Transcript Property and Radically Changed Circumstances John A. Lovett Associate Professor

Property and Radically
Changed Circumstances
John A. Lovett
Associate Professor
Loyola University New Orleans
College of Law
Starting Premise

Within a matter of hours,
Katrina brought radical
change to Southeastern
Louisiana and the
Mississippi Gulf Coast.
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Homes, workplaces and
the lives of more than
three million people were
turned upside down.
The long-term impact on
hundreds of thousands of
people is still unclear.
My Focus


Is not on causes of the
levee failures or the
reasons why the
government evacuation
and rescue efforts failed.
But on the long term
impact of Katrina, and
other instances of radically
changed circumstances, on
property law, property
relationships, and property
regimes.
A Cautionary Statement


It’s too soon to pass judgment.
Legal system, political system, property
markets, and communities are just beginning
to absorb the changes wrought by the storm.

Don’t give New Orleans a failing grade yet.
Another Cautionary Statement

Let’s make our assessments in a rich
comparative context.
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Not just Louisiana v. Mississippi or New
Orleans v. Biloxi.
Not just New Orleans v. Chicago (1871).
Not just New Orleans v. San Francisco
(1906).
Let’s consider Tokyo, Warsaw, Kobe,
Mexico City, Grand Forks, Holland,
Hiroshima . . . .
Identifying Radically
Changed Circumstances

Four Overarching Characteristics

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Sudden (Happens over course of a few months, weeks, days, hours
or less).
Unexpected (No one could predict with certainty if or when in the
near future the change would occur).
Intense (Penetrating, effecting multiple aspects of life, markets,
communities at once).
Geographically Pervasive (Affects more than one person, one
piece of property, one block, or even a neighborhood).
Six Hypotheses About Property and Radically
Changed Circumstances

First a Fact: Instances of
radically changed
circumstances do occur.
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Katrina, Rita
Tsunami in Indian Ocean
9/11 New York City
San Francisco Earthquake of
1906
1992 Riots in L.A.
Flood in Grand Forks in 1997
Earthquake in Bam, Iran
War in Lebanon
Hypothesis 1

Property law is generally not well
designed to respond to radically
changed circumstances.

Although some structures do help mediate
stress of change.
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Insurance: private and semi-public forms
like National Flood Insurance Program.
Some legal doctrines: change of
circumstances doctrine for terminating an
easement or servitude, waste doctrines.
Ex ante contractual planning can help.

Typically found in certain kinds of relatively
short-term, finite relationships (landlord and
tenant, mortgagor and mortgagee, buyer
and seller in an executory contract).
Hypothesis 2

When radical change happens, we see that
default rules really do matter.

Especially for longer-term, indefinite relationships.
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Concurrent Owners (tenants in common, co-owners,
joint tenants, tenants by the entirety, owners of
condominiums, owners of homes in common interest
community).
Dominant and servient owners in a servitude or
easement relationship.
Partners in a partnership, shareholders in a closely held
corporation.
Hypothesis 2

When radical change happens, we see
that default rules really do matter.

And even for an in-between category of
property relationships that are temporally
finite but whose precise ending point is
uncertain.

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Life estate holders and reversion or remainder
holders.
Usufructuaries and naked owners.
Beneficiaries of a trust and trustee.
Hypothesis 3

Well designed markets, default rules, and
government intervention can help ease
transitions within property relationships in
times of radically changed circumstances.

Will Louisiana’s Road Home Homeowner
Assistance Program meet the challenge?
Hypothesis 4

The best designed property
default rules
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Facilitate quick, consensus
oriented decision making that is
necessary to preserve property.
Avoid costly anti-commons
problems.
Promote exit and entrance into
and from property relationships
when reasonable consensus or
super-majority decision making is
impossible.
Respect rights of minority interest
holders without impeding
majority from moving on.
Hypothesis 5

Community wide decisions redirecting or altering land use
patterns in a dramatic way are difficult to obtain.
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Maybe impossible given inertia of pre-existing patterns, expectations,
and connections.
Top-down changes in land use planning may not work.
Decisions that are made need to be as simple and easy to understand
as possible.
Hypothesis 6

Radically changed
circumstances can
simultaneously reinforce
dramatically different
conceptions of property.

Property as fungible commodity.
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Property as exit.
Property as symbol of attachment
to community, place, spiritual and
civic commitments.

Property as entrance.
What to Watch For in the Next
Four Years

Will Louisiana’s Road Home program enable citizens and
property owners to make the transitions they need to
stabilize their lives, rebuild their communities, preserve their
assets, or transform their property into more productive
form?
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Can it do all of these things at once?
Will default rules of property help or become barriers to achieving
these goals?
Louisiana’s Road Home Housing
Programs: Estimated Costs
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Homeowner Assistance
Workforce and
Affordable Rental
Housing
Homeless Housing
Developer Incentives
State Administrative
Costs
Housing costs
previously approved
Total
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$6,347,400,000
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$1,535,700,000
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$25,900,000
$32,100,000
$120,900,000
$18,000,000
$8,080,000,000
Road Home Homeowner
Assistance Program
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Goals:
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Provide compensation
for homeowner’s
uninsured losses due
to Katrina and Rita.
Encourage people to
stay in or return to
Louisiana and rebuild
communities.
Road Home Homeowner Assistance
Program: Basic Structure
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Three Options
1.
2.
3.
Repair or rebuild your home on site.
Sell to the LRA (State agency set up to
run recovery) and buy a new home
elsewhere in LA.
Sell to the LRA with no obligation to buy
a new home in the State.
Road Home Homeowner
Assistance Program: Incentives

Grants under Options 1
or 2 (Cap of $150,000)

Lesser of:
Replacement Cost
- Other Compensation
- 30% moral hazard penalty
or
Pre-Storm Value
- Other Compensation
- 30% moral hazard penalty

Grants under Option
3 (Cap of $150,000)
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Lesser of:
Replacement Cost
- Other Compensation
- 30% moral hazard
penalty
or
60% of Pre-storm value
- Other Compensation
- 30% moral hazard
penalty
Road Home Homeowner Assistance
Program: Escrow Accounts

Under Options 1 and 2, grants will not
go directly to eligible homeowner, but
into escrow account administered by
mortgage lender or closing agent.

Funds can only be used for approved home
repair/rebuilding or purchase of new home.
Road Home Homeowner
Assistance Program: Obligations
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Under Options 1 and 2:
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Homeowner must agree to:
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Maintain flood and hazard insurance on
property.
Rebuild or build to new building code and
latest FEMA Advisory Base Flood
Elevations.
Occupy home for at least three years.
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Will probably be enforced with forgivable lien.
Subrogate unresolved insurance claims to LRA.
Road Home Homeowner
Assistance Program: Risks
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Complexity and supervision of funds could bog down
administration of program.
Incentives might not be worth it.
Barriers for homeowners in atypical situations (non
married co-owners, usufructuaries and naked owners)
could be difficult to overcome.
Road Home Homeowner
Assistance Program: Potential
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Might encourage more homeowners to
stay in Louisiana than a pure
compensation plan like Mississippi’s
would.
Might provide useful opportunity for
land assembly and redevelopment if
many homeowners take options 2 or 3.
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What “Baker Bill” wanted to do.
Might lead some property owners to
consolidate home ownership in the
hands of those who value it most or
will invest more in their homes and
communities.