The mortgage and real estate crisis in America will inevitably shape the way housing consumption is viewed across the U.S. But what's even more obvious – yet less highlighted in the media – is the dramatic impact the mortgage fallout and the subsequent rescue measures will have on property laws and our view of contract law in America.
Take eminent domain, for example. It's a legal concept that allows the government to take private property for public usage. Recently, the concept regained footing in California when some lawmakers and a firm known as Mortgage Resolution Partners shopped the idea of letting government seize underwater mortgages from investors, giving them freedom to refinance debts.
Essentially, the move would be a takings from investors, who also have rights in the bundle of property sticks.
Much analysis has been released since then, and many believe eminent domain for the purpose of refinancing mortgages will not survive as a concept.
But where the dignity of contract and property rights begins and ends turns out to be less distinguishable as more case law shows parties willing to argue against the original contract in real estate dealings.
Eminent domain has been controversial ever since 2005 when Supreme Court Justice David Souter became one of the deciding votes in favor of eminent domain in the Kelo v. New London case. In Kelo, private property was seized for a development by the government under the auspices that the project qualified as a public usage. Individuals were so appalled by Justice Souter's perceived turn against private property rights that his own private farm became protest material for individuals angry about the court majority's perceived assault on property rights.
In the wake of the financial crisis, upholding the original contract is another issue impacting all professionals in the world of mortgage finance and real estate.
Law360 released a report Monday on the Texas Supreme Court's decision to take a case in which a property developer claimed under contract it had a right to re-take property since the city's use is not in line with the original terms of the sale contract. The developer sold the property, so the city could create a park. However, it maintained a buy-back option if the city decided to pursue another usage. When the city built a library instead, the developer sued under the language of the original contract.
Now, with the roles reversed, can the party that sold a piece of property to the city enforce a written contract to maintain his bargained for right?
Either way, we live in a time when the original terms of a property or mortgage contract are easily turned arouond. The risk is that in a market needing certainty to move forward, "certainty" is becoming harder to find.