costs during the pendency of the case. Thus, in
virtually every case, the city is named as a defendant, thereby requiring the city assert its right to liens on the
titles of these properties.
54. See Wells Fargo Complaint, supra note 52, Exhibit A; Deutsche Bank Complaint, supra note 52,
Exhibit A.
55. See Ford, supra note 46 (describing these practices).
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relied on the Supreme Court of Ohio’s adoption of the Restatement (Second) of
Torts section 821(B) as the common law of Ohio. The Restatement provides
that unreasonable use of property interfering with the public right to health,
safety, and welfare constitutes a public nuisance.56 Finally, the plaintiff in each
case sought injunctive relief—namely, relief from the business practice of
noncompliance with laws requiring maintenance of houses in a condition free
from public nuisances.57
The complaints continue to describe the business practice of each defendant
after their houses were purchased at sheriff’s sale.58 The plaintiff alleged
public nuisance claims because the practice of ignoring housing codes created
dangerous conditions on the defendants’ properties for an indefinite period of
time. The complaints described this business practice as using dangerously
defective housing in violation of the laws of Ohio and the City of Cleveland for
the commercial purpose of dumping the liability on other owners before
municipal code enforcement procedures and the city’s police power could hold
the owners accountable for nuisance conditions created by their unlawful
business practice. The complaints further cited the Ohio Supreme Court’s
adoption of the Restatement making the unreasonable use of property to
interfere with the public right to health, safety, and welfare a public nuisance.59
The plaintiff sought to enjoin the business practice of noncompliance with
those laws requiring maintenance of houses in a condition free of public
nuisances.
An important procedural part of the plaintiff’s action in both of the cases
was to request from the housing court an immediate order restraining the sale
of the specifically identified properties in their unlawful condition. This was
necessary because the defendants’ servicers could escape the litigation’s law
enforcement effort by transferring title to one or more of their regular buyers,
putting ownership in a state of limbo for a period of time but allowing the
defendants to claim to the court that they no longer owned the nuisances. The
court issued the requested order.
Another important procedural event at the commencement of the cases was
each defendant’s immediate removal of their respective cases to the federal
district court. In addition, they disputed the status of the city as a codefendant,
claiming it was named merely to provide a pretext for the plaintiff to avoid
federal jurisdiction.
The removals commenced separate battles over
jurisdiction with different results in each case. In Cleveland Housing Renewal
Project v. Wells Fargo Bank, N.A.,60 Federal District Court Judge Ann Aldrich
56. See City of Cincinnati v. Beretta U.S.A. Corp., 768 N.E.2d 1136, 1142 (2002) (citing RESTATEMENT
(SECOND) OF TORTS § 4 (1965)).
57. See Wells Fargo Complaint, supra note 52, at 8; Deutsche Bank Complaint, supra note 52, at 8.
58. See Wells Fargo Complaint, supra note 52, at 2-3; Deutsche Bank Complaint, supra note 52, at 3-4.
59. See Beretta U.S.A. Corp., 768 N.E.2d at 1142 (citing RESTATEMENT (SECOND) OF TORTS § 4 (1965)).
60. Cleveland Hous. Renewal Project v. Wells Fargo Bank, N.A., No. 1:08-cv-03011-AA (N.D. Ohio Jan.
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remanded the case back to the housing court because “Wells Fargo relied solely
on CHRP’s prior standing in state court without showing how CHRP has met
the federal requirements of injury, causation, and redressability” and therefore
“has failed to meet its burden.”61 Her judgment did not allow for an appeal.
While waiting for the federal judge’s decision, CHRP and Wells Fargo
conducted discovery and began settlement negotiations. CHRP’s counsel
expected that direct discussions with Wells Fargo would be productive in much
the same manner that discussions with opposing counsel in the public nuisance
abatement cases had been. This turned out to be a mistake. CHRP’s suit
sought only injunctive relief without any monetary claims for damages. The
injunctive request essentially sought an order declaring Wells Fargo’s
conduct—maintaining specific houses in an unlawful condition and
maintaining a business practice of noncompliance with nuisance abatement
laws—to be unlawful, and ordering the bank to comply with the law.
CHRP indicated from the outset that it wanted to explore with Wells Fargo
and Deutsche Bank the use of a newly formed land bank that the state
legislature authorized the county government to establish. By seeking to force
the banks to comply with the law as its remedy, CHRP left itself no room to
accept a settlement that would permit some degree of noncompliance with laws
the City of Cleveland. Wells Fargo was a captive of multiple pooling and
servicing agreements, and it believed these agreements denied it any legal right
to change the business plan that involuntarily brought it title to nuisance
housing. Thus, Wells Fargo had nothing to offer to satisfy the limited but
essential goal of law-abiding property ownership. Without disclosing the
substance of statements, proposals, and communication between the parties, it
can be said that no common ground could be found between compliance with
state and local public nuisance law and adherence to a business practice
engraved in unalterable pooling and servicing contacts.
During the first six months of 2009, while discovery and negotiations were
ongoing, CHRP’s legal team kept track of transactions involving approximately
seventy properties that Wells Fargo purchased at sheriff’s auctions. Sheriff’s
appraisers valued all these properties at $10,000 or less. The plaintiff asked the
court to issue a preliminary injunction to prevent Wells Fargo from maintaining
these houses in dangerously defective condition and to prevent them from
selling houses at less than $40,000 without demonstrating that the house being
sold was in sufficient compliance with housing codes that it could be lawfully
used, or that it would be rehabilitated as a result of the sale. After a contentious
hearing lasting several days, the court issued its preliminary injunction, which
required a minimal level of compliance with housing codes to a standard of
27, 2009)
61. Id. slip op. at 4.
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safe, secure, and graffiti-free.62 Nevertheless, the injunction was immediately
stayed pending Wells Fargo’s prompt appeal of the court’s preliminary
injunction.
Three arguments were raised in the appeal to Ohio’s Eighth District Court of
Appeals.63 They were: (1) the housing court lacked authority to hear the
common law public nuisance claim because it lacked subject matter jurisdiction
and because CHRP lacked standing to sue on this claim; (2) the housing court
erred in its findings and reasons for granting the injunction; and (3) the terms of
the preliminary injunction were improper. On these issues the court of appeals
ruled that “[while] the housing court had subject-matter jurisdiction to hear
CHRP’s common-law public-nuisance claim, the preliminary injunction
granted with respect to this claim was improvidently granted.”64 The housing
court’s preliminary injunction was based solely on CHRP’s common-law
public nuisance claim after CHRP had successfully argued in federal court that
it lacked standing to pursue such a claim.65 As such, the appellate court
concluded that CHRP was judicially estopped from arguing that it had standing
to pursue a common-law public nuisance claim, and that the trial court abused
its discretion in granting the preliminary injunction. With this decision, and
with the abatement of the specific nuisances named in the suit having been
accomplished, the parties agreed to a dismissal.
H. The Deutsche Bank Case
While the suit against Wells Fargo made its way back from the federal court
62. Cleveland Hous. Renewal Project v. Wells Fargo Bank, No. 08-CVH-31391 (Ohio Cleveland Mun.
Ct. Housing Div. June 18, 2009) (unpublished order).
63. See generally Cleveland Hous. Renewal Project, Inc. v. Wells Fargo Bank, N.A., 934 N.E.2d 372
(Ohio Ct. App. 2010). CHRP filed a motion to dismiss the appeal because it was not a final, appealable order
as defined by statute. Id. at 376. That issue was separately briefed but incorporated into the oral argument on
appeal. The court denied the motion and allowed the appeal to be heard. Id.
64. Id. at 381. The court noted that section 3767.41 of the Ohio Revised Code grants housing courts
incidental jurisdiction over all subject matters brought in conjunction with a claim that is properly before the
court and grants them the same authority as a common pleas court to fully adjudicate those matters. Id. at 379
n.9. Thus, CHRP’s claims under section 3767.41 opened the door for the other claims to be heard in the
housing court. Id. at 379.
65. Id. at 380. The court stated:
In its memorandum in support of its motion to remand, CHRP argued to the federal court that
“CHRP, as a non-profit community development corporation, does not claim to have a direct injury
in fact under federal (Article III) standing principles. Nor does Plaintiff CHRP meet the causation
and redressibility [sic] requirements that are part of the constitutional core of Article III standing.
The injury suffered by Plaintiff CHRP is not distinct from the injury to the public at large.” The
federal court relied on CHRP’s argument that it suffered no personal injury in remanding this matter
to the housing court.
Id. The court’s reasoning here seems to ignore the difference between federal Article III standing and state
court standing, forcing litigants to make the same standing argument in two different situations.
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to the housing court, the case against Deutsche Bank did not follow the same
course. That case was removed to a different federal judge, James Gwinn, and
its management proceeded at a slower pace. The narrow legal issues related to
Article III standing were briefed, the court heard arguments, and on March 26,
2009, Judge Gwinn issued his decision remanding the case back to the
Cleveland Housing Court.66 The grounds on which he did so, however, were
not the same as those on which Judge Aldrich based her remand order in the
Wells Fargo case. The remand in Cleveland Housing Renewal Project v.
Deutsche Bank Trust Co.67 was based on abstention and was appealable.68
Deutsche Bank promptly appealed to the Sixth Circuit. Oral argument was
conducted April 30, 2010, to determine which court would adjudicate the
Deutsche Bank case.
After more than eighteen months of litigation, the Court of Appeals for the
Sixth Circuit issued its judgment on September 20, 2010, blocking remand of
the case to the Cleveland Housing Court and the Ohio court system.69 The
court of appeals said the district court was mistaken in its abstention from
federal jurisdiction because it had minimized the “strong federal interest” in
affording Deutsche Bank a neutral forum for adjudicating CHRP’s state law
claims.70 In the court’s opinion, the case belonged in federal court because “the
state law claims (a) are of intense local concern, (b) are asserted against not just
citizens of different states, but affiliates of manifestly “foreign” (i.e., German)
corporations, and (c) would otherwise be adjudicated by a locally-elected
municipal judge.”71 In addition to overturning the district court’s remand, the
court of appeals upheld the lower court’s realignment of the parties that made
the City of Cleveland a plaintiff along with CHRP.72 With this decision, the
66. Cleveland Hous. Renewal Project v. Deutsche Bank Trust Co., 606 F. Supp. 2d 698 (N.D. Ohio
2009), vacated, 621 F.3d 554 (6th Cir. 2010).
67. 606 F. Supp. 2d 698 (N.D. Ohio 2009), vacated, 621 F.3d 554 (6th Cir. 2010).
68. See id. at 716. Judge Gwinn remanded the case to the housing court relying on the Burford doctrine
of abstention. See generally Burfurd v. Sun Oil Co., 319 U.S. 315 (1943). The Burford abstention doctrine is a
discretionary doctrine, founded on principles of comity and federalism, and recognizing that there are certain
exceptional instances when denying a federal forum would “clearly serve an important countervailing interest.”
See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). In particular, Burford abstention is
appropriate in those cases involving difficult and important questions of state law that bear on policy problems
of substantial public import and whose impact extends beyond the immediate case. See id. at 728. Historically,
these questions have often involved questions of land use and zoning. Similarly, Burford abstention is equally
appropriate when there is a state interest in uniform regulation that outweighs any immediate federal interest
and federal adjudication would disrupt state efforts to establish a coherent policy with respect to a matter of
substantial public import. See New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361
(1989); see also Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 814 (1976). In either
instance, a federal court may only rely on Burford abstention if the court is sitting in equity and timely and
adequate state court review is alternatively available. See Council of New Orleans, 491 U.S. at 361.
69. Cleveland Hous. Renewal Project v. Deutsche Bank Trust Co., 621 F.3d 554, 567 (6th Cir. 2010).
70. Id. at 568.
71. Id. at 563-64.
72. Id. at 560.
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common law nuisance claim that the business practice of refusing to comply
with local nuisance laws applicable to residential property will be tried in the
federal court system.73
I. The Cincinnati Cases
While a nonprofit development corporation in Cleveland brought suits
against Wells Fargo and Deutsche Bank, the City of Cincinnati sued the same
two banks.74 Shortly thereafter, Price Hill Will, a neighborhood nonprofit
development corporation, sued them as well.75 The neighborhood corporation
and the City of Cincinnati each named the two banks in their respective
complaints along with the Hamilton County treasurer. Price Hill Will also
named the City of Cincinnati as a defendant in its complaint. Each plaintiff
identified a specific set of houses to be declared a public nuisance for
abatement under section 3767.41. Each plaintiff stated a common law public
nuisance claim against the business practice of maintaining houses in an
unlawful condition. Each asked for injunctive relief against both individual
nuisances and against the business practice of violating housing codes. In
addition, the City of Cincinnati asked that the banks be enjoined from filing
new foreclosure actions until all nuisance conditions were abated at their
currently owned houses.76 The Cincinnati plaintiffs, however, asked for more
than injunctive relief; they, like cross-claimant City of Cleveland, asked for
monetary damages to compensate for the expenses the public incurred taking
care of the banks’ properties. Finally, the city asked for punitive damages for
the deliberate and knowing defiance of violation notices and court
summonses.77
The distinctive feature in the public nuisance litigation described above is
that the claims directly arose from harmful conditions on the defendants’ real
property that interfered with rights common to the public. The conduct
complained of was the unlawful maintenance of nuisance conditions in
73. The court of appeals discussed issues related to the section 3767.41 claims. See Deutsche Bank Trust,
621 F.3d at 567. As of December 2010, litigation of this case continues in the trial court.
74. Amended Verified Complaint for Injunctive Relief, Declaratory Relief & Damages, City of Cincinnati
v. Deutsche Bank Nat’l Trust Co., No. A0811824 (Ohio Ct. Com. Pl. Hamilton Cnty. Mar. 9, 2009) [hereinafter
Cincinnati Complaint] (suing banks for failure to maintain abandoned, foreclosed properties).
75. Complaint, Price Hill Will v. Deutsche Bank Nat’l Trust Co., No. A0811905 (Ohio Ct. Com. Pl.
Hamilton Cnty. Dec. 24, 2008). Given the similarity of the Cleveland and Cincinnati public nuisance suits
against the same banks, one could reasonably assume they were part of a coordinated plan; however, that is not
the case. It is true, though, that the plaintiffs and their counsel had attended conferences and CLE courses and
exchanged materials dealing with public nuisance litigation for several years prior to 2008. It is also true that
neighborhood and housing advocates in both Cleveland and Cincinnati closely studied the published data
showing the growth, led by Deutsche Bank and Wells Fargo, of bank ownership of nuisance properties. These
two banks’ defiance of municipal housing codes and code enforcement created a common basis for taking
action against them. Nevertheless, the timing of the lawsuits was a surprise to counsel for all the plaintiffs.
76. See Cincinnati Complaint, supra note 74, at 27 ¶ K.
77. Id. at 25-26.
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residential property—conduct proscribed by local police power and state law.
The complaints also asked for relief, not only with respect to reckless
ownership of individual properties, but also with respect to the persistent
nuisance conduct of unlawfully neglecting repair and maintenance of
residential premises by those with title and in control of the largest inventory.78
J. Cleveland v. Ameriquest
In sharp contrast to these public nuisance cases, which are based on the
violation of specific local and state housing codes and the resulting nuisance
conditions, is the case of City of Cleveland v. Ameriquest Mortgage Securities,
Inc.79 In Ameriquest Mortgage, the city sued twenty-one financial institutions
and alleged that the defendants’ financing, purchasing, and pooling of vast
amounts of these loans to create mortgage-backed securities for sale to their
customers constituted a public nuisance.80 In its complaint, the city asserted
that the financial institutions, which it collectively identified as “Wall Street,”
were responsible for conducting financial transactions of various sorts,
including servicing and debt collecting, in a manner that resulted in harm to the
rights of people living in Cleveland. This public nuisance claim against the
financial transactions related to lending, creating derivative financial
instruments, collecting debts, and foreclosing on defaulting borrowers was
soundly rejected in the Federal District Court for the Northern District of
Ohio81 and the Court of Appeals for the Sixth Circuit.82 The district court
dismissed the case because: (1) an Ohio statute governing regulation of loans
and credit preempts public nuisance claims based on banking practices; (2) the
economic loss rule applied; (3) subprime mortgage lending that was permitted,
and even encouraged, by government regulation could not constitute qualified
public nuisance; (4) facilitating lawful conduct by financing it could not be
qualified public nuisance; and (5) the nuisance claim lacked the requisite
proximate causation.83 In the appeal, the Sixth Circuit limited its analysis to
78. It could be added that this business practice undermines the banks’ own business of collecting
mortgage payments. Among the effects of sustained refusal to comply with housing codes is the loss of
mortgage payments from neighboring borrowers whose loss of home equity, safety, and security discourages
them from maintaining their property, paying on their mortgage loans, or even staying in the mortgaged house.
This begs the question of why lenders who hold prime mortgages put at risk by the nuisance conduct of big
banks do not seek relief. It also begs the question of why financial institution regulators do not challenge this
multiplication of financial risk to mortgagees. The cost of banks and others making money from trafficking in
illegally uninhabitable dwellings who unlawfully neglect home ownership code compliance may be
incalculable, and those responsible for it are too big to fail.
79. 615 F.3d 496 (6th Cir. 2010).
80. Id. at 498-99.
81. City of Cleveland v. Ameriquest Mortgage Sec., Inc., 621 F. Supp. 2d 513, 536 (N.D. Ohio 2009).
82. Ameriquest Mortgage, 615 F.3d at 507.
83. Ameriquest Mortgage, 621 F. Supp. 2d at 536.
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proximate cause and upheld the dismissal on that ground alone.84 The City of
Buffalo, New York, attempted to bring a public nuisance action against thirtysix banks whose foreclosures led to the city bearing nuisance abatement costs
averaging $16,000 per building.85 Buffalo petitioned the court to find that this
conduct constituted a public nuisance and to hold the defendants jointly and
severally liable for the costs of abating the nuisances. These municipal
attempts and others seeking to hold financial institutions liable for harmful
lending and debt collecting practices are likely to be successfully resisted.86
The attempted invocation of nuisance theory in Ameriquest Mortgage,
however, is different than that in the Cincinnati and CHRP cases. In the
Cincinnati and Cleveland cases, the alleged nuisance is not just a fragmented
array of fraud-laden bank lending practices but is also the ownership and
misuse of residential real estate in violation of established law applicable to all
owners of residential real property. A close examination of public nuisance
law illuminates the significance of that difference. When properly understood,
the doctrine of public nuisance can be used in litigation and in legislation
against nuisance conditions resulting from the mortgage crisis.
III. THE DOCTRINE OF PUBLIC NUISANCE LAW
A. Property Rights and Nuisance Law
To understand the law of public nuisance, one starts by noting its connection
to the law of real property rights—the ownership and use of land and the
immovable structures attached to it. Court decisions and scholarship on this
subject since the middle of the 20th century reveal that notions about the rights
of ownership in land are not firmly settled. Narratives attempting to explain the
nature and origins of private property differ.87 Was all property given in the
84. Ameriquest Mortgage, 615 F.3d at 507.
85. See generally Complaint, City of Buffalo v. ABN AMRO Mortgage Grp., Inc., Index No. 2200-2008
(N.Y. Sup. Ct. Feb. 20, 2008) available at http://www.hppinc.org/_uls/resources/Buffalo_Lawsuit.pdf; see also
WebCivil Supreme, N.Y. ST. UNIFIED CT. SYS., http://iapps.courts.state.ny.us/webcivil/FCASMain (follow
“Index Search” hyperlink; then enter index number 2200-2008 and Erie County in search fields and follow
“Find Case(s)” hyperlink) (last visited Jan. 12, 2011) (indicating case on trial as of October 21, 2010).
86. See, e.g., John G. Culhane & Jean Macchiaroli Eggen, Defining a Proper Role for Public Nuisance
Law in Municipal Suits Against Gun Sellers: Beyond Rhetoric and Expedience, 52 S.C. L. REV. 287, 295
(2001) (explaining public nuisance actions generally brought in equity and likelihood of damage recovery
unclear); Richard E. Gottlieb & Andrew J. McGuinness, Subprime Lending as a Public Nuisance: Casting
Blame Mortgage on Lenders and Wall Street for Inner City Blight, 62 CONSUMER FIN. L. Q. REP. 4, 4 (2008)
(arguing courts should resist these novel claims as matter of public policy); Matthew Saunig, Note, Rebranding
Public Nuisance: City of Cleveland v. Ameriquest Mortgage Securities, Inc. as a Failed Response to
Economic Crisis, 59 CATH. U. L. REV. 911, 929 (2010) (commending Ameriquest Mortgage court’s proper
refusal to subvert public nuisance doctrine).
87. See, e.g., RICHARD A. EPSTEIN, TAKINGS: PRIVATE PROPERTY AND THE POWER OF EMINENT DOMAIN
13 (1985) (arguing private property ownership, free of state infringement, save limited instances, entrenched
within governmental structure); Robert C. Ellickson, Property in Land, 102 YALE L.J. 1315, 1341 (1993)
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beginning to a single owner to dominate and distribute arbitrarily? Or was all
property provided to all humans to be used for the common good either by
individuals or groups? Which comes first in importance—individual property
rights or the well-being of society? In our own time, there are sharp differences
among those calling for significant change in the accepted idea of property
ownership and rights in response to the social and ecological changes of this
age.88 Other than summarizing concepts key to understanding nuisance law,
the subject of property rights exceeds the scope of this article.
The metaphor of a collection or bundle of sticks is generally used to describe
the elements or aspects of property ownership.89 Ownership of property
consists of a bundle of distinct rights, which can be perceived as separable and
can be either acquired or alienated as a whole bundle or as separate, individual
parts in the same way sticks can be handled individually or as a bundle. The
sticks are not uniform in size, nature, or importance. Ownership may be
claimed by or attributed to a person holding less than the full bundle of rights.90
Control of one right, such as a security interest for the value of the property,
may control the exercise of other rights, such as the conveyance of other
interests. This metaphor applies regardless of the thing or object concerned and
whether the object is big or little, material or immaterial. It applies to
dwellings as well as to shares of stock in a corporation that buys, owns, and
sells dwellings. This understanding of ownership has largely replaced the one
made prevalent by the English commentator, William Blackstone, who, in the
18th century, defined property ownership as a sole and despotic relationship
between a person and a thing that gives freedom and dominion over the thing,
limited only by the obligation to do no harm to others in the exercise of those
rights.
While the theory of property ownership and rights in land has changed in the
historical record, of which twenty-first century America is a part, one principle
has been present for a millennium—namely, that the use of property in a
(crediting transition to individual property ownership to economic hedge, not political necessity or Lockean
right); Gerald Friedman, The Sanctity of Property Rights in American History 3-7 (Univ. Mass. Amherst
Political Econ. Research Inst., Working Paper No. 14, 2001) (discussing evolution of states’ police power and
its inhibition on property rights in early America), available at http://www.peri.umass.edu/fileadmin/pdf/
working_papers/working_papers_1-50/WP14.pdf.
88. See generally, e.g., Eric T. Freyfogle, Property and Liberty, 34 HARV. ENVTL. L. REV. 75 (2010);
Glen O. Robinson, The Property Rights of Despots (Univ. of Va. Law School John M. Olin Program in Law &
Econ. Working Paper Series No. 39, 2007), available at http://law.bepress.com/cgi/viewcontent.cgi?article=
1116&context=uvalwps.
89. See Denise R. Johnson, Reflections on the Bundle of Rights, 32 VT. L. REV. 247, 247 (2007)
(describing one modern legal understanding of property ownership).
90. See id. at 253 (quoting A.M. Honore). Johnson identifies eleven rights in the bundle that reflect
certain incidents of property ownership common to all mature legal systems. These eleven rights are: (1) the
right to possess; (2) the right to use; (3) the right to manage; (4) the right to the income; (5) the right to capital;
(6) the right to security; (7) the power of transmissibility; (8) the absence of term; (9) the prohibition of harmful
use; (10) liability to execution; and (11) residuary character. Id. at 253.
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manner that does harm to others is prohibited. Most discussions of the rights of
land ownership invoke the ancient phrase sic utere tuo ut alienum non laedas,
the do-no-harm principle limiting the rights inherent in land ownership so as to
prevent interference with the exercise of property rights of other owners.
Preventing or punishing the exercise of property rights resulting in harm
invokes the law of nuisance. The question is this: are there legal constraints on
owners’ maintenance and use of their residential properties in a nuisance
condition that interferes with the exercise of the rights of other persons?
B. Historical Development of Public Nuisance Law
The legal meaning of the word “nuisance” is derived from an ancient French
word meaning harm.91 It is found in the English legal vocabulary in documents
dating before the sixteenth century in disputes between neighboring
landholders.92 A nuisance was initially considered an “interference with the
use or enjoyment of land, or with a right of easement or servitude over the
land.”93 This type of interference did not involve dispossession or trespass; it
was an interference that came from actions outside the land where the harm
occurred. Although the original remedy available to the successful plaintiff
bringing a nuisance action was a criminal writ granting civil relief, the modern
common law action of private nuisance developed from this historical
understanding into the civil tort we recognize today.
The work of Dean William Prosser, the great torts teacher of the twentieth
century, was foundational in the resurgence of the doctrine of nuisance. Noting
in a 1942 article that virtually nothing of consequence had been written about
the doctrine that occupied such a prominent place in the law of torts, he
famously wrote: “‘Nuisance,’ unhappily, has been a sort of legal garbage can.
The word has been used to designate anything from an alarming advertisement
to a cockroach baked in a pie.”94
Prosser highlighted an earlier historical use of the term nuisance different
from the notion of a nontrespassory interference by one private property owner
with the rights of another. He focused on the interference with rights claimed
by the sovereign. This separate principle, infringement of the rights of the
crown or of the general public rights protected by the crown, preceded the law
of private property rights in land.
91. See J.R. Spencer, Public Nuisance—A Critical Examination, 48 CAMBRIDGE L.J. 55, 56 (1989)
(examining whether to abolish or legislatively limit crime of public nuisance); see also William L. Prosser,
Private Action for Public Nuisance, 52 VA. L. REV. 997, 997 (1966).
92. See Prosser, supra note 91, at 997 n.3 (referring to nuisance in Statute of Bridges in 1530).
93. Id. at 997.
94. William L. Prosser, Nuisance Without Fault, 20 TEX. L. REV. 399, 410 (1942). This one article
contains the seeds for decades of study and analysis.
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Beginning with . . . encroachments on the royal domain or the public highway,
and extending later to such offenses as interference with a market, smoke from
a lime-pit and diversion of water from a stream, a “public” or “common”
nuisance came to be recognized as species of catch-all low-grade criminal
offense, covering “. . . any act not warranted by law, or omission to discharge a
legal duty, which inconveniences the public in the exercise of rights common to
95
all Her Majesty’s subjects.”
Interference with the rights held by the sovereign for her realm was treated
as a crime against the rights common to all the monarch’s subjects. Along with
the advancement of royal authority into the ordinary lives of the sovereign’s
subjects came the ordering and regulation of their conduct and uses of property
in the interests of the realm. We recognize this today as the exercise of police
power by the state—the sovereign’s power to protect the health, safety, and
welfare of the public, whatever the status of the persons who comprise the
public, through enactment and enforcement of law.96 Thus, Prosser’s research
led him to conclude that a public nuisance is always a crime; it may be a tort, in
addition, but it is always a crime.97
Although different in nature from the nuisance claims by one private
landowner against another, the same term was also used in cases where the
invasion of property interest compromised the common or public rights
protected by the government’s police power. The use of the term nuisance in
both types of cases creates confusion about the precise legal meaning of
nuisance.98 This, according to Prosser, led to diverse and confusing use of the
same term for two entirely different legal matters:
There are, then, two and only two kinds of nuisance, which are quite unrelated
except in the vague general way that each of them causes inconvenience to
someone, and in the common name, which naturally has led the courts to apply
to the two some of the same substantive rules of law. . . . Because of the
common name, a good many of the substantive rules of law applicable to
99
private nuisance have been carried over to the public crime.
Confusion of the principles of private and public nuisance theory continues
today, and this confusion appeared in the debate over the language in the
95. Id. at 411; see also Prosser, supra note 91, at 998 (expanding on distinction between uses of term
nuisance for interferences with private and public rights).
96. See generally Friedman, supra note 87.
97. Prosser, supra note 91, at 997.
98. Id. at 998-99 (highlighting history of two separate definitions of nuisance at law); see also Spencer,
supra note 91, at 58-59 (discussing links between private and public nuisance).
99. Prosser, supra note 91, at 999, 1002.
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Restatement (Second) of Torts.100
Invasions of rights that simultaneously harm the public and specific private
persons aggravate this confusion over principles of nuisance law. The
operation of an enterprise in a manner that violates laws requiring owners to
avoid nuisance conduct and abate nuisance conditions may constitute an
invasion of the right of the public to be free of such conditions and, at the same
time, a harm to the closest neighbors of the enterprise by particularly affecting
their right to enjoy and use their property. It gives rise to the question of
whether and when private persons may bring an action to enjoin nuisance
conduct and abate a public nuisance condition created by that conduct.
Professor Denise Antolini explores this question in an excellent study, which
challenges the conventional interpretation of the historic English view
generally barring private litigants from bringing public nuisance actions.101
Her article appeared in 2001 as the Bush Administration withdrew enforcement
of environmental laws, which prompted advocates of environmental law
enforcement to look for new means of enforcement. Those who attempted to
use common-law public nuisance to prevent harm to people and the
environment ran into a barrier at the courthouse: the “special injury rule” and
its “difference-in-kind” test.102 The paradox of the rule is that, “the broader the
injury to the community and the more the plaintiff’s injury resembles an injury
also suffered by other members of the public, the less likely that the plaintiff
can bring a public nuisance lawsuit.”103 Antolini’s research into the sixteenthcentury roots of this rule raised serious questions about its traditionally narrow
interpretation by courts. In proposing a new “community injury rule,” where
litigants need to show an injury shared with the community, her article
proposes to bridge the chasm between the scholarly analysis of public nuisance
law and contemporary jurisprudence that fails to properly apply public nuisance
100. See Robert Abrams & Val Washington, The Misunderstood Law of Public Nuisance: A Comparison
with Private Nuisance Twenty Years After Boomer, 54 ALB. L. REV. 359, 360-61 (1990) (describing evolution
of nuisance law in modern jurisprudence). The authors wrote:
Some writers have stated that a distinguishing characteristic of public nuisance is that it is a crime.
Even the Restatement (Second) of Torts, in Tentative Draft No. 16, proposed to perpetuate this
oftrepeated definition. Public nuisance, however, is frequently brought as a civil action, either
pursuant to the common law or to statute; to the extent that public nuisance is still a crime, it is
codified by statute and does not exist in the common law.
Id. at 365.
101. Denise E. Antolini, Modernizing Public Nuisance: Solving the Paradox of the Special Injury Rule, 28
ECOLOGY L.Q. 755, 867-73 (2001) (explaining traditional rule and arguing for reform consistent with “new
public law” concepts).
102. Id. at 757-61. “Only those who can first prove some injury that is ‘special,’ ‘particular,’ or ‘peculiar,’
defined as ‘different-in-kind’ and not just ‘different-in-degree’ from the general public who might also be
affected by the nuisance, be it a house of prostitution or a polluting factory, may bring an action.” Id. at 761.
103. Id. at 761.
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doctrine.104 Antolini and other environmental lawyers sought a jurisprudence
anchored in the purpose of nuisance law—that is, to protect public rights rather
than drifting in tune with current ideology supporting exploitive dominion of
water, land, and air. Specifically, she wanted judges to adopt the Restatement
(Second) of Torts section 821(C)(2)(c) in order to open the courthouse door to
litigants vindicating the community’s rights.105
C. Public Nuisance Law in the Restatement of Torts
The Restatement (Second) of Torts is perhaps the most convenient guide to
current public nuisance law. It is interesting that initially, only the Restatement
of Property addressed nuisance law, and only private nuisance law at that.
Public nuisance first entered the Restatement of Torts rather than the
Restatement of Property.106 In the 1979 edition of the Restatement (Second) of
Torts, the chapter on nuisance is found in the restatement of tort law and it
deals with public nuisance. The venerable torts scholar Dean Prosser chaired
the committee that drafted the Restatement (Second) of Torts’s chapter on
nuisance.107 Prosser said a public nuisance was always a crime and sometimes
might be a tort. He traced its origins back to the thirteenth century and to a
French word meaning “harm.”108 The common law action of private nuisance
emerged from this ancient root as the tort we recognize today.
According to Prosser, the term nuisance was also used in connection with a
different type of action, one involving an interference with the property rights
of the Crown.109 As such, those interferences—typically, obstruction of the
king’s highway—were deemed crimes and were exclusively prosecuted by the
king’s officers. Over time, any interference with the rights common to all
persons came to be regarded as a type of nuisance that could result in criminal
sanctions. Activities such as disruption of public markets, emission of noxious
smoke or foul odors, diversion of water for a mill, unlicensed plays, and
keeping diseased animals were treated as nuisance offenses against the rights
common to the public.110 In these instances, the interference with the public
right was so clearly unreasonable that it was often codified as a crime by statute
104. Id. at 867.
105. Antolini, supra note 101, at 892.
106. RESTATEMENT (SECOND) OF TORTS § 821A reporter’s note (1979) (noting first Restatement of Torts
did not include public nuisance law); see also Victor E. Schwartz & Phil Goldberg, The Law of Public
Nuisance: Maintaining Rational Boundaries on a Rational Tort, 45 WASHBURN L.J. 541, 546 (2006).
107. See Schwartz & Goldberg, supra note 106, at 546. See generally Craig Joyce, Keepers of the Flame:
Prosser and Keeton on the Law of Torts (Fifth Edition) and the Prosser Legacy, 39 VAND. L. REV. 851 (1986)
(discussing Prosser’s invaluable contributions to the Restatement); John W. Wade, William L. Prosser: Some
Impressions and Recollections, 60 CALIF. L. REV. 1255 (1972) (recounting Prosser’s unwavering devotion to
law of torts).
108. See supra note 91 and accompanying text.
109. See Prosser, supra note 91, at 998.
110. Id.
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or ordinance.111 Even in states that no longer recognize common law crimes
and regard the criminal law as entirely statutory, the common-law tort of public
nuisance still exists, as does its traditional definition.
This, according to Prosser, led to diverse and confusing use of the same term
for two entirely different legal matters.112 That confusion of the principles of
private and public nuisance theory continued to the present and was debated in
the drafting of the second Restatement.113
The Restatement (Second) of Torts section 821 is widely regarded as an
authoritative current understanding of nuisance law, but today it is also a matter
of controversy. Its adoption in 1971 summed up nearly four decades of
scholarship on the origins and theory of what most writers, such as Prosser,
found to be confusing, impenetrable, and misunderstood. The drafting of the
Restatement (Second) of Torts occurred at a time when defenders of the
environment were beginning to use common-law public nuisance theory to
litigate the abatement of air, water, and soil pollution, and when legislatures
were enacting statutes to mitigate harm to the environment caused by various
uses of real property. Their influence on the drafting of the Restatement led to
fierce scholarly and litigation battles. Since the early 1970s, plaintiffs have
used public nuisance law in attempts to abate and obtain compensation for the
harm attributed to the manufacture and distribution of lead paint, poisons and
toxins, guns, and climate-changing activities. The decisions in these cases have
not followed a coherent or consistent doctrine. Today, the law of nuisance,
especially the law of public nuisance, is not well-settled.
The term “nuisance” is widely used, and its technical legal meaning is not
always adhered to in discourse on the legal theory. In the commentary to
section 821A, the popular meaning of the word is distinguished from the legal
meaning, which, in turn, is used in three different ways.114 The popular use of
the word connotes harm, annoyance, inconvenience, or offensiveness, even
when trivial in degree. In legal language, the word can appear to signify three
things. First, it refers to human conduct or an existing physical condition that is
harmful or annoying to others, such as a pile of rubbish, a smoking fire, or
indecent conduct. This is nuisance in a causal or affecting sense. If I use my
land as a dump, operate a smoke-belching furnace on it, or have a business
showing movies of children being sexually abused, I am actively engaging in
making or maintaining nuisances.
Second, it refers to the harm resulting from conduct or a physical condition.
This is nuisance in the resulting or effective sense. Using the illustration
above, this would refer to the effect on other persons or their property of my
111.
112.
113.
114.
Id. at 999.
See supra text accompanying note 99.
See supra note 100 and accompanying text.
RESTATEMENT (SECOND) OF TORTS § 821A cmt. b (1979).
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making or maintaining nuisances. The nuisance is the harm done to them or
borne by them.
Third, the term nuisance may refer to the first two meanings combined with
legal liability for the nuisance conduct or condition because the conduct or
condition is per se harmful, or because permitted conduct or a permitted
condition is done or maintained in a harmful manner. My making and
maintaining nuisances and the damage it causes is inherently harmful. It
cannot be done or allowed without resulting in harm. The underlying actions or
conditions—the disposal of refuse, the manufacturing of steel, or the business
of selling sexually explicit entertainment—may be permitted, but only if done
in accordance with standards set by regulation to mitigate the risk of harm.
When permitted things are done in a negligent or harmful manner, the
responsible party may be liable for both stopping the impermissible disposition
and compensation for the harm done to others. For instance, when a licensed
waste treatment plant is improperly operated in violation of regulations and
emits foul, sickening odors, neighboring owners may seek an injunction to stop
the improper operation of the plant and money damages for loss of property
value and the use of their residence.115
Nuisance can also be defined as a use or condition of real property that
interferes with the full enjoyment and use by another of that person’s real
property where the interference does not involve trespass or dispossession.
This definition protects private property rights against another owner’s
interfering land use. Private nuisance is distinct from public nuisances of the
type this article addresses.
The Restatement (Second) of Torts states that a common-law public nuisance
is an unreasonable interference with a public right.116 It lists three types of
conduct that would result in a public nuisance: (1) conduct significantly
interfering with the public health, the public safety, the public peace, the public
comfort, or the public convenience; (2) conduct proscribed by a statute,
ordinance, or administrative regulation; or (3) conduct of a continuing nature or
with a long-lasting effect, and, as the actor knows or has reason to know, has a
significant effect upon the public right.117
There was debate during the drafting of the second Restatement about
whether to relax the strict boundaries of public nuisance law and the exclusive
enforcement by criminal prosecution.118 Dean Prosser believed public
nuisances to be crimes, albeit low-level ones, and that only the government
could prosecute those responsible.119 He cited the scholarship that found public
nuisance actions in ancient England were exclusively brought by the Crown
115.
116.
117.
118.
119.
Brown v. Cnty. Comm’rs of Scioto Cnty., 622 N.E.2d 1153, 1158-61 (Ohio Ct. App. 1993).
RESTATEMENT (SECOND) OF TORTS § 821B (1979).
Id. § 821B(b).
See Schwartz & Goldberg, supra note 106, at 547.
See Prosser, supra note 91, at 999.
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until a case in 1536 suggested that a private action might be possible to recover
damages for the harm specific to an individual resulting from a public
nuisance.120 Others, however, opposed Prosser’s narrow view, arguing that a
public nuisance may involve legally permitted activities conducted in an
unreasonable way, resulting in interference with a public right.121 Lawyers for
environmentalist causes were leading advocates of broadening the definition of
public nuisance. Just before Prosser’s proposed statement of the law was to be
adopted, there was a revolt in his committee against his conservative definition
of public nuisance as a crime and resulting restriction of enforcement actions to
the government. Prosser’s proposed language was rejected and he resigned as
the reporter for the American Law Institute’s restatement of tort law.122 When
the second Restatement was adopted in 1971, the wording of section 821(B)
reflected a compromise. The doctrine was not defined as criminal conduct but
was expressed as an “unreasonable interference” with a public right.123
At the same time scholars were drafting the Restatement (Second) of Torts,
environmentalists were beginning to use nuisance theory in litigation to abate
conduct that related to polluted land, air, and water.124 Where legislatures were
either slow to enact laws to protect the public health, safety, and welfare from
harm by industrial enterprises, or where there was ineffective enforcement of
laws, private parties came into court alleging as public nuisances the types of
unreasonable interferences indicated by the Restatement.125 Decisions in these
cases made it clear that nuisance law was not being coherently understood or
applied in a consistent manner. Prosser’s early scholarship in the 1940s
demonstrated the fact that nuisance law had a long history of doctrinal
uncertainty. His pejorative description of the law of public nuisance is still
echoed in practically all articles on the subject. Prosser’s early work was a
critical factor in launching what has become more than a half-century of
research and writing to develop a coherent common law of nuisance.126 The
case of Connecticut v. American Electric Power Co.,127 now being heard in the
U.S. Supreme Court, illustrates the importance of public nuisance litigation by
governments and public interest groups combating environmental
120. See Antolini, supra note 101, at 767; David R. Hodas, Private Actions for Public Nuisance: Common
Law Citizen Suits for Relief from Environmental Harm, 16 ECOLOGY L.Q. 883, 884 (1989).
121. See RESTATEMENT (SECOND) OF TORTS § 821B (1979); Schwartz & Goldberg, supra note 106, at 542.
122. This entire affair is reported in vivid detail in Antolini, supra note 101, at 805-57.
123. See RESTATEMENT (SECOND) OF TORTS § 821B (1979).
124. See, e.g., Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 195 (2000)
(holding plaintiff had standing in nuisance case involving water pollution); New York v. Shore Realty Corp.,
759 F.2d 1032, 1037 (2d Cir. 1985) (upholding permanent injunction based on nuisance law in case involving
polluted land); Boomer v. Atl. Cement Co., 257 N.E.2d 870, 875 (N.Y. 1970) (upholding injunction in case
involving nuisance law based on water pollution).
125. These private parties may have been following Prosser’s advice. See Prosser, supra note 94, at 426.
126. In 1942, Prosser criticized the dearth of scholarship on the subject. See id. at 410.
127. 582 F.3d 309 (2d Cir. 2009), cert. granted, 79 U.S.L.W. 3342 (U.S. Dec. 6, 2010) (No. 10-174).
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degradation.128
Earlier attacks before the turn of the century by
environmentalists against land-based industrial operations were followed by
broader public nuisance claims attempting to hold manufacturers and sellers of
dangerous products like lead-based paint, asbestos, tobacco, and guns liable for
the harm and the costs resulting from the use of their products.129 While some
of the environmental cases involve the abuse of property rights, the nuisance
cases seeking the abatement of harm attached to the manufacture and
distribution of dangerous products focus on tortious conduct and harmful
results without a connection to real property or its misuse. Similarly, the
defense against predatory mortgage lending practices is based on the legal
protection provided to financial institutions and their agents to make and sell
dangerous financial products. Ultimately, the common law of nuisance is no
more protection against the harm of peddling bad loans than it is against
peddling assault weapons at one-day gun shows.
The reaction of the defense bar in these cases is on display in its publications
aimed at preventing the expanding use of nuisance law.130 Even more potent is
the reaction by corporate defendants in nuisance cases to attempt to preempt
local and state governments’ exercise of police power through legislation
regulating commercial activity. Corporate commercial interests’ command of
federal and state lawmakers and the judiciary is documented in studies of
lobbying and judicial elections. It is vital, however, to note that in attacking the
use of public nuisance law against the manufacture and distribution of
dangerous products, the corporate defenders do not deny that the abuse of real
property to the detriment of property rights and public rights is at the heart of
nuisance law doctrine. This principle feature of the doctrine is the basis for the
exercise of municipal police power in regulating land use to protect the public
health, safety, morals, and well-being. It undergirds zoning, building
construction codes, housing maintenance codes, occupancy standards, fire
codes, and sanitation codes—the array of regulations that make civilization
possible. Even the severest critics of the attempts to apply nuisance law to
emerging hazards of contemporary life still hold that the use of land in a
128. See generally id.
129. See, e.g., Tioga Pub. Sch. Dist. No. 15 v. U.S. Gypsum Co., 984 F.2d 915 (8th Cir. 1993) (asbestos
abatement); Texas v. Am. Tobacco Co., 14 F. Supp. 2d 956 (E.D. Tex. 1997) (tobacco-related illness); City of
Manchester v. Nat’l Gypsum Co., 637 F. Supp. 646 (D.R.I. 1986) (asbestos); City of Cincinnati v. Beretta
U.S.A. Corp., 768 N.E.2d 1136 (Ohio 2002) (firearms); State v. Lead Indus., Ass’n, 951 A.2d 428 (R.I. 2008)
(lead-based paint).
130. See Richard O. Faulk & John S. Gray, Alchemy in the Courtroom? The Transmutation of Public
Nuisance Litigation, 2007 MICH. ST. L. REV. 941, 944 (discussing “emerging” public nuisance controversies);
Schwartz & Goldberg, supra note 106, at 542-43 (expressing concern over expansion of nuisance theory). See
generally NUISANCE LAW, http://www.nuisancelaw.com (last visited Jan. 12, 2011). At this website, attorneys
from several firms opposing efforts by local and state governments or environmental advocates to use nuisance
law post information and practice aids. Id. In addition, the site campaigns against the use of expert counsel
hired on a contingent fee basis by public agencies in opposing corporate defendants. Id.
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manner that interferes with the rights of others is prohibited by the law of
public nuisance.131
In their 2006 article, The Law of Public Nuisance: Maintaining Rational
Boundaries on a Rational Tort, Victor Schwartz and Phil Goldberg joined other
attorneys in the high profile tort defense bar in seeking to block the expanding
use of public nuisance law by governments and public interest advocates
against manufacturers and distributors of tobacco, guns, asbestos, fattening
food, pesticides, and other toxins.132 These advocates for corporate interests
consider the innovations won by environmental interests in the Restatement
(Second) of Torts and the theories suggested by the likes of Professor Antolini
to be “the greatest threat to the rule of law today.”133 Their scholarship aims to
keep public nuisance law restricted in both its scope and application.
IV. APPLYING PUBLIC NUISANCE LAW TO BANK-OWNED HOUSING
To demonstrate a means of containing public nuisance law and litigation
within the boundaries they envision, Schwartz and Goldberg propose a fourpart test for the validity of a public nuisance case, and apply it hypothetically to
litigation then pending in the Federal District Court for the Southern District of
New York involving a toxic product, Methyl Tertiary Butyl Ether (MTBE).
The required elements are: (1) a common right injury, (2) unreasonable
conduct, (3) control, and (4) proximate cause.134 While I suspect that the
Schwartz and Goldberg test was designed to keep the authors’ clients from
having to defend against the production and distribution of a dangerous
131. See Faulk & Gray, supra note 130, at 962-64 (noting consensus on illegality of interference with legal
rights); see also Antolini, supra note 101, at 813 n.282. Antolini discussed the post-Prosser editors of his great
torts handbook: “After Prosser’s death, new editors significantly reworked the treatment of public nuisance in
the Handbook with a deliberately conservative slant, now providing modern courts and practitioners a truly
distorted view of the doctrine that would undoubtedly not please the old master.” Id.
132. Schwartz & Goldberg, supra note 106. Victor E. Schwartz is chairman of the Public Policy Group in
the Washington, D.C., office of the law firm of Shook, Hardy & Bacon L.L.P. He co-authors the most widely
used torts casebook in the United States, Prosser, Wade and Schwartz’s Torts, which published its eleventh
edition in 2005. He has served on the Advisory Committees of the American Law Institute’s Restatement of
the Law of Torts: Products Liability, Apportionment of Liability, and General Principles projects. Mr.
Schwartz received his B.A. summa cum laude from Boston University and his J.D. magna cum laude from
Columbia University. Phil Goldberg is an associate in the Public Policy Group in the Washington, D.C., office
of Shook, Hardy & Bacon L.L.P. He has served as an aide to several Democratic members of Congress. Mr.
Goldberg received his B.A. cum laude from Tufts University and his J.D. from The George Washington
University School of Law, where he was a member of the Order of the Coif. These authors, joined by a third
member of their law firm, Christopher Appel, also published another article on the subject. See generally
Victor E. Schwartz, Phil Goldberg & Christopher E. Appel, Can Governments Impose a New Tort Duty to
Prevent External Risks? The “No-Fault” Theories Behind Today’s High-Stakes Government Recoupment
Suits, 44 WAKE FOREST L. REV. 923 (2009).
133. See Schwartz, Goldberg & Appel, supra note 132, at 930-31 (quoting William H. Pryor, Jr., Attorney
Gen. of Ala., Address at the Reagan Forum: Fulfilling the Reagan Revolution by Limiting Government
Litigation 2 (Nov. 14, 2000)).
134. See id.; see also Faulk & Gray, supra note 130, at 962-66 (outlining four elements of public nuisance
law that resemble elements of Schwartz and Goldberg’s test).
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gasoline additive, they offered it as a correction to the boundless application of
public nuisance law generally. It is useful, then, to consider the result of
applying this four-part test to the nuisance abatement cases brought in Ohio by
inner-city nonprofit community developers and municipalities against highvolume owners of abandoned, vacant residential dwellings, Wells Fargo and
Deutsche Bank.
A. Injury to Common Rights
The allegations were virtually identical in the two cases CHRP brought
against Wells Fargo and Deutsche Bank. In each case, the plaintiff charged
that a list of specific properties were owned and maintained by the respective
defendants in a public nuisance condition, as defined by state and municipal
law. Some of those properties were subject to open municipal violation
notices, and some were not. All were vacant.
For context, the complaints described in detail the process of mortgage
default and foreclosure that led to the defendants’ purchase of properties at
sheriff’s sales and the subsequent issuance of a deed to the defendants.135 They
also described what generally happens to the properties while owned by the
defendants and delineated the practice of selling them for a very depressed
price, sometimes lower than the value of the land alone, as determined by the
tax assessor.136 The complaints alleged that the identified houses, maintained
in their current condition, were a public nuisance, which should subject them to
an injunction requiring immediate abatement under section 3767.41 of the Ohio
Revised Code. The complaints further claimed that the business practice of
maintaining purchased houses in a nuisance condition should be enjoined under
Ohio law.137
135. This produced unexpected results from both the defendants and other corporate attorneys commenting
on the case. They had focused attention on the framing of the complaints and their contextual statements and
responded as if the alleged nuisances were about the mortgaging and debt collecting practices of the banks
before the purchase of the property at the sheriff’s sale. They then attempted to use the contractual right to sell
defective houses to justify owning and maintaining them in a nuisance condition prohibited by law. This
perception served to evade recognition that the ownership and control of real property as a public nuisance is
unlawful conduct, particularly when done as a business practice for profit. See John S. Gray, A New Approach
to the Subprime Public Nuisance, NUISANCE LAW (Jan. 30, 2009, 4:06 PM), http://www.nuisancelaw.com/
blogs/John-S-Gray/Subprime-Mortgages/New-Approach-Subprime-Public-Nuisance. Using “subprime” to
describe the nuisance demonstrates Gray’s understanding of the bank as a mortgagee and his refusal to
recognize the bank’s status as property titleholder after the mortgage has ceased to exist and the property has
been purchased at a public sale. See id.
136. See generally CLAUDIA COULTON ET AL., CTR. ON URBAN POVERTY & CMTY. DEV., CASE W.
RESERVE UNIV., BEYOND REO: PROPERTY TRANSFERS AT EXTREMELY DISTRESSED PRICES IN CUYAHOGA
COUNTY, 2005-2008 (2008), available at http://blog.case.edu/msass/2008/12/09/20081209_beyond_reo_
final.pdf. This report documented the purchase, ownership, and resale of bank-owned dwellings. See generally
id. The Center on Poverty, under contract with CHRP’s parent developer, NPI, subsequently assisted in
research to identify and describe the title history of the properties named in the Cleveland litigation.
137. See generally Wells Fargo Complaint, supra note 52; Deutsche Bank Complaint, supra note 52; see
also OHIO REV. CODE ANN. § 3767.03 (West 2010) (providing cause of action for nuisance abatement).
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In City of Cincinnati v. Beretta U.S.A. Corp.,138 the Ohio Supreme Court
adopted section 821(B) of the Restatement (Second) of Torts as the state’s
common law of public nuisance.139 The violation of codified laws that define
and prohibit the maintenance of residential property in a public nuisance
condition is clearly an interference with rights common to the public. CHRP
and the City of Cincinnati’s suits against Wells Fargo and Deutsche Bank
alleged that statutory law prohibits nuisance conditions on a house-by-house
basis. They also sought to have a court declare that, where noncompliance was
found to be routine, the business practice of keeping residential property in a
nuisance condition should itself be declared a public nuisance and abated by
injunction.
The City of Cleveland, as a defendant in these cases, cross-claimed against
the banks for payment of nuisance abatement assessments and unpaid water
bills that had accrued against houses owned by the banks. In addition, the city
asked for injunctions requiring the banks to abate unlawful nuisance conditions
at specific houses and to abate the business practice of leaving properties they
owned in a nuisance condition in violation of Cleveland’s housing and building
codes.
Similarly, the City of Cincinnati alleged that specific houses were in a public
nuisance condition and that the business practice of noncompliance with
housing codes and violation notices is a public nuisance. Cincinnati cited an
array of specific notices and hearings related to individual houses that the
defendants ignored. It also cited instances of civil fines and assessments that
had been levied but not paid.140 Cincinnati sought a more varied array of
remedies than the plaintiffs sought in the two Cleveland cases. Specifically,
Cincinnati sought to enjoin the two banks from maintaining their houses in
disrepair, from continuing their business practice of avoiding the enforcement
procedures of the city, and from filing any foreclosure cases in Hamilton
County Court until all their properties were brought into code compliance.141
In addition, the City of Cincinnati demanded the defendants pay all fines and
the costs of various nuisance abatement expenditures made by the city on
properties the two banks owned. Finally, Cincinnati asked for punitive
damages because of the willful, wanton, and malicious nature of the banks’
lawless conduct as property owners.142
B. Unreasonable Conduct
The banks’ conduct in repeatedly violating state statutes and city ordinances
138.
139.
140.
141.
142.
768 N.E.2d 1136 (Ohio 2002).
Id. at 1142.
See Cincinnati Complaint, supra note 74.
Id.
Id.
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is obviously unreasonable. None of the statutes or ordinances provides any
exceptions or exemptions to the general prohibition against maintaining houses
in a nuisance condition. To the contrary, the cities require all owners to abate
those conditions with no exceptions for banks.143Neither the bank owners nor
any other responsible party occupied the hundreds of houses each bank owned.
Serious and knowing violation of city and state codes prohibiting the
maintenance of nuisance conditions is clearly unreasonable conduct,
particularly where the owners had the means to comply.
C. Control of the Nuisance
It should be noted that in all these cases, the banks claimed they were not the
owners and therefore not proper parties.144 There are, however, a number of
problems with that assertion. First, bank agents acting in their principal’s name
and in their stead at sheriff’s sales purchase the properties and identify the
name of the owner as grantee on the sheriff’s deed.The record of titles in deeds
placed in the public record by those who buy houses from the banks list the
banks as the owners. If the banks, or agents acting in their name, sign deeds of
conveyance as owners of property that they deny owning, that would suggest a
fraud with serious legal consequences.145
Finally, while attorneys for the servicers appeared at hearings and case
management conferences in the CHRP cases, none of them either moved to
intervene or otherwise sought to protect any ownership interest besides that of
the banks named as defendants. For this reason, one must conclude that the
unreasonable conduct of deliberate noncompliance with nuisance abatement
laws and violation notices was the responsibility if not the act of the owners of
record. Any failure of the owners’ agents to keep the owners’ properties
compliant with the law would be a matter between the principal and the agent.
Control of nuisance property is necessary for compliance with injunctions
issued in the case. The deed issued to banks by the sheriff when their purchase
143. The statute authorizing civil nuisance claims exempts owner-occupied premises from civil litigation
only if the owner owns four or fewer dwelling units and lives in one of them. OHIO REV. CODE ANN. § 3767.41
(West 2010).
144. Real property that is acquired and held by banks or other financial institutions is called real estate
owned (REO). That is virtually a universal designation in the real estate world. For banks to suddenly argue,
upon the filing of litigation targeting them as lawless owners, that properties in their portfolio are not really
“real estate owned” is quite a coincidence. Alternative language describing the banks’ relationship to the
property held in their names has not yet been proffered.
145. One could wonder if that defense by the banks was vetted with their title insurers. Note that in the
case of the Cleveland suits, the housing court requires that where a nuisance abatement case is filed asking for a
receiver to be appointed, the plaintiff must file a preliminary judicial report, including an abstract of title. The
court uses the report to determine if the defendants necessary to an appointment of a receiver are all given
proper notice and an opportunity to be heard before their property rights, if any, are altered. Thus, a guarantee
of the title record is provided in the case along with the identity of the record owner. If the banks did not want
to be named grantee in the sheriff’s deed and appear in the public record as the owner, whether for their own
benefit or for the benefit of unnamed beneficiaries, they would need to so indicate in the record of title.
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is made grants them a complete title including a right of possession.146
Servicers for bank owners do not own the title; they act only in a custodial
function. Holding another’s title as a custodial agent of the owner does not
make the agent the owner or holder of the possessory interest.
D. Proximate Cause
The banks argued that they did not cause the houses in question to be in a
harmful condition.147 The banks acquired them in an already harmful condition
or they were later vandalized by criminals. Therefore, the banks reasoned, they
as owners were not the proximate cause of the harm.148 It is apparent that the
City of Cleveland cited a number of the specifically named houses as public
nuisances before the sheriff’s deed was issued to the purchasing bank. A few
months before the three lawsuits were filed, a published study indicated that a
large number of the bank-purchased properties later sold for less than
$10,000.149 Evidence presented in the housing court’s hearing on the
preliminary injunction further indicates large numbers of bank-held houses
were in a public nuisance condition for months, if not years, before being
owned by Wells Fargo. So it is rather certain that the banks did not actively put
those houses into that condition; they bought them and owned them in that
condition.
But is the proximate cause test about who caused the harmful condition or
about who failed to perform the legal duty to abate the harmful condition? The
plain meaning of the language of the municipal housing and building
ordinances prohibits the maintenance of houses in a public nuisance condition.
Liability results from the failure to comply with the law prohibiting the
maintenance of a public nuisance regardless of its creation.150 The nuisance
conditions, after all, might have been created by accident—a fire, a broken
water pipe—or by the acts of vandals. The maintenance of those harmful
146. For explanations of how the bank’s servicers of REO property operate, see Theologides, supra note
43 (acknowledging servicers of REO properties regularly choose compliance with commercial contracts over
local housing codes). See generally, Kurt Eggert, Limiting Abuse and Opportunism by Mortgage Servicers, 15
HOUSING POL’Y DEBATE 753, 17-24 (2004); Dan Immergluck, From Global Buck to Local Muck: Capital
Markets, Public Policy and Neighborhood Wreckage in the U.S. 17-24 (July 28, 2009) (unpublished
manuscript), http://ssrn.com/abstract=1533820.
147. It may be useful to note that the issue of proximate cause was a central argument in the case of City of
Cleveland v. Ameriquest Mortgage Securities, Inc., where both the district court and the Sixth Circuit made it a
major reason for dismissal. See 615 F.3d 496, 502-06 (6th Cir. 2010); City of Cleveland v. Ameriquest
Mortgage Sec., Inc., 621 F. Supp. 2d 513, 532-33 (N.D. Ohio 2009). The prominence and dismissal of that
case seems to cloud the thinking about the more narrow property nuisance claims raised by the City of
Cincinnati and CHRP.
148. See Brief of Defendant-Appellant at 6-7, 22-24, Cleveland Hous. Renewal Project, Inc. v. Wells Fargo
Bank, N.A., 934 N.E.2d 372 (Ohio Ct. App. 2010) (No. 93502) (arguing proximate cause necessary to liability
and alleging multiple other causes of nuisance).
149. See COULTON ET AL., supra note 136.
150. OHIO REV. CODE ANN. § 3767.03 (West 2010) (providing cause of action for nuisance abatement).
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conditions, however, not their creation, is the violation of law of which the
defendants were accused. The plaintiffs alleged common-law nuisance in the
form of repeated and regular noncompliance to further commercial interests.
The banks’ failure to abate nuisance conditions on their property or comply
with lawful orders of the cities’ code enforcement officers is the proximate
cause.
The proximate cause element in the Schwartz and Goldberg test is of
doubtful value when it comes to public nuisance conduct involving real
property. This element seems designed to fit their campaign against plaintiffs
seeking to hold a manufacturer or seller liable for the harm caused by a
customer’s use of their dangerous products. In the case of the public nuisance
claims we are examining here, it is not the builder or the seller who is charged;
it is the present owner. Moreover, real property is being used by the owner for
a purpose other than its designed purpose as a residence. The liability,
therefore, fits the traditionally narrow definition of public nuisance as a use of
property that interferes with the rights common to the public. The proximate
cause of harm, it may be said, is the unlawful maintenance of real property and
the use of property in that condition for purposes inconsistent with its designed
use—namely, as a commodity to be acquired, stored, and discarded rather than
as a dwelling to be occupied.
Dean Prosser, in his 1942 article, explored the question of whether nuisance
liability can occur without fault.151 He analyzed the ancient cases from which a
doctrine emerged, stating that strict or no-fault liability occurs when a special
or unnatural use of land imposes dangers that do not occur from natural use.152
The maintenance of unusable, vacant houses in a dangerous nuisance condition
fits Prosser’s definition of unnatural use of land imposing uncommon dangers.
A natural use, according to Prosser, is one sanctioned by the needs, customs,
and laws of the community so that the public is not required to bear the costs of
resulting damages.153 Thus, it would appear that a natural use for a house is
one that does not involve public expenditures for nuisance abatement, does not
lead to court appearances in criminal or civil litigation over illegal conditions,
does not reduce the value or use of other houses, does not increase insurance
costs of other owners, and does not impede or interfere with the development of
neighboring land for lawful use. It is the ownership and control of the
interfering nuisance that imposes the duty to abate, not the act of creating the
bad conditions. Prosser, along with Schwartz and Goldberg, agrees that the
current owner and user of dangerous things—things that are a nuisance per
se—is liable for the harm.154 Where that harm is prohibited by law, control of
151.
152.
153.
154.
See generally Prosser, supra note 94.
Id. at 406.
Id. at 407.
Id.; see also Schwartz & Goldberg, supra note 106.
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the harm, not its creation, is the cause for liability.
V. CAN PUBLIC NUISANCE LAW PROTECT YOUR NEIGHBORHOOD FROM BIG
BANKS?
This section explores the critical question of whether the law of public
nuisance can effectively protect neighborhoods infected with the poison of
abandoned, vacant houses in an unlawful nuisance condition. The question is
particularly relevant to those neighborhoods with the most mortgage failure
stress.155 Municipal officials and their constituents in metropolitan areas with
high foreclosure rates are trying to defend neighborhoods from rising mortgage
default rates, owner abandonment, foreclosures, and bankruptcies. These
neighborhoods are saturated with empty dwellings, long-term vacancy, and
deteriorating structures owned or controlled by remote financial institutions
that have no use for them as residences. The destructive forces in the market
are not only creating harmful nuisance conditions but also undermining the
economies and tax bases of municipalities while the costs of protecting the
public are increasing.156 As local civic leaders recognize the failure of bank
bailout policies and loan modification, they are paying more attention to other
methods of mitigating the residue of the mortgage disaster at the neighborhood
level.157
It must be recognized at the outset that no statute or judicial decision—not
even a Supreme Court decision—can, in a single stroke, bring rich and
powerful corporations into a just relationship with the neighborhoods, cities,
towns, and villages damaged by mortgage disaster. The country’s legislative,
regulatory, and law-enforcing institutions are too effectively manipulated by
the pervasive power of those with the most money. Neither the rule of law nor
the right to own property free of interference from others is presently secured
from the abuse of massive financial power.158
What follows are this observer’s comments derived from experience in
litigation, development of legislation, and study of public nuisance law. In
general, it seems that public nuisance law—within its historic doctrinal
155. Richard Florida, Mapping Troubled Housing Markets, ATLANTIC (Sept. 2, 2010, 11:50 AM),
http://www.theatlantic.com/business/archive/2010/09/mapping-troubled-housing-markets/62420.
156. See IMMERGLUCK, supra note 41, at 149-52.
157. See Ford, supra note 46.
158. See Interview by Ray Hanania with Richard Durbin, U.S. Senator, Ill., on Radio Chicagoland (WJJG
1530 AM radio broadcast Apr. 27, 2009). Calling the bank lobby the most powerful in Congress, Senator
Richard Durbin famously added, “they frankly own the place.” Id. Many pundits have repeated this statement.
See, e.g., Editorial, After the Fall: Our View—The Economic Meltdown One Year Later, How Much Has
Changed?, ST. LOUIS POST-DISPATCH, Sept. 13, 2009, at A16, available at 2009 WLNR 17985428; Frank
Rich, Op-Ed., Obama’s Make-or-Break Summer, N.Y. TIMES, June 20, 2009, http://www.nytimes.com/
2009/06/21/opinion/21rich.html; see also JAMES SAMPLE ET AL., BRENNAN CTR. FOR JUSTICE, THE NEW
POLITICS OF JUDICIAL ELECTIONS 2000-2009: DECADE OF CHANGE (2010), http://justiceatstake.org/media/
cms/JASNPJEDecadeONLINE_8E7FD3FEB83E3.pdf.
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constraints—can be applied where real property is being maintained in a
manner contrary to law and in defiance of the police power.
A. One House at a Time
The prevailing strategy of residential nuisance abatement one dwelling at a
time, whether by issuance of administrative orders backed by criminal
prosecution or by civil suit for failure to comply, is effective in limited
situations. It is most effective where owners occupy their houses and nuisance
conditions are not prevalent or severe. That is not the situation, however, in
those neighborhoods with low owner occupancy, borrowers with little or no
equity or who are upside down, older housing stock, and abandoned, vacant
dwellings. Reclaiming nuisance houses one at a time where nuisance
conditions and financial distress are both concentrated is a losing proposition.
Blight moves faster than litigation. The experience of prosecuting criminal and
civil public nuisance cases in cities with high rates of abandoned, vacant houses
like Cleveland, Detroit, Flint, Buffalo, Las Vegas, Phoenix, and Cape Coral
demonstrates that reality. Before one blighted house can be rehabilitated,
several others become blighted with nuisance conditions. The neighborhoods
most seriously impacted by the mortgage crisis cannot remain stable or recover
one nuisance abatement case at a time.
B. One Bank Owner or Speculator at a Time
The prosecutorial effectiveness of the case-by-case strategy increases when
one nuisance abatement case seeks the abatement of multiple nuisance
properties. CHRP’s litigation experience demonstrates the advantage of
targeting those banks and speculating investors who own large numbers of
abandoned, vacant houses with public nuisance abatement code enforcement
actions. Consolidating ten or more blighted houses into a single case against a
single defendant before one court, when that defendant has the financial
resources to abate nuisance conditions, gets more nuisances abated quicker.
Furthermore, the remedy is acquired at the cost of the owner, not the public.
This use of public nuisance actions to obtain a court order for abatement of
the nuisance condition, however, needs to anticipate that the owners will
attempt to elude the jurisdiction of the court by any means possible to evade the
cost of abating the nuisances. There is also the risk that banks will not employ
their credit bid to buy properties at sheriff’s sales when they are in poor
condition. There is some evidence, in fact, that banks are walking away from
the loan collateral without taking title to it where houses have low values.159
159. See Theologides, supra note 43, at 77, 82. In Cleveland there was a significant decline in the number
of sheriff’s sales even though the number of foreclosure starts remains high. Bank “walkaways” are thought to
be a significant factor in that change.
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As a strategy for requiring an owner rather than the public to pay the cost of
abating nuisance conditions on the owner’s land, civil litigation would
significantly increase the scale and scope of recovery from the mortgage crisis.
Following Ohio, New Jersey, and some other states, the adoption of nuisance
abatement statutes with express injunctive remedies that make the costs of
abatement a first lien ahead of taxes is an important use of nuisance law.
C. Abatement of Housing Code Noncompliance as a Business Practice
Banks and other institutional owners who own dangerous housing solely for
speculation and business operations are loath to spend any money to comply
with housing and building codes. They point out, correctly, that there is no
explicit prohibition against selling houses out of code compliance in “as is”
condition. They then use that contracting right to justify the unlawful practice
of owning or controlling houses that are a threat to the public health, safety, and
welfare, cited by cities as public nuisances, and even condemned as unfit for
habitation.160 There are few if any housing codes, however, that distinguish
between owner-occupants of a single house and homeownership as part of a
business operation for making money in commercial transactions involving
houses. All owners are covered by the same laws which require maintenance
that avoids or abates nuisance conditions. Yet businesses making profits from
owning and dealing in dangerous housing presume a right to ignore those laws
because complying with the law would cut into their profits.161
The question remains whether a course of conduct that ignores laws
protecting the public health, safety, and welfare from nuisance conditions of
housing is a business practice that can be enjoined in a common-law suit for
abatement of a public nuisance. That is the question posed in the cases
discussed above, against Deutsche Bank and Wells Fargo. The law relied on
for this claim is the Restatement (Second) of Torts, section 821B, which was
adopted by the Ohio Supreme Court in Beretta U.S.A. Corp.162 While in all
three of these cases the banks have complied with court orders, or the threat of
court orders, based on Ohio’s residential nuisance abatement statute163 applied
to individual properties named in the complaints, the banks’ noncompliance
with the laws requiring nuisance-free maintenance as a general business
practice continues.
160. See id.; see also Brief of Defendant-Appellant, supra note 148 (arguing right to sell “as is” means
right to maintain without compliance while selling).
161. See Cleveland Hous. Renewal Project, Inc. v. Wells Fargo Bank, N.A., 934 N.E.2d 372, 374-75 (Ohio
Ct. App. 2010) (discussing poor condition of vacant, bank-owned homes). The plaintiffs in Wells Fargo Bank
sought to have eleven properties declared a public nuisance because their collective condition was so
deplorable. Id.
162. City of Cincinnati v. Beretta U.S.A. Corp., 768 N.E.2d 1136, 1142 (2002) (citing RESTATEMENT
(SECOND) OF TORTS § 4 (1965)).
163. OHIO REV. CODE ANN. § 3767.41(C)(1) (West 2010).
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It remains the belief of counsel for plaintiffs in these cases that if a court is
presented with evidence of consistent unlawful practices, repeated criminal
convictions, and company policies demonstrating willful noncompliance with
cities’ orders exercising police powers, an injunction against the owner would
be necessarily granted. Interdicting the business practice of maintaining vacant
houses in a dangerous condition would be far more effective protection of the
public than chasing nuisance conditions one house at a time. Applied in this
way, nuisance law can be a bulwark against the banks, or any other residential
owner, using its real estate in ways that harm the public. The banks’
compliance with nuisance abatement laws as a business practice will reduce the
threats to the safety and security of life as well as the property rights of
homeowners who maintain their property and pay their mortgages.164
D. Civil Litigation by Private Persons
Civil actions to enforce housing codes have the distinct advantage of in rem
jurisdiction, which enables courts to exercise control over the nuisance property
directly rather than through coercion of persons. This is critical in cases
involving abandoned, vacant property because the abandonment is based on
either the inability or the unwillingness of an owner to take responsibility for
the property’s condition. The civil litigation described in the second part of this
article is conducted under statutory provisions enabling certain private persons,
as well as municipalities, to enforce nuisance abatement laws. Private civil
litigation, however, is not a widely used means of abating public nuisances.165
Statutes permitting it do not make it inviting. It is more of a desperate act of
those who are not otherwise protected from harm by the police power of local
government. The plaintiff is not compensated for its losses or its legal
expenses in bringing the action because the remedy in public nuisance
abatement is injunctive relief of the offending condition at the owner’s expense.
Where, as in the case of Ohio’s statute, a receiver may be appointed to carry
out the court’s order because no owner or other interested person will do so, the
receiver’s costs are recoverable if and only if the subject property produces
income or a sale price in excess of the abatement costs. The cost of private
litigation limits its usefulness to those occasions when collateral resources can
be applied to support both the litigation and the abatement ordered by
164. Note that small and regional lenders holding mortgages they made in neighborhoods with high
subprime loan default rates are hurt by the mortgage crisis because of the business practices of their global
competitors whose size earned them public subsidies to prevent their mistakes with risky mortgages from
resulting in their failure. The big banks’ debt collection practices propagating blight are undercutting smaller
banks’ collection of well-made mortgage payments from nearby households.
165. It is unusual that municipalities do not more frequently use Ohio’s residential nuisance abatement
statute. I note, however, that Richard Pfeiffer, the law director of Columbus, Ohio, who is a personal
acquaintance, has used civil litigation in the Franklin County Municipal Court, Environmental Division, based
upon local ordinances with great success.
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successful litigation.
Civil litigation by private parties under common-law public nuisance theory
is made difficult by the standing issue of particular harm. As our experience
demonstrates, defendants with unlimited resources will remove a meaningful
case to federal court where Article III standing is a battleground involving
months, if not years, of preliminary litigation before the inevitable battle over
discovery even begins. Standing is a very challenging issue when the
underlying litigation is only about getting someone to comply with the law
rather than a normal tort action to obtain compensation for an injury. It is made
all the more difficult when different court systems employ different standards
for standing. While private civil litigation is possible, its financial burdens and
its legal complexities limit its usefulness in protecting neighborhoods from the
harmful conduct of banks who own houses in severely dangerous condition.
E. Civil Litigation by Local Government
Municipalities engage in civil litigation mostly as defendants rather than as
plaintiffs. While statutes and the common law authorize local governments to
initiate civil proceedings for many purposes, including abatement of public
nuisances, civil actions in code enforcement are the exception rather than the
rule. As plaintiffs in cases involving noncompliance with nuisance abatement
laws and law enforcement, municipalities have the advantage of access to the
records of property conditions, citations, compliance records, and public costs
to clean up private nuisances owned by defendants. They can strategically
deploy inspectors and investigators to assemble evidence of maintenance
practices by individual, high-volume owners whose current or recent inventory
includes harmful housing. Municipalities can implement nuisance abatement
enforcement programs to increase the likelihood that the costs of owning and
speculating in public nuisances will be borne by commercial owners with deep
pockets instead of taxpayers. Judicial jurisdiction over both the owners and
their properties, along with the power to issue injunctions, are remedies that can
be obtained in civil litigation against large-volume, lawless, absentee owners.
These remedies, aimed directly at the nuisance property, are not available in
criminal prosecutions.
F. Criminal Prosecution to Enforce Administrative Orders of Abatement
Criminal prosecution against absentee house owners is common practice for
municipal code enforcers and prosecutors. Its effectiveness for getting
absentee corporate owners to comply with housing and building codes is not
common. Getting owners outside the territorial jurisdiction of the court to
appear to answer charges is difficult and, due to the nature of the charges, may
be more expensive than the punishment the court is authorized to mete out. Big
corporations treat a summons to a municipal court like a parking ticket placed
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on a company car. It is not a matter of consequence. One either ignores it or
signs a waiver and sends in a stipulated fine. Traffic tickets, along with
violations of municipal housing and building codes, are regarded by virtually
everyone as a bureaucratic matter in which payment of a fine is less onerous
than showing up at court. There is no expectation of corrective action. In the
case of housing code violations, however, the violation is occurring
continually. Each day is a new violation. In those instances, criminal
prosecution against a responsible person can seek to have the defendant do
something in addition to its acceptance of punishment. Punishment may
contribute to the revenue of the municipality but fail to protect the public rights
when it is so inconsequential to the criminal defendant that continued violation
of the law is more economically beneficial than compliance.
Where cities do prosecute for compliance, the municipal court must often go
to extravagant lengths to get a response from corporations. Corporations can
only appear in court by representation of an attorney. Getting a response to a
summons issued to a big corporation involves communication among or
between corporate departments, divisions, subsidiaries, and affiliates until
corporate counsel for a corporate servicing entity with a power of attorney to
act for the title holder makes an appearance, often after a warrant has been
issued. Initially, remote corporations and their counsel are annoyed at being
charged with a misdemeanor criminal violation of law and want to get charges
dropped. As they become repeat offenders, they are more accepting of the
notion of pleading to the charge and paying a nominal fine. Their obvious goal
in doing so is to make the charge disappear by the most convenient means
possible. Future compliance or correcting existing conditions giving rise to the
charges is not part of the equation. A court that seeks compliance and change
of behavior more than punishment in criminal prosecution against businesses,
however, challenges that view.
The Housing Division of the Cleveland Municipal Court has demonstrated
the difficulty of challenging the prevailing practice of issuing meaningless fines
for large-scale commercial homeowners, like banks, who are repeatedly
prosecuted for the same violations.166 Over the past decade, this court has
developed a national reputation for innovative sentencing. For big-time
offenders, the court is an object of loathing and derision.167 The court’s novel
practices have been challenged, sometimes successfully, on appeal. Some of its
practices, however, are being applied by other courts. The Cleveland housing
court’s policy of sentencing for compliance remains the central guiding
principal for its innovative programs and practices.168
166. See Ford, supra note 46, at 142.
167. See Cleveland Hous. Renewal Project v. Deutsche Bank Trust Co., 621 F.3d 554, 564 (6th Cir. 2010)
(noting court “not persuaded” by defendants’ claims of bias by housing court judge).
168. City of Cleveland v. Franklin Inn, Ltd., No. 2000 CRB 54786, slip op. at 1 (Ohio Cleveland Mun. Ct.
Housing Div. 2003), aff’d 2005–Ohio–508 (Ct. App.) (outlining primary goal of sentencing and considerations
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No matter how effective a court’s sentencing policies and practices may be,
they are applied only to the extent prosecution is also effective. The volume of
potential cases and the resources to prosecute are not well-matched in most
jurisdictions. Prosecution of housing code violations is rarely a high priority
for municipal law departments.
Whether hired or elected, municipal
prosecutors rarely present themselves as housing code enforcers. Prosecutors
who want a reputation as crime-stoppers target murderers, rapists, thieves, and
drug dealers. Those wanting to impress their peers and the voters do not focus
energy on innovative or aggressive enforcement of housing and building codes.
What is missing in most municipal courts is an appreciation of how vital the
prosecution of lawless housing abuse is to the stability of neighborhoods and
communities. Unless the prosecutor acts, courts have no opportunity to
exercise their authority with compliance-oriented sentencing.
It is ironic that banks and mortgage servicers who are hostile to housing
code enforcement and nuisance abatement are among those who stand to
benefit from code-compliance efforts. Neighborhoods with houses owned by
banks who keep their property in a public nuisance condition are also
neighborhoods in which those very same banks and their servicers are trying to
collect mortgage payments. The banks’ bad housing and bad business practices
strip away the equity in surrounding houses with borrowers struggling to make
loan payments. By treating loan collateral in a callous and indifferent manner
in one instance, banks diminish the likelihood of collecting payments from
borrowers living next door. When banks and their servicers ignore compliance
with housing and building codes they are sowing the seeds of loan defaults.
Their myopic business model is not limited to extracting collateral from those
who got fraudulent loans or who made foolish decisions about buying a house
with a high-cost loan. It sucks so much equity out of neighborhoods and
communities that prime loan borrowers are upside down and cannot see any
possibility of paying off their mortgages. A business model that treats houses
as a disposable commodity for facilitating debt collection drives the persistent
depression in housing markets. All owners, banks and borrowers alike, are
subject to the same legal obligation to the public and to each other to maintain
their property so as to avoid harm to each other or the public. This theory of
public nuisance abatement undergirds the efforts of the housing court in
Cleveland and every other jurisdiction where courts take the rule of law
seriously.
G. Strategic Code Enforcement Policies and Programs
In order for nuisance abatement of housing conditions to work effectively,
involved). See generally Cleveland Hous. Renewal Project v. Wells Fargo Bank, No. 08-CVH-31391 (Ohio
Cleveland Mun. Ct. Housing Div. June 18, 2009) (unpublished order).
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there must be municipal policies and programs directed toward prevention and
abatement of nuisance conditions. Current housing and building codes that
were enacted to ensure the quality of new housing construction are not likely to
be effective against abandoned and blighted housing. Most current code
enforcement models presuppose compliance from an owner who occupies the
premises and has the means to comply. The abandoned, vacant houses
cropping up in the wake of the mortgage crisis are not used by owners for
shelter; they are held as commodities for non-residential purposes. Perhaps
their ultimate buyers are enterprising and skilled craftsmen looking for houses
with “good bones” to fix up in a manner consistent with its architectural
features for personal occupancy.169 More likely, however, the buyers will be
students of infomercials on TV, internet promotions, and seminars who are
convinced of how easy it is to make money buying and selling foreclosed
houses at bargain prices.170 Bank REO property is seen in these markets as a
commodity for sale with a clear title, empty of occupants, at a drastically
reduced price—lower than the prevailing price in the neighborhood. Vacant
houses purchased for rehabilitation by an owner-occupant are now the
exception rather than the rule. And many of those would-be rehabbers have
neither the experience nor the skill required to do more than minor cosmetic
repairs.
The recent changes in housing conditions and markets require modifications
in code enforcement policies and methods. Communities with older housing
stock have different needs than recently built subdivisions. Housing in
different climates will require differences in housing codes. One housing code
does not work well in all situations. The changes occurring in housing markets
arising from the mortgage crisis are redefining what is normal for localities all
over the country. No change is more drastic than the appearance of large
numbers of abandoned and chronically vacant houses, which presents a new
challenge for code enforcement officials and for the elected legislators who
enact the housing codes. The mortgage crisis is prompting consideration of
new legislation to protect the health, safety, and welfare of the public in
especially distressed neighborhoods from the harm and instability caused by
nuisance conditions in vacant houses.
A strategic approach to nuisance prevention and abatement is emerging in
some localities. Mandatory registration and licensing of vacant structures by
owners is one measure being adopted by municipal legislatures around the
169. Alexandra Alter, Artists vs. Blight, WALL ST. J., Apr. 17, 2009, at W1, available at
http://online.wsj.com/article/SB123992318352327147.html (describing artists’ efforts to buy and renovate
foreclosed housing in Cleveland).
170. Vicki Mabrey & Ted Gerstein, Investor Cashes in on “Cheap, Shabby” Homes, ABC NEWS
NIGHTLINE, Apr. 26, 2007, http://abcnews.go.com/Nightline/story?id=3084500&page=1 (profiling blighted
housing speculator). It almost goes without saying that others’ success with this business model can, and does,
considerably vary.
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country.171 This type of regulation serves several purposes. It identifies and
provides reliable contact information for the person responsible for the
condition of vacant properties. It enables more direct communication between
municipal officials and those responsible for maintaining vacant properties. It
distinguishes between vacant residences that are abandoned and those that are
temporarily unoccupied. It informs municipal safety personnel of what is
inside a house in an emergency situation. It reduces the public expense for
nuisance abatement.
Given how pooling and servicing agreements and the control over both
mortgage administration and property maintenance are delegated to a hierarchy
of servicing entities, it is expensive for municipalities to make timely contact
with remote servicers not identified with the property. The recordkeeping of
the ownership and servicing of securitized mortgages and bank REO properties
is notoriously complicated and unreliable.172 The vacant property registration
legislation varies from place to place and presents a challenge to servicers and
owners whose business model operates on a national platform that disregards
local variations in both circumstances and nuisance abatement laws. Local
ordinances have a wide variety of provisions, requirements and fee structures.
Mortgage holders and servicers strongly resist the proliferation of varied local
regulations.
Safeguard Properties, a Cleveland-based national property preservation field
servicer managing properties for national mortgage and bank REO servicers, is
leading an effort to protect servicers from local legislation. Its effort has
focused on development and lobbying for adoption of the private listing of
servicers known as the Mortgage Electronic Registration Service (MERS).
Safeguard and its MERS-affiliated servicers claim that MERS can provide a
substitute for registration and preempt the need of cities to require registration
of vacant houses.173 Code enforcers have not generally found that claim to be
verifiable, particularly in those neighborhoods most severely impacted by
subprime loans, foreclosures, and older, high-maintenance housing stock. In
Cleveland, for example, local governments and nonprofit agencies find that
MERS yields mortgage servicer information on less than half of the properties
for which they make inquiries using the MERS system. While this effort has
brought together some servicers and some vacant property registration
advocates for direct dialogue on the issues, there is not sufficient agreement on
all sides of the issue to claim the MERS registration system is a satisfactory
171. See Benton C. Martin, Article, Vacant Property Registration Ordinances, 39 REAL EST. L.J. 6, 9
(2010) (describing local governments’ enactment of vacant property registration (VPR) ordinances).
172. See generally Adam J. Levitin, Resolving the Foreclosure Crisis: Modification of Mortgages in
Bankruptcy, 2009 WIS. L. REV. 565 (describing difficulty regarding securitized mortgages).
173. See MERS InvestorID, SAFEGUARD PROPERTIES (June 15, 2009), http://www2.safeguard
properties.com/content/view/2397/308 (chronicling public statements extolling values of private registration
system).
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alternative to mandatory local registration of long-term vacant houses. The
presence of someone who exercises legal control and accountability over a
vacant house where the house is located is essential to protecting the public and
neighbors from nuisance conditions, which can seriously invade the rights
public law protects. Registration is a necessary means of bringing the big
banks and their hierarchy of agents into direct contact with the real estate
collateral they control in the mortgage financing and debt collection business.
Local governments’ adoption of registration and licensing requirements for
vacant houses is one tool for protecting neighborhoods vulnerable to
abandonment by owners and mortgagees in the mortgage crisis.
VI. CONCLUSION
The law of public nuisance correctly and conservatively prohibits actions—
most especially, the misuse of property by owners—that interfere with the
exercise and enjoyment of rights granted by law to the public. Where statutes
and ordinances prohibit maintaining or use of property in a condition harmful
to the public health, safety, welfare, and morals, violation of these laws as a
regular business practice is an unreasonable interference with the rights of the
public. No reasonable, law-abiding person would knowingly and intentionally
engage in public nuisance conduct. Leaving houses condemned as unsafe,
unsanitary, unusable, and unattended in residential neighborhoods in violation
of municipal and state laws puts owners or those in control of the conditions
outside the law. One might reasonably expect laws protecting the public from
such nuisance conditions to apply to all owners of houses, including those
financial institutions that own the most houses. They too, after all, benefit from
neighborhoods in which mortgagors are not dissuaded by lawless public
nuisance conditions from continuing their loan payments.
The experience in neighborhoods in Cleveland, Ohio, and in others where
the mortgage crisis is destabilizing housing markets, suggests that the doctrine
of public nuisance is not being applied successfully. If public nuisance law is
to be an effective means of protecting neighborhoods from the big banks
making billions in the mortgage crisis, it must be used strategically and its use
must aim directly at the interference with the rights of the public by lawless
property owners. The most ancient and conservative application of public
nuisance law is the abatement of real property abuses that interfere with
essential rights to health, safety, and welfare, including property rights, which
government guarantees through the exercise of the police power.
THE RECESSION AND YOUR MUNICIPALITY:
AN UPDATE ON FORECLOSURES,
VACANT PROPERTIES, AND RELATED ISSUES
Julie A. Tappendorf
ANCEL, GLINK, DIAMOND, BUSH, DICIANNI & KRAFTHEFER, P.C.
140 South Dearborn Street. Sixth Floor
Chicago, Illinois 60603
(312) 782-7606
www.ancelglink.com
jtappendorf@ancelglink.com
I.
INTRODUCTION
The mortgage foreclosure crisis gripping borrowers nationally has serious implications for
communities trying to prevent the repossession of homes on one hand and manage the resulting
vacant properties, increases in crime, homelessness, and other problems that stem from family
financial crisis. This outline will provide an overview of the challenges to municipalities caused
by the recent wave of foreclosures, discuss tools cities have at their disposal, examples of best
practices from around country, and finally summarize recent enacted and pending legislation
designed to assist municipalities in addressing the impacts of foreclosures.
II.
TOOLS AVAILABLE TO MUNICIPALITIES TO ADDRESS THE IMPACT OF
FORECLOSURES.
Relying on common law tradition and the statutory grant of general police power, modern cities
have a variety of powerful tools available to combat the negative impact foreclosures on
individual homes and neighborhoods. When foreclosed homes become vacant due to
abandonment or eviction they often quickly succumb to the forces of nature and the elements;
grass and weeds grow long, swimming pools become stagnant public health hazards, landscaping
dies from lack of attention or grows out of control, windows break, and exteriors suffer damage
from normal wear-and-tear and vandalism. The domino effect of one distressed home having a
negative impact first on neighboring residences and then on entire neighborhoods is familiar to
city officials. When this occurs, municipalities must aggressively enforce local codes.
A.
Property Maintenance Codes.
Many localities have adopted property maintenance codes to regulate community standards for
the interior and exterior condition of structures (e.g. the International Property Maintenance
Code published by the International Code Council). Typically these codes require that the
exterior of properties and accessory structures be maintained in a clean, safe, and sanitary
condition; that weeds and plant growth be limited; that sidewalks and stairs be maintained.
Property maintenance codes often cover everything from window glazing to abandoned cars.
Codes are enforced by building or property maintenance departments and authorize the
appointment of staff and inspectors to administer regulations. Code enforcement officials have
the right to enter structures at reasonable times and assess fines for non-compliance.
The strength of these codes varies from city to city and from state to state. For example, until
recently, the Illinois Municipal Code only permitted cities to cut weeds when the owners of real
estate either refused, or neglected, to maintain properties themselves. Now municipalities may
collect the reasonable costs of cutting grass, and trimming or removing nuisance trees and
bushes. The cost of maintenance becomes a lien against the real estate and is superior to all other
liens except tax liens.
B.
Vacant Building Ordinances and Registries.
While failure to make utility payments is often the first sign of an impending foreclosure,
abandonment and eviction mark the start of the serious headaches for local government. Empty
houses become an invitation for squatters, criminal elements, and vandals.
Many communities have adopted specific ordinances to address the unique problems posed by
vacant structures. The Bellwood Neighborhood Preservation Ordinance was enacted as a way to:
(A) prevent the deterioration and abandonment of housing in transitional
neighborhoods; (B) preserve, coordinate and concentrate maintenance efforts by
the village in designated neighborhoods; (C) promote private investment in
housing in those neighborhoods; and (D) promote community involvement in all
such activities.
In order to maximize the program’s effectiveness, each neighborhood in the village is studied
with input from community representatives. The program is administered by the Department of
Community Relations which develops and implements a residential housing recycling program
in designated areas to ensure a safe, clean and viable housing market.
Among the core functions of Neighborhood Preservation is the management of vacant properties.
Under the ordinance, vacant buildings must be registered with the village within 30 days of
becoming vacant. Registration requires the personal contact information of the owner or another
responsible party who may be personally liable “…for any violation therein, existing or
occurring, or which may have existed or occurred, at or during any time when such person is or
was the person owning or managing, controlling, or acting as agent in regard to said buildings or
premises and is subject to injunctions, abatement orders or other remedial orders.” Owners
under the ordinance include any person who controls, or directs the control, of the maintenance
of structures. That can include banks who have foreclosed on the property, property management
companies hired to manage the property, and other organizations or individuals with some form
of control over the property. Responsibilities of owners of vacant properties are extensive and
include maintaining the building in a safe and secure condition, posting contact information on
the structure, and keeping the building insured.
2
The International Property Maintenance Code similarly contains administrative tools for local
jurisdictions to manage vacant properties including the requirement that vacant structures be
maintained in a clean, safe, secure, and sanitary condition; and that they be closed up so they do
not become attractive nuisances.
Some cities have added creative aspects to traditional property maintenance codes. Dearborn,
Michigan, for example, requires “decorative board-ups” rather than standard and unsightly
plywood.
C.
Administrative Adjudication of Code Violations.
Even in communities with good public education efforts and diligent property maintenance
inspection departments, some property owners (for a variety of reasons) become non-compliant.
Most states recognize the administrative burden placed on local units of government and allow
the recovery of costs through fees and fines. Illinois law, for example, authorizes both home rule
and non-home rule municipalities to establish systems for the administrative adjudication of most
code violations. 65 ILCS 5/1-2.1-8 and 5/1-2.2-55. However, non-home rule communities do
not have the authority to adjudicate building code and traffic violations.
In some large cities, administrative adjudication departments can rival the court system in scale
and scope. Often employing hundreds of people and processing thousands of violations each
year, these systems relieve pressure from already burdened municipal courts and allow
respondents due process with less formality and usually without an attorney. They can also play
an important role in expediting cases and the payment of fees and fines, which can be substantial.
Multiple violations can accumulate into the thousands of dollars and be recoverable through the
filing of liens and the eventual sale of the property.
D.
Municipal Liens.
When the best efforts of local building and property maintenance departments fail to achieve the
cooperation and compliance of owners, municipalities can file liens to recover their costs for
securing and maintaining problem real estate. Traditional liens are typically junior lien holders in
foreclosure suits with the exception of demolition liens. Recovery can often be difficult after
higher priority lien holders such as banks are paid in full. However, sometimes lenders are eager
to resolve municipal code violations in order to avoid complications in remarketing the property
however. Cities frequently levy payment of a transfer tax and require the issuance of transfer
stamps to close real estate transactions, which can provide some leverage when working with
lenders.
E.
Demolition, Repair, Enclosure, or Remediation.
After all reasonable efforts to work with property owners to achieve compliance with building
and property maintenance codes have failed and a property continues to present serious and even
dangerous conditions the last resort of municipalities is demolition, repair, enclosure, or
remediation. Judicial approval is typically required; however, hearings on applications to the
court for demolition, repair, enclosure, or remediation must be expedited and given precedence
3
over all other suits. The costs of these remedies are born by the property owner and can include
court costs, attorney’s fees, and all other costs related to the enforcement of municipal codes.
III.
TURNING VACANT PROPERTIES INTO ASSETS: LAND BANKING
While plenty has been written about efforts to mitigate or minimize foreclosures, there is often
little discussion of the potential opportunities that are created in the current foreclosure crisis.
Foreclosures can spawn renewal and rebirth in areas that have suffered from poor planning or
shifting demographics. This paper focuses on the opportunities that wide-spread foreclosure
may present for communities, especially those hit hardest by the crisis—suburban and poorer
inner-city areas.
A.
Land Banking
Local and regional opportunities associated with foreclosed properties are dependant on the
community’s ability to take control of a property’s reuse. Municipalities, intergovernmental
agencies, and quasi-governmental agencies can gain control over foreclosed properties by
acquiring and stocking properties in a land bank. Land banks acquire foreclosed properties and
“bank” these properties for future use or resale.1 The future use of the banked property depends
on the land banks goal: attracting stable home buyers to eliminate vacancies; enticing larger
developments that need numerous adjoining properties; fulfilling a public good or service, such
as low-income housing, a park or community center; or simply providing a financial investment
for the community.2
Depending on a state’s legislative involvement, land banks have a range of options when
acquiring and reusing properties. In some states, like Michigan, land banks are encouraged by
state law to acquire land using legislative powers to expedite quiet title actions, and resell the
properties at nominal prices for productive reuse in the community.3 In addition to the State
powers to form land banks, Michigan passed legislation providing tax breaks to these banks,
especially when acquiring “blighted” property, to encourage land banking activity.4
Even without state legislation, banks have been created in regions across the country—from
Oakland California to Cuyahoga County, Ohio—to purchase foreclosed properties at auctions or
tax sales and put them back to use. For municipal land banks in any state, existing powers of
condemnation and eminent domain often provide a secondary tool for targeting blighted areas.
Whether grass roots or state-sponsored, land banks often provide an effective buyer in situations
where local markets have crashed or properties are unmarketable.
1
U.S. Housing and Urban Development, “Land Banks” Department of Community Planning and Development,
www.hud.gov/offices/cpd/about/conplan/foreclosure/landbanks.cfm (last visited July 6, 2009)
2
See i.e. Genesee County Land Bank, www.thelandbank.org. (last visited July 6, 2009)
3
Michigan Mich. Comp. Laws § 124.751 (“The Land Bank Fast Track Act") (eff. Jan 5. 2004)
4
Jessica de Wit, “Revitalizing Blighted Communities with Land Banks,” University of Michigan
(www.umich.edu/~econdev/landbank/) (last visited July 6, 2009)
4
Once properties are acquired, land banks provide a range of opportunities. From an individual’s
perspective, banks can reconnect residents to the neighborhood, whether by re-renting
apartments to former tenants or repairing and reselling houses to new buyers at reduced prices.
While vital to mitigate the effects of the foreclosure crisis, this function is not necessarily aimed
at creating new opportunities for the overall community. Nevertheless, like rent control or
subsidized housing, these banks provide new opportunities for individuals that are trying to stay
in their apartment, return to their neighborhoods, or begin new lives in areas that were previously
unaffordable.
From a community prospective, however, the true land use opportunities are created when banks
are connected to a wider community or regional goal, comprehensive plan for growth, or largescale project. As described below, foreclosed properties offer a second chance to implement
plans for sustainable growth, shift land use trends in strategic areas, create economic hotspots, or
provide key environmental protections in developed areas.
B.
How Land Banking Provides a Tool for Communities Facing Foreclosures
On a neighborhood, city or regional scale, rising foreclosures offer a chance to shift a
community’s long-term foundation to better support future growth. Many communities with
high foreclosure rates have other concerns linked to planning, land use, and local economic
viability that require shifts in land use. Ironically, the areas hardest hit by foreclosures are areas
that would benefit most by the opportunity to redesign strategic areas.
Two examples stand out: rapidly expanding suburbs and deteriorating urban cores. In these
areas, the opportunity to revisit past land use choices could be the key to future economic
stability.
1.
Suburbs
While foreclosures have risen across the country, the crisis is far more localized than often
portrayed. Over half of the nations’ foreclosures are found in 35 counties, with more than a
quarter of all foreclosures located in eight suburban counties in Arizona, California, Florida and
Nevada alone.5 Nation-wide, foreclosures rates are highest in the fastest suburban growth areas,
where home buyers stretched sub-prime loans to afford larger houses in new subdivisions on the
edge of an exploding suburban area.
Before the housing market collapse, these counties and local communities faced other problems,
often brought on by a lack of comprehensive urban planning. New subdivisions placed people
far away from commercial centers and transportation options, where cars and asphalt surfaces
became lifelines for daily activities. As gas prices, flooding, and traffic grew, so did the push for
comprehensive plans and smart growth principles. Many suburban communities looked to new
land use planning tools to reconnect people with traditional neighborhoods and pedestrianfriendly design. New comprehensive plans were meant to establish a framework for efficient
5
Heath, Brad, “Most Foreclosures Pack into a Few Counties,” USA TODAY, March 3, 2009
5
and productive growth, while reducing resource consumption and reliance on automobiles.6
Among other goals, many suburban communities envisioned a new future where people, parks,
and commerce once again overlapped.
And then, the plans were filed away to gather dust. Outside of isolated projects, many
municipalities lacked opportunities to shift existing land uses in ways necessary to carry out the
vision. By the time the plans were created, the land had been developed and there was no room
to integrate the necessary elements of the plan. That is, until now.
With exploding foreclosure rates, these suburban counties have the ability to purchase or
otherwise acquire vacant properties in strategic areas. Once acquired, these communities can
redesign the area to integrate new land uses as proscribed in their comprehensive plan.7 For
example, municipalities are starting to use Geographic Information System (GIS) tracking to
identify foreclosed properties in areas where there is a need for additional economic,
environmental or social assets— such as a small neighborhood commercial center, a corner
grocery store, or a community park to retain stormwater and reduce flooding. Using land banks
or traditional powers of eminent domain, municipalities can acquire multiple properties in these
areas and redesign the land to make up for past planning failures. Additionally, by taking vacant
property and turning it into an asset for the surrounding community, the municipality increases
the value of the neighboring properties and decreases the likelihood of subsequent foreclosures.
To aid regional impacts on traffic and air quality, municipal and regional land banks can identify
and purchase foreclosed properties near commuter transit stations. By increasing residential
density, increasing commercial capacity, or installing commuter parking facilities near these
stations, communities can increase the convenience of mass transportation. Again, these new
assets will help the municipality implement plans aimed at reducing region-wide impacts on
traffic, air quality, and flooding, as well as decrease community energy costs and increase local
commercial options.
Perhaps most notably, foreclosures of outdated commercial centers and malls have provided new
opportunities to redesign prime real estate to create accessible, pedestrian-friendly city centers
that mirror older downtown areas.
For example, in Mountain View, California, a failed
suburban mall was successfully turned into an 18-acre mixed use site with housing units, retail
shops, and a daycare center, all oriented toward the nearby CalTrain commuter rail station.8
Belmar, a new town center that replaced a former mall in Lakewood, Colorado, is another
example of suburban transformation in the face of foreclosure. Over recent years, Lakewood, a
suburb of Denver, grew rapidly to become the fourth largest municipality in Colorado.
However, given its suburban roots, Lakewood lacked many of the core elements that larger cities
6
See Trumbull, Mark, “Where Housing Bust Hits Hard,” The Christian Science Monitor, May 21, 2008 (finding
that as gas prices increase, housing prices in newer suburbs decreased)
7
Schilling, Joe and D'Angelo, Mara, “The Mortgage Foreclosure and Financial Market Crises – Implications for
Smart Growth and Community Development,” Smart Growth Online (http://icma.org) (last visited July 6, 2009)
8
U.S. Environmental Protection Agency, “Creating Great Neighborhoods,” Sept. 2003.
6
share—notably a city center with a dense pedestrian-friendly commercial district.9 When the
local mall went under leaving an abandoned stretch of asphalt, city officials seized the moment
and created Belmar—a mixed used area with brick plazas surrounded by outdoor shopping and
dining establishments. Belmar has become a destination area for a downtown experience in the
suburbs.10
Typically, for better or worse, suburban communities offer little opportunity for change inside
the originally planned subdivisions. New developments and vital community assets are often
pushed to greener pastures. Vacant properties offer municipalities a chance to look within
existing communities and amend the existing landscape with the benefit of hindsight. Often
these new land uses spawn changes to neighboring parcels which continue to add economic,
environmental, and social value to the area.
2.
Industrial Urban Neighborhoods
Urban decay, vacant properties, and abandoned brownfields are not a new phenomenon in our
industrial urban neighborhoods. While suburbs are feeling the impacts of foreclosure for the first
time, many industrial urban areas are watching their final chances for a comeback begin to fade.
For these communities, the rising foreclosure rates offer another set of opportunities.
First, many of these areas are near vital resources that could spawn regional growth if there was
room for new plants and industries. For example, airports, viable factories, power plants and
older industrial plants are often located in poorer industrial neighborhoods. These older areas
often offer a great urban location for new or expanded industrial or commercial growth.
However, to accommodate such renewal and growth, the neighboring community is generally in
the way, leading to a battle over displacement and relocation.
Foreclosures can potentially ease this conflict, increasing the amount of land open for large
expansions that could provide a spark for the remaining community. For example, in East
Baltimore, Maryland vacant properties are being purchased and razed to make room for the East
Baltimore Biotech Park, a $200 million project which will include office buildings for nearby
Johns Hopkins University Hospital and create locally accessible jobs, job training, and new
housing.11
Second, where foreclosures have left vacant, blighted properties, communities can create green
infrastructure sites to counter the lack of green space in these highly-urban areas. Green
infrastructure typically involves natural gardens to receive and absorb stormwater and avoid
9
See Dunham-Jones, Ellen and Williamson, June, “Retrofitting Suburbia: Urban Design Solutions for Redesigning
Suburbs” (Wiley Press, 2009).
10
Reed, Jebediah “In the Land Of Dead Shopping Malls: Smart Solutions for A Retail Apocalypse,”
Infrastrurist.com, May 11, 2009
11
Wachter, Susan, “The Determinants of Neighborhood Transformation in Philadelphia—
Identification and Analysis of the New Kensington Pilot Study” The Wharton School,
University of Pennsylvania: Philadelphia (2005); See Friedman, Eric, “Vacant Properties in Baltimore: Strategies for
Reuse” Abell Foundation Award in Urban Policy Submission, 2003.
7
flooding; greenways and bike paths to reduce community isolation and increase non-motorized
travel; and plots of trees to break up urban landscapes. A study of Philadelphia’s New
Kensington neighborhood found that greening vacant lots increased sale prices of homes near the
lots by as much as 30 percent and could translate into a $12 million gain in property value for the
neighborhood.12 In Flint, Michigan, aided by the Genesee County Land Bank, vacant lots are
providing openings for greenways and parks that have well-established benefits for communities,
but were left out when the industry-based city hit its boom.13
IV.
CONCLUSION
In a crisis where silver linings are hard to find, it is important to note the long term gains that can
be generated when foreclosed properties are transformed into urban assets. Whether it is a
suburban mall or a deteriorating urban industrial neighborhood, the opportunity to shift land use
is rarely presented. While the opportunities last, municipalities and non-profit organizations
should take advantage whether by creating a land bank, comprehensive plan for sustainable
growth or simply by urging local representatives to repeat the successes seen in other
communities.
12
Schilling, Joseph, “Blueprint Buffalo—Using Green Infrastructure to Reclaim America’s Shrinking Cities,”
Metropolitan Institute, Virginia Polytechnic University, Alexandria 2007
13
Gillotti, Teresa and Kildee, Daniel, “Land Banks as Revitalization Tools:
The Example of Genesee County and the City of Flint, Michigan,” Genesee Institute,
www.geneseeinstitute.org/downloads/Revitalization_Tools.pdf (Last visited July 6, 2009); National Vacant
Properties Campaign, “Reinventing Dayton and the Miami Valley Assessment Report,” June 2005;
8
627
Regulating Vacant Property
Keith H. Hirokawa*
Ira Gonzalez**
City leaders are in a bind. Few local governments are boasting
budget surpluses. Cities are compelled to prioritize among needed public services, often determining which among the cities’ needs will go
unmet (at least temporarily) while helplessly watching tax revenues and
quality of life fall with property values. This decline/bind is due in large
part to the circumstances of property ownership in a difficult economy,
but also due to the physical circumstances of properties that have suffered through foreclosure or abandonment. It is the latter issue that this
article addresses. Across the nation, local lawmakers have seemingly
declared war on property owners who cannot guarantee occupancy of
their properties.
Of course, there is nothing particularly novel about concern for neighborhood deterioration or the exercise of the police power to combat
neighborhood blight,1 circumstances that can be dangerous and costly for
local governments.2 One might find something peculiar, however, about
this relatively new method of governmental intervention. Local governments have noted a correlation between the characteristics of neglected
properties (e.g., unkempt yards, garbage accumulation, unsightly and
dangerous structures) and the onslaught of neighborhood blight. Local
governments have also noted the coincidence of unoccupied structures
and property deterioration caused by lack of maintenance. Accordingly,
*Assistant Professor, Albany Law School. J.D., University of Connecticut, 1998;
M.A. University of Connecticut, 2003; LL.M., Lewis and Clark School of Law, 2001.
Sincere thanks go to Dean Patricia Salkin for her comments on earlier drafts and my
research assistant, Andrew Wilson, for his characteristically professional efforts in finalizing this piece.
**J.D. candidate, Loyola University New Orleans, College of Law and former Chief
of Operations/Code Enforcement at the City of Miami. B.S., Barry University, 2001;
M.B.A., Barry University, 2005.
1. See, e.g., Vill. of Euclid v. Ambler Realty Co., 272 U.S. 365, 394 (1926) (discussing the police power authority for regulating land use and preserving certain uses
from others which, under the circumstances, can have nuisance effects); see also Nicole
Stelle Garnett, Ordering (and Order in) the City, 57 Stan. L. Rev. 1, 11–18 (2004)
(discussing the impact of regulation as “disorder suppression”).
2. See Colorado to Get $34M for Blighted Properties, Denver Bus. J., Dec. 29,
2008, available at http://denver.bizjournals.com/denver/stories/2008/12/29/daily7.
html.
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local governments (in droves) have employed the police power to regulate property vacancy, or the non-use of real estate.
This article introduces vacant property regulations as one approach
to dealing with blight. Part I describes property vacancy to identify the
target of these regulations. Part II describes the typical regulatory tools
found in vacant property ordinances. Part III raises some concerns about
the possible consequences of regulating property vacancy.
I. The Circumstances of Vacant Property: Recession,
Blight, Broken Windows, and Disease
Cities regulate vacant property because of the correlation between
property vacancy and urban blight, including criminal activity and
decreasing property values.3 Although vacant properties have varying characteristics, the most common complaints involve neglected or
boarded-up buildings, unused or undeveloped lots, vacant or underperforming commercial properties, and neglected industrial properties.4
As explained by the “broken window” syndrome, deterioration on vacant and abandoned properties is less likely to be repaired, essentially
serving as an advertisement that there is neither local control nor consequences for bad acts. The theory also suggests that broken windows are
associated with increased fear and weakened community confidence in
affected neighborhoods.5 Uninhabited structures are targets for graffiti
3. Professor Ellickson identifies the downward spiral in public places from what he
calls a “chronic street nuisance” as follows:
[T]he harms stemming from a chronic street nuisance, trivial to any one pedestrian at any instant, can mount to severe aggravation. First, because the annoying
act occurs in a public place, it may affect hundreds or thousands of people per hour.
Second, as hours blend into days and weeks, the total annoyance accumulates. Third,
a prolonged street nuisance may trigger broken-windows syndrome. As time passes,
unchecked street misconduct, like unerased graffiti and unremoved litter, signals a
lack of social control. This encourages other users of the same space to misbehave,
creates a general apprehension in pedestrians, and prompts defensive measures that
may aggravate the appearance of disorder. Fourth, some chronic street offenders violate informal time limits.
Robert C. Ellickson, Controlling Chronic Misconduct in City Spaces: Of Panhandlers, Skid Rows, and Public-Space Zoning, 105 Yale L.J. 1165, 1177–78 (1996).
4. Nat’l Vacant Props. Campaign, Vacant Properties: The True Cost to
Communities 1 (2005), available at http://www.vacantproperties.org/latestreports/
True%20Costs_Aug05.pdf.
5. See Carolyn Y. Johnson, Breakthrough on ‘broken windows’, Boston Globe,
Feb. 8, 2009, available at http://www.boston.com/news/local/massachusetts/
articles/2009/02/08/breakthrough_on_broken_windows/?page=1; see also James Q.
Wilson & George L. Kelling, Broken Windows: The Police and Neighborhood Safety,
Atlantic Monthly, Mar. 1982, at 29, available at http://www.theatlantic.com/maga
zine/archive/1982/03/broken-windows/4465/; James Q. Wilson & George L. Kelling,
Making Neighborhoods Safe, 263 Atlantic Monthly 46, Feb. 1989, available at
629
and vandalism, provide a haven for illegal drug activity, and encourage
unlawful possession of property, circumstances that can have a spiraling and amplifying effect on surrounding property conditions.6
The public costs that are arguably associated with vacant properties
are persistent and, in many areas, unaffordable.7 Especially in tight economic circumstances, local governments find themselves in a Hobson’s
choice between ignoring the problems associated with property vacancy
or allocating law enforcement, fire, and other services in disproportionate measures to areas surrounding vacant buildings.8
II. Local Efforts to Regulate Vacancy
Courts have traditionally afforded wide latitude to local governments
in matters pertaining to the public health, safety, and welfare.9 The police power tool frequently employed to ameliorate neighborhood deterioration and broken windows—nuisance abatement authority10—has
http://www.theatlantic.com/past/politics/crime/safehood.htm (“If the first broken window in a building is not repaired, then people who like breaking windows will assume
that no one cares about the building and more windows will be broken. . . . The disorder
escalates, possibly to serious crime.”); Malcolm Gladwell, The Tipping Point 141
(2000).
6. See Garnett, supra note 1, at 13 (discussing the “multiplier effect” that blighted
properties have on neighborhoods).
7. In many cases, the tax income from such properties is insufficient to cover the
time, attention, and money required to provide essential public services (police, fire,
and emergency services) to the affected neighborhoods. An analysis of the City of Austin, Texas discovered that
blocks with unsecured [vacant] buildings had 3.2 times as many drug calls to police,
1.8 times as many theft calls, and twice the number of violent calls’ as blocks without vacant buildings; [m]ore than 12,000 fires break out in vacant structures each
year in the US, resulting in $73 million in property damage annually. Most are the
result of arson. Over the past five years, St. Louis has spent $15.5 million, or nearly
$100 per household, to demolish vacant buildings. Detroit spends $800,000 per year
and Philadelphia spends $1,846,745 per year cleaning vacant lots. A 2001 study in
Philadelphia found that houses within 150 feet of vacant or abandoned property experienced a net loss of $7,627 in value.
Nat’l Vacant Props. Campaign, supra note 4, at 1.
8. See Benjamin B. Quinones, Redevelopment Redefined: Revitalizing the Central City with Resident Control, 27 U. Mich. J.L. Reform 689 (1994) (explaining that
blighted neighborhoods are typically disfavored for public improvement dollars and
services).
9. See Vill. of Brady v. Melcher, 502 N.W.2d 458 (Neb. 1993) (holding that when
a local government acts within the scope of its statutory authority, the court will defer
to its judgment).
10. Joseph Schilling, Code Enforcement and Community Stabilization: The Forgotten First Responders to Vacant and Foreclosed Homes, 2 Alb. Gov’t L. Rev. 101, 104
(2009) (“Local code enforcement officials have the legal and policy responsibilities
to enforce a wide array of building, housing, and property maintenance codes and to
administer special nuisance abatement processes.”).
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proven inadequate to quell the increasing number of vacant properties
due to foreclosures, caused in part by the lack of resources available to
detect and keep watch over vacant properties.11 In response to growing
concerns about the blighting influences of vacant and foreclosed homes,
a striking number of local governments are seeking shelter in vacant
property registration ordinances.12
Although most vacant property ordinances concern the occupancy
status of property, there are a variety of approaches for triggering
the regulatory scheme (and, as a result, different ideas of what the
problem might be). For instance, Pittsburgh, Pennsylvania defines
“vacant building” as a structure which is vacant and is either unsecured, secured by other than normal means, unsafe, noncompliant
with housing or building codes, illegally occupied, or unoccupied
for over a year with pending code enforcement citations.13 The City
of Red Bud, Illinois, has adopted an ordinance that, while not the
model of clarity, appears to only regulate “abandoned” properties
that are in the foreclosure process or properties from which the
mortgagee emerged from the process with title.14 Under the ordinance adopted in Chula Vista, California, evidence of vacancy encompasses any condition that on its own, or combined with other
conditions, would lead a reasonable person to believe that the property is vacant.15
11. Id. at 122–24 (many, if not most, cities report dramatically high levels of calls for
public services in affected areas and a similar increase in code enforcement cases from
foreclosed properties).
In light of the challenges confronting code enforcement officials, the National Vacant Properties Campaign conducted a snapshot survey to understand local foreclosure impacts in different markets and differing vacant property trends. . . . Sixteen
of the nineteen cities reported increases in the existence of vacant properties ranging
from sixteen to forty percent or more.
Id.; see also Ruth Simon, Vacant-Property Fees Add to Mortgage Firms’ Woes, Wall
St. J., July 29, 2008, at A3.
12. Schilling, supra note 10, at 128 (summarizing the statistical data from registration ordinances). Safeguard Properties provides an online database of vacant property
regulations nationwide. See Safeguard Properties, http://www.safeguardproperties.
com (last visited Feb. 19, 2010) (identifying over three hundred and fifty governmental
entities—including states, counties and municipalities—that have adopted or considered vacant property legislation).
13. Pittsburgh, Pa., Code § 115.1 (2007) (“Unsecured” is defined to mean
“A building or portion of a building which is open to entry by authorized persons without the use of tools or ladders.”).
14. Red Bud, Ill., Ordinances 1195, § 6-6-3 (2008).
15. Specific conditions listed include overgrown vegetation, accumulated mail, past
due utility notices, trash and other debris, and statements by neighbors. Chula Vista,
Ca. Code § 15.60.020 (2008).
631
Although vacant property ordinances vary,16 there are common
themes in all jurisdictions. The primary aims of the ordinances include
finding a cost effective means to track property vacancy (and any illeffects that may be triggered), to finance the administration of vacant
property monitoring, to ensure efficient enforcement of building codes
and other health and safety regulations at or near vacant properties, and
to provide authority to collect penalties to address violations.17 Enforcement is delegated to existing code enforcement departments or taskforces assembled for this purpose.18
The informational goal is served by requiring owners of vacant structures to register their property’s occupancy status with the local government. Registration typically involves the disclosure of information that
will ease the burdens of code enforcement and facilitate more effective
communication with the owner. Local governments are requiring owners to provide a property description and address; names and contact
information for the owner and persons who can immediately respond
to inquiries from public officers;19 date on which the property became
vacant; whether the property is in foreclosure proceedings; and so on.
These ordinances are public cost-conscious and offer a variety of financing mechanisms. First, virtually all of the ordinances require payment of a registration fee20 that is allocated to routinely monitoring and
inspecting vacant properties and the surrounding neighborhoods. Some
cities impose fees that increase over time as the property remains un16. Variations among the approaches illustrate that local governments are approaching in a manner compatible with local political and economic realities: the diversity of
legal structures, market conditions, and foreclosure challenges within each city have
influenced the range of approaches in these ordinances. In other words, what works to
avoid blight in Detroit may not work in San Bernardino or Cleveland.
17. Miami, Fla., Code § 10-61 (2008), available at http://library.municode.com/
index.aspx?clientId=10933&stateId=9&stateName=Florida.
18. Boston, Ma., Code § 16-52.5 (2008), available at http://www.amlegal.com/
nxt/gateway.dll/Massachusetts/boston/cityofbostonmunicipalcode?f=templates$fn=
default.htm$3.0$vid=amlegal:boston_ma (“The Inspectional Services Department
shall have the authority to inspect properties subject to this section for compliance and
to issue citations for any violations”); see also Quincy, Ma., Mun. Code § 8.44.050
(2008), available at http://www.safeguardproperties.com/vpr/docs/Quincy_MA_ordi
nance.pdf.
19. See Coconut Creek, Fla., Code § 6-39(i) (2008), available at http://coconut
creek.net/newsite/municode.asp.
20. Boston, Ma., Code § 16-52.3 (2008), available at http://www.amlegal.com/
nxt/gateway.dll/Massachusetts/boston/cityofbostonmunicipalcode?f=templates$fn=
default.htm$3.0$vid=amlegal:boston_ma (Registrations valid for one year and a one
hundred dollar ($100) fee must accompany the registration form); Chicago, Ill., Code
§ 13-12-125 (2008), available at https://ipi.cityofchicago.org/VacantBuildings/assets/
docs/VacantPropertyClean.pdf (The registration and renewal fee for each registered
building is $250.).
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occupied.21 Most of the ordinances impose on owners a responsibility
to reimburse cities for repair and remediation costs incurred by local
governments that take the initiative to fix windows, secure doors, remove garbage or otherwise abate nuisance conditions on the properties.
Finally, most ordinances provide penalties for noncompliance with the
registration requirement that range from a misdemeanor violation to
hefty fines that may run against the property daily22 under the notion
that substantial fines will either result in some form of transfer of the
property to the public or a persuasive incentive to maintain the appearance and security of the property.23
Other common provisions include requiring owners to carry general
liability insurance24 and requiring the owner to give written consent al-
21. Arlington, Tex., Ordinances. § 08-241 (2008), available at http://www.safe
guardproperties.com/pub/pdf/Arlington_TX_resolution.pdf (The vacant structure fee
escalates from no fee for a structure vacant less than a year to $3,660 annual fee for a
structure vacant between ten or more years); Carbondale, Pa., Ordinances § 142008 (2008) (Fee of $100 for properties vacant forty-five days to a year and escalating
to $5,000 fee for properties vacant ten years and an additional $500 for every year over
ten years); Wilmington, Delaware enacted a vacant property registration ordinance with
an escalating annual fee—the longer the property remains vacant, the greater the fee.
The ordinance allows up to a maximum of $5,000 if the property has been vacant ten
years or more. Wilmington, Del., Ordinances 4-27 § 125 (2009); Smyrna, Del.,
Ordinances. § 18-1557 (2007), available at http://library5.municode.com/defaulttest/home.htm?infobase=12853&doc_action=whatsnew (No fee for properties vacant
for less than one year, escalating to a $2,000 fee for properties vacant at least five years
plus an additional $500 for each year in excess of ten years).
22. Baltimore, Md., Code art. 13, § 4-13 (2007), available at http://www.baltimo
recity.gov/Government/CityCharterCodes.aspx (“Any person who violates a provision
of this subtitle . . . is guilty of a misdemeanor and, on conviction is subject to fine of
no more than $500”); see also Minneapolis, Minn., Code § 249.90 (2001), available at http://library1.municode.com/default-test/home.htm?infobase=11490&doc_
action=whatsnew (“Any person who violates a provision of this chapter or provides
false information on a required registration or plan, is guilty of a misdemeanor or shall
be punished by a fine not to exceed seven hundred dollars ($700.00) or by imprisonment
not to exceed ninety (90) days or both. . . . Each day’s continuation of a violation shall
constitute a separate offense.”); Chicago, Ill., Code § 13-12-125 (2008), available
at https://ipi.cityofchicago.org/VacantBuildings/assets/docs/VacantPropertyClean.pdf
(“If a vacant building in the tripled period is in violation of any provision of the building code or fire code at the time renewal is required, the fee shall be $1,000 for such
renewal, and shall remain at $1,000 for each subsequent renewal”).
23. See Creola Johnson, Fight Blight: Cities Sue To Hold Lenders Responsible For
The Rise In Foreclosures And Abandoned Properties, 2008 Utah L. Rev. 1169, 1246
(2008) (“By charging hefty fines of, say $1000 per day, until violation of the ordinance
is corrected, cities would make it too expensive for lenders to violate the law”); see also,
e.g., Westminster, Colo., Code § 1-8-1 (1994) (establishing a fine of up to $1,000 per
day), available at http://www.cl.westminster.co.us/code/874_1372.htm.
24. Cincinnati’s ordinance requires evidence of general liability insurance for the
property with a minimum of $300,000 for residential properties and $1,000,000 for
commercial or industrial. Cincinnati, Ohio, Code § 1101-77.1(b) (2006), available at
http://www.cincinnati-oh.gov/bldginsp/downloads/bldginsp_eps15018.pdf.
633
lowing the police department to enforce trespassing violations.25 Several of the programs encourage or require owners to prepare and submit
plans to “rehabilitate” the property or otherwise end the vacancy.26
III. Making “Vacancy” a Bad Word: The Means
and Ends of Vacancy Regulations
Vacant property ordinances reflect the difficulties in finding and eliminating the sources of blight. Yet, these ordinances suggest problems of
their own. Although we admittedly suspect that the future for vacant
property ordinances will be as much a muddle as it is a mystery, a few
comments can be made. We raise three related, but ultimately independent concerns: that property vacancy bears a questionable relationship
to local land use authority; that registration ordinances may run afoul
of constitutional protections for private property; and that the timing of
these ordinances is ill-advised (if ever there was a good time).
First, despite the apparent reasonableness of the general argument
in favor of vacant property regulations—that such properties cause or
contribute to blight through neglect—these ordinances are ambiguous
in identifying the regulated activity. Traditionally, land use regulations
have been lauded as a means of controlling the impacts from the use of
land:27 land uses often have impacts that do not respect property boundaries, and the authority to require a permit for land use is associated
with granting the owner the privilege of causing such impacts. Land
use controls have developed around the idea that the regulation of use is
legitimate when the regulations are rationally related to the character of
25. Miami, Fla., Code § 10-64 (2008), available at http://library.municode.com/
index.aspx?clientId=10933&stateId=9&stateName=Florida.
26. See, e.g., Binghamton, N.Y., Code § 265-14.C.3 (2007), available at http://
www.cityofbinghamton.com/pdfs/VacantPropertyRegOrdinance.pdf (requiring a vacant building plan in which the property owner indicates what actions will be taken to
cease the vacancy); Fresno, Cal., Code § 10-617 (2008), available at http://www2.
safeguardproperties.com/pub/pdf/Ord-_Vacant_Buildings_8-19-08.pdf (proposing a
plan to either occupy, sell, lease, or demolish the building within one-hundred eighty
(180) days or such other time as determined reasonable by the Director under the circumstances).
27. See, e.g., Advisory Comm. on Zoning, A Standard State Zoning Enabling Act: Under Which Municipalities May Adopt Zoning Regulations 4-5
(1926), available at http://myapa.planning.org/growingsmart/pdf/SZEnablingAct1926.
pdf (“For the purpose of promoting health, safety, morals, or the general welfare of
the community,” municipalities are authorized “to regulate or restrict” building height,
bulk, “and the location and/or use of buildings, structures and land for trade, industry,
residence or other purposes.”); Id. at 6 (authorizing the division of a municipality into
districts, within which “it may regulate and restrict the erection, construction, reconstruction, alteration, repair, or use of buildings, structures, or land.”).
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the land use. This system has worked, in large part, because owners of
land have sought to engage in particular land uses, and as a result, there
has been no shortage of permit applications or governmental control
associated with the permitting process.
In contrast, vacant property ordinances regulate an “activity” that
is seldom (if ever) pursued by the property owner. These regulations
are instead premised on the non-use of property.28 Here, it is important
to distinguish an owner’s decision to leave property in noncompliance
with local building codes (which are typically enforceable under local
regulations anyway29) from the owner’s “decision” to leave a building
vacant.30 At least as to the latter, which is also the subject of vacant
property regulations, the “activity” does not fall into any of the traditional land use categories (including nuisance), and in any event, is
more likely the result of circumstance than choice. Nevertheless, these
regulations treat the owner’s non-use as a land use. For instance, in Riverdale, Georgia, all vacant buildings within the city are required to attain
a “vacant structure permit.”31 To obtain this permit property owners
must disclose information about the property, some of which might be
considered sensitive information (such as the date on which the struc28. Alternatively, some of the regulatory schemes do not appear to regulate non-use,
but instead the identity of the user. For instance, the regulation in the City of Red Bud,
Illinois appears to apply only to lenders that come into possession as a result of a borrower’s default. Red Bud, Ill., Ordinances 1195, § 6-6-3 (2008), available at http://
www.cityofredbud.org/code%20of%20ordinances/Abandoned%20Real%20Estate%20
062309.pdf. This approach does not help the ambiguity. Although lender-ownership
may be a factor in instances of broken window syndrome and neighborhood deterioration, there is seldom (if ever) a legitimate nexus between the character of the owners and
the harm sought to be avoided by regulation.
29. L.A., Cal., Municipal Code § 91.103.1 (2010), available at http://www.amle
gal.com/nxt/gateway.dll?f=templates&fn=default.htm&vid=amlegal:lamc_ca (“No person shall construct, alter, repair, demolish, remove, demolish, remove, move, use, occupy
or maintain, within the City, any building or structure or any portion thereof, except
as provided by this Code”); Chicago, Ill., Municipal Code § 13-8-070 (2010), available at http://www.amlegal.com/nxt/gateway.dll/Illinois/chicago_il/municipalcodeofchi
cago?f=templates$fn=default.htm$3.0$vid=amlegal:chicago_il (“In the event that the
changes, alterations, repairs or requirements ordered by the notice of the building commissioner are not made or performed to the satisfaction of the building commissioner
within the time specified in the notice, the commissioner may institute enforcement proceedings based on violations of this Code”).
30. This analysis may be different, albeit not with a different result, for undeveloped
properties. Controls on non-use of structures in occupied neighborhoods, concern the
impacts of non-use, failure to maintain, and failure to secure, which can trigger broken
window declines in neighborhoods. Although vacant lands do not suffer window breakage, they may be targets for garbage and other abuses. The real difference, however,
is that properties with structures are already subject to buildings codes and occupancy
regulations.
31. Riverdale, Ga., Code art. V, § 18-122 (2008), available at http://library6.
municode.com/default-now/home.htm?infobase=11472&doc_action=whatsnew.
635
ture became vacant32 and a vacant structure plan, including possible
improvements or plans to sell the property).33 One important question,
which is relevant in the land use context, is whether the local government has the power to deny the application: what effect comes of the
denial of an application to own a vacant structure?
Second, there may be implications of the registration requirements
that cause concern to those interested in the constitutional confines of
“property.” For instance, the ordinance in Riverdale, Georgia requires
owners to provide “a letter of written consent by the owner granting
permission for city officials to enter and inspect the property and all
structures upon it.”34 Of course, obtaining such consent from owners
of vacant property will be a major convenience for local code enforcement officials who, under normal circumstances, would be faced with
the owner’s entitlement to refuse consent to a warrantless entry.35 The
problem, however, is that the authority to regulate generally does not
entail the authority to require public access to private property: submission to the authority of a permitting agency is not itself a waiver of the
right to exclude.36 In addition, in the absence of exigent circumstances,
police do not generally have the authority to enter private property without a warrant, unless the consent of the owner is first obtained.37 Such
searches are presumptively unreasonable.38 Despite the arguably legit-
32. § 18-122(1)(a)(2)(vii).
33. § 18-122(2)(c). There is no provision requiring the owner to comply with the
plan, but the plan is subject to the city’s initial approval, and the ordinance specifies
that “any subsequent owner is subject to the terms of the plan as long as the structure
remains vacant unless the department grants relief from same.” Id.
34. § 18-122(2)(a)(iii).
35. Camara v. Mun. Court of S.F., 387 U.S. 523, 534 (1967) (“[A]dministrative
searches [by municipal health and safety inspectors] are significant intrusions upon the
interests protected by the Fourth Amendment, that such searches when authorized and
conducted without a warrant procedure lack the traditional safeguards.”).
36. See, e.g., Kaiser Aetna v. United States, 444 U.S. 164 (1979).
37. See Illinois v. Rodriguez, 497 U.S. 177 (1990); Payton v. New York, 445 U.S.
573 (1980).
38. An occupant can act on that presumption and refuse admission. Under the Fourth
Amendment, an occupant of property is provided a constitutional right to refuse consent to entry and search, and the assertion of that right cannot itself be considered a
crime. See Camara, 387 U.S. at 530-33; Schneckloth v. Bustamonte, 412 U.S. 218,
233 (1973). In Johnson v. United States, 333 U.S. 10, 14 (1948), the Court also noted
that “[a]ny assumption that evidence sufficient to support a magistrate’s disinterested
determination to issue a search warrant will justify the officers in making a search without a warrant would reduce the Amendment to a nullity and leave the people’s homes
secure only in the discretion of police officers.” In general, the inconvenience of filing
paperwork and articulating the basis for reasonable suspicion does not justify dispensing with the warrant requirement. Id. at 15. Consent granted as a submission to apparent
authority, rather than as a voluntary waiver of the right, also does not dispense with the
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Summer 2010
imate objectives of these efforts, requiring property owners to waive
their right to warrantless searches of the property may leave lawmakers
and municipal attorneys scrambling to defend the constitutionality of
their ordinances.39
In truth, consent to access may be the least problematic aspect of the
regulatory efforts, at least because timely access by law enforcement to
abate criminal or nuisance activity by trespassers will often serve the
owner’s interests as well as the public welfare. The problem, rather,
lies in the seemingly innocuous registration requirement: by registering
their properties as “vacant,” owners (including mortgagees, landlords,
and other owners not-in-residence) are effectively declaring to the world
not just that their houses are empty, but also that their properties are
nuisances,40 a consequence of the trend to equate property vacancy with
property neglect.41 Lists of vacant properties, in the possession of local
governments, may become the primary identifiers of problem neighborhoods and unsellable properties. If property value was a problem
before,42 registration of vacant properties may not help.
It is arguable that while local resources are squeezed from declining
tax revenues, vacant property registration ordinances permit lawmakers
requirement. Id. at 13. Moreover, mere suspicion that misdemeanors are being committed is insufficient to overcome the protections afforded to property owners, although
some minor trespasses are permissible. See Swint v. City of Wadley, 51 F.3d 988 (11th
Cir. 1995); Guin v. Riviera Beach, 388 So. 2d 604 (Fla. Dist. Ct. App. 1980).
39. See, e.g., Hometown Coop. Apartments v. City of Hometown, 495 F. Supp. 55,
60 (N.D. Ill. 1980) (point of sale inspection regulation held “unconstitutional under the
fourth amendment insofar as it failed to provide for a warrant as a prerequisite for the . . .
inspection.”). However, in Mann v. Calumet City, Illinois, the Seventh Circuit recently
upheld a point of sale inspection regulation, citing policy reasons that are echoed in the
vacant property regulations. See 588 F.3d 949, 952-53 (7th Cir. 2009) (arguing that “assuring full compliance with building codes is difficult after a building is built, because
most violations are committed inside the building and thus out of sight until a violation
results in damage visible from the outside.”). Of course, although the Mann controversy
encumbered the process of real property conveyance, it nonetheless involved the regulation of building code compliance and not (as here) mere property vacancy.
40. See, e.g., Aurora, Colo., Code § 22-641 (2009), available at http://www.
auroragov.org/stellent/groups/public/documents/article-publication/051707.pdf (referring to vacant houses as attractive nuisances).
41. See Nat’l Vacant Props. Campaign, Vacant Properties: The True Cost
to Communities 3 (2005), available at http://www.vacantproperties.org/latestreports/
True%20Costs_Aug05.pdf (“Vacant properties have been neglected by their owners,
leaving it up to city governments to keep them from becoming crime magnets, fire
hazards, or dumping grounds.”).
42. See E. Penn. Org. Project, Temple Univ. Ctr. for Pub. Policy, & Diamond &
Assocs., Blight Free Philadelphia: A Public-Private Strategy to Create
and Enhance Neighborhood Value 22-24 (2001), available at http://astro.temple.
edu/~ashlay/blight.pdf (discussing the relationship between economic circumstances in
neighborhoods, abandoned properties and blight).
637
to focus efforts to maintain neighborhoods in an economical way. In a
troubled real estate market such efforts may also help property owners,
who have an obvious interest in the maintenance of property values
(including the preservation of neighborhood quality), until market conditions improve.43 Given the gravity of the issue, it is also argued that
this regulatory tool strikes an appropriate balance between the rights
of property owners and the needs of the public welfare.44 On the other
hand, vacant property regulations pose special, perhaps unanticipated,
problems for owners and neighborhoods: owners of vacant homes now
find themselves having to pay for permission to receive no rent, worrying about what code violations will be found by their governmental
invitees, and dealing with the dual challenges of managing and marketing properties that have been labeled as nuisances.45 Although property owners must “learn how to deal with challenges associated with
handling vacant properties,”46 the current iterations of vacant property
regulation may do more harm than good.
43. Mary Ellen Podmolik, A chilling effect of the foreclosure crisis, Chicago
Tribune, Jan. 9, 2009, available at http://articles.chicagotribune.com/2009-01-09/
entertainment/0901070559_1_vacant-homes-vacant-buildings-foreclosed.
44. Schilling, supra note 10, at 130.
45. Podmolik, supra note 43.
46. Eric Lipton, Homeowners’ Hard Times Are Good for the Foreclosure Business,
N.Y. Times, April 5, 2009, at A11, available at http://www.nytimes.com/2009/04/06/
us/06convene.html?_r=1&ref=us.

Foreclosed, Distressed and Abandoned Properties

Transcription

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