Also, the notion of liberty. Not just ownership. What does "liberty" mean? Autonomy: the capacity to be your own person, and to control your stuff. This is the capacity to retreat from other people, or the ability to oust other people. This is a particularly strong issue with the elderly and the insecure. Which the Jacques probably are. Brandeis, J., describes autonomy (the right "to be left alone") as the fundamental civil liberty.
Beyond just liberty, there's also privacy. The ability to exclude others from your property, if you wish.
Oh, and separation of powers: who decides how land gets used? The individual owner. This power isn't in the government. This is also an embodiment of federalism (the geographic dispersal of power-- among the states, generally): sharing the power among all the people.
We want to encourage investment and the purchase of real property. So we'd better make the holding of property worth working for. We want to develop a middle class, and this requires confidence in the sanctity of property.
We don't want centralized decisions-- we want market decisions. This means we want Steenberg to bid, on a market, and find out what it's worth to the Jacques to use their property. Now the Jacques weren't having any of this, but it is one approach.
Egalite: we're dealing with sympathetic people (elderly rural retirees) vs. a profitable corporation. We'd kind of like to transfer money from the latter to the former. Also, we don't like it when people take the law into their own hands (c.f. Keeble, but not, on the other hand, in Pierson).
So, rational people should have bargained, when asked what it's worth to let Steenberg cross. Should the law take account of paranoia or irrationality on the part of the parties? On the one hand, yes. If a dentist is afraid of HIV from patients, the system shouldn't force people to perceive reality differently, even if his belief is irrational.
Other possible motivations for the Jacque finding. Perhaps the jury system is itself irrational. Only the US has jury for tort damages. If this is such a brilliant system, how come we're the only ones? Well, juries are the last bastion of bona fide democracy, and they too are part of the federalist principle.
And finally, punitive damages. This, too, is pretty unique to the US. Deterring the behavior of the wrongdoer is a good thing. They are a vehicle of egalite: they transfer wealth in the direction that makes us feel good. They give vent to the jury's retributive anger at the act in question. This is a good thing, too, economics aside. We (WI) go so far as to declare that legislation is unconstitutional if it limits non-actual damages. So we know that this is something the court is enthusiastic about.
What about arguments for Steenberg?
What's this "property" that is so sacred? Our $100,000 is property, isn't it? What's up with that? We're re-allocating property in the name of defending ownership: that's crazy. This is more or less equal to the whole value of the Jaques' property. Let's review that due process and takings material from the constitution-- this is a violation of property rights.
If we make it so easy to take money in court proceedings, why go to all the trouble to build up a big bank account? If it's so much more fragile than real property, then let's not have it. But that will be a big bad economic problem.
Also, there are "easements of necessity" granted to landlocked properties, so their value can be protected. The mobile home purchaser isn't quite in that position, but there is some analogy.
Also, for buyers of mobile homes, the price of delivery just went way up. Keeping prices down, and keeping markets efficient is the basic premise behind the whole of commercial law. Moreover, we're driving up the price of housing for people who can barely afford it to begin with.
Courts should be very hesitant to overturn a legislature (this undermines democracy, when you supplant legislated policy with judicial policy). The legislature defined the punishment for trespassing (a Class B forfeiture). The maximum penalty is $1,000. Who is the court to disagree with the elected representatives of the the people of Wisconsin?
The courts should also defer to the executive branch agencies. The Sherriff issued a $30 citation-- he has that discretion. If we're not happy with the way trespassing is enforced, we can elect a new sherriff. The court is effectively saying that this sherriff's judgment can be overruled.
It may be satisfying to stick it to the deliberate wrongdoer, but it's also not very nice: we're penalizing agression by waxing agressive ourselves, basically. It's an unattractive policy, in many arenas. This is why we don't allow private prosecution in criminal law: we don't want angry people prosecuting one another-- we want rational calm people doing it. Also, along the lines of contract, damages should be actual damages. If you give people more, it's not a rational system, not a market-based system.
Precedent, also. This is quasi-criminal: there was a statutory violation, and the penalty here is quite severe. When we're dealing with such areas, the law should be solicitous of the defendant, and the law should be crystal clear. We've got precedent that says there can be no punitive damages without actual damages: we ought not to ignore this.
We're supposed to have remedies for damage to property, personal harm, or reputation. We shouldn't artificially distinguish precedent, and then try to use it on the other hand.
The law shouldn't cater to irrational people, by the way. We've got precedent that goes both ways on this.
Also, the fear of adverse possession is pretty far-fetched.
The "my home is my castle" theory is similarly far-fetched. This isn't a home-- it's the back 40. And anyway, homes aren't castles any more-- there are so many people nowadays that we need to accomodate one another from time to time.
Juries are expensive, unreliable, inconsistent, etc. They shouldn't be given free reign like this. Who is going to invest if $100K can just be taken because a jury gets miffed (especially over a $30 issue)?
Punitives are so random that they don't really deter. Heck, the death penalty doesn't deter. And anyway, why would you want to deter a rational act (taking a house across an efficient pathway)? And besides, the punitive damage doesn't just go to the plaintiffs: a large portion of it goes to their lawyers. Where's the policy goal in that?
Punitive damages are controversial to begin with-- there's litigation about whether their constitutional. In some cases, the USSC has ruled that in some instances, they're excessive and a violation of due process. The standard isn't exact, but more than a single-digit multiplier seems to shock the conscience (and with $1 in actual damages, the max would be $9).
Possibly the court goes through all these motions about property, etc., as a hidden defense of punitive damages.
Remember: you can't tell the holding of the case by reading the opinion. Maybe it is that property is sacred. But at least some of the time, they go the other way, so we suspect that it might not be. It's hard to know for sure what the court was really talking about. Our task is to come up with an argument IN THE CASE that serves our needs.
Only real estate and automobiles even have titles. It all stems from livery of seisin.
US <- (all landowners, except native Americans, trace their ownership back to the US government)
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A
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B
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Hall
/ \
Morse Clark (1975)
(1872) |
Curtis
Now Clark sells to Curtis without disclosing the mortgage status.
Why should Curtis prevail? Well, precedent. And in something as serious as the real estate market, we want certainty and precision even more than in some other areas. So the recording statute should be vindicated. That's important. If you can't rely on the recording statute, nobody will ever know if the property they're trying to buy is legitimately for sale.
It would be cumbersome and expensive if you had to check all transactions in the whole chain of title for later recordings. Also, if you record, and no one can find it, you didn't record.
Should have recorded the minute he got the mortgage. But one day he does record, but they don't check the index properly. Pathetic.
A "quiet title" action: a decree from the court about who owns some property.
Curtis can also that Morse was really careless (he had 4 opportunities, over several years) to correct the problem. And we don't protect careless owners.
OK, then why should Morse win? All Curtis had to do was look at one more line in the grantor index, and this would be a non-issue.
Also, the real culprit here is Clark, not Morse. Curtis can sue Clark over this problem; sadly Morse might not be able to. So maybe the court should let Morse win so Curtis can sue Clark (because he can).
Morse, incidentally, could maybe sue Hall, but it follows (from the fact that he took out a mortgage, and we're now in litigation) that he doesn't have the money.
In this case, the offer to purchase is conditioned on the buyer obtaining "appropriate financing." But that term is gapingly ambiguous: how much is that? 66%? Or (in this case), more than 100%? What interest rate would be the proper amount? Over what term? Who is the lender? Is it a mortgage or a land contract? Completely unspecified.
So even though both parties thought there was a contract, there never was one, because the terms are too mushy. This is basically the same reasoning as behind the statue of frogs: we don't want ambiguity in real estate transfer, else we'll have frauds.
The bank here had a formal requirement (the upper limit on what a single borrower could take out). But then they say, why don't you incorporate? You could own all the shares, and we'd loan you $50K against the corporation and $50K to you. This is the bank's own officer suggesting this plan. What was the limit for, then? Alternatively, you could put the house up in trust, and borrow against it that way.
A land contract is a financing device pertaining to the sale of property. You can't take out a land contract if you already own the property. Usually you pay a downpayment, and promise to make monthly papers. The seller retains a security interest in the property until the last payment is made.
There was a clause in this particular contract saying that if the vendees default, the vendor two options. An accelleration clause: if the vendee defaults, the vendor can demand the whole debt. Basically it means the borrower has 30 days to come up with all the money. Here, that is combined with another clause: not only can they sue for the money, they can foreclose on the property itself (strictly): title instantly and without formality reverts back to the seller. So the deed, in this case, is not held by the buyer, but by an escrow agent for this purpose. There are two deeds, actually: from seller to buyer, and from buyer to seller. Both are with the escrow agent, who will tender them to the appropriate party under the right conditions. So suddenly the buyer becomes just a tenant, and can be evicted.
The buyer has a problem with this. Why? They defaulted! They say it should be an equitable mortgage, not a land contract, in spite of the fact that it says "I am a land contract" right on it. If terms in it are more mortgage-like (e.g., they say the seller can sell the property at public sale and take a deficiency judgment for the difference between the sale price and the contract price), it would be a mortgage. You see that in mortgages, not land contracts.
So there's a missed payment. All the apparatus starts moving. The vendees attempt to pay the full outstanding debt (they've got the cash, it seems): the vendor can get exactly what they wanted, including interest, inconvenience, attorneys' fees, and all of this today not five years in the future.
The seller decides that the property would be preferable, however. The buyer acknowledges that there would be default, but wants there to be some sort of grace period (asking the court to set a "reasonable period"). For mortgages, that period is set by statute, but here the buyer is asking for an equitably granted period of redemption.
The court distinguishes the precedent offered by saying that if there was an equity of redemption, it wasn't a land contract, it must have been some sort of mortgag-y thing. Here, there was no such thing.
We do want to protect lenders: we want them to be willing to loan, so people wil be able to buy property. Still you might say this was excessive. From the borrower's perspective, this is a contract of adhesion: the difference in positions is such that the buyer needs to just accept the seller's terms or not. The buyer needs a place to live, and the seller just has a financial interest. A "leision" contract is a contract that is too disproportionate (this is a term from Civil Law countries).
Now maybe we don't like results that force people out of homes. That's not really a constitutional right, but it is a recurring policy theme.
Note that not only is the buyer without a home, the buyer has probably very little financial security. There's a kind of quasi-equity here: a bank would loan you money against this, at some point. The result is gravy for the seller, but catastrophe for the buyer-- it's disproportionate. Heck, why not include a pound of flesh among the remedies?
Freedom of contract includes being free from state interference in what terms you will agree to. If the state intervenes in contracts, they're not contracts-- they're regulations, or orders from someone else. If you don't have the power to contract, you don't have the power to make your own life. If you make it easy for the government to get in there, you lose liberty. Not only that, but making decisions politically, as opposed to economically, is a quick path to bankruptcy on a national scale.
If we grant a "reasonable period," where is certainty? Since reasonable will vary according to context.
Separation of powers issue as well: what's allowed under mortgage vs. land contract is defined statutorily. Why should the courts supercede that?
Also, if we grant the buyer's request, then costs will just go up: we won't get greater equality of bargaining power-- it's just that sellers/lenders will demand higher prices because of the increased duties imposed on them.
Condominia are a relatively new instrument of ownership-- only a few decades old. So are co-ops, but there the co-operative owns the whole building, and individuals own stock in the company that owns the building. In a condo, you own your own apartment, but the public areas are owned in common, and these are managed by the association (which collects dues). Fail to pay, and you can lose your ownership interest...
Note that the two parties have different memories about the phone conversation: the owner thinks the call was a generous one with a longer period, and the association representative feels otherwise. This is why we have a statute of frauds: we want serious business like this to be in writing.
Anyway, the payment comes in one hour late. Just one hour. So, under Bishop, or if free contract were our only policy, the owner would lose. Here, however, the court feels that this is too close-- condos are regulated. The purpose of the regulation is to have commercial reasonableness. Reasonableness means some degree of flexibility. Not only that, but the buyer at auction got a 95% discount off the market price, which seems really a bit extreme. And there was only one bidder. So maybe we smell a rat there: the forecloser is supposed to try and represent the defaulting owner, and that seems not to have happened. Plus, the bidder was told what the minimum bid should be. So this doesn't meet the standard of commercial reasonableness. Therefore the sale can be upset, and the owner can have a chance to cure.
So Jacque is vindicated, but Bishop is not. And neither is free contract.
Big housing shortage after WWII. This is why we have rent control, still, in NY-- they never got away from this.
So the congress enacts a policy saying that "we want reasonably available housing." (would ANYBODY disagree with this?) Then they delegate to the FHA the responsibility of getting it done. Is this a good way to do things? Also, does congress have the power to build houses? There's nothing about that in the Constitution...
Anyway, how is congress going to achieve the goal of having reasonably affordable housing? By guaranteeing loans. How does this help the problem? By encouraging lenders to offer loans: this is the maximum security there can be-- if the Federal Government defaults on you, the whole country is down the tubes. Anyway, so loans become available, and at a favorable rate. And this means more housing will be built, and that will end the housing shortage.
Anyway, so some guy defaults. The lender says, "why thanks for guaranteeing this, feds! Pay us please, and now you are the lender." And the Feds then say, "gosh, we don't think that borrower can pay," and they foreclose. And at the foreclosure sale, the lender (the Government at this point) buys the place.
Note that the court says that FHA's policy is to pay the fair market value, but also not to pay more than the unpaid indebtedness. Those are not necessarily consistent.
This is in Idaho, and Idaho law specifies a 1 year period of redemption. The Feds say that's inconsistent with Federal law, and so their law takes precedence over Idaho law. But did Congress say that? Not really-- this is the FHA's assertion. Perhaps they are exceeding their authority (this notion of "arbitrary and capricious" exertion of power will come up in con law and admin law). Congress may not have meant to authorize the FHA to overrule Idaho law: this may be excessive.
Article 1, Section 9 also specifies that no money can be drawn from the federal treasury without an appropriation from Congress. Congress often makes promises (like the promise to pick up a guarantee on someone else's liability) that are worth a great deal. Basically, though, this appropriation talk means that Congress has to set aside a fund to cover the debt. They have never done this, and that provision is mostly a dead latter. Still, we could point out that this is mighty casual on Congress's part.
That's minor, though, compared to the issue of pre-emption. The Supremacy Clause says that Federal law comes second (between the Constitution and state law). So the Federal government MAY pre-empt Idaho law. The question is: HAS it done so?
The court says yes: we need to protect the treasury on default. They want their money now (no equity of redemption) to protect themselves against possible devaluation of the property. Basically: the redemption reduces the protection to the lender-- only an idiot would bid on property tied up this way.
So this was a valid contract, the buyer signed. the end.
The dissent says that really there are no third-party bidders, so the real protection should be to require the government to pay a fair price. Then there'd be less risk. Redemption statutes, in other words, protect the borrower, not the lender.
Also, this contract was drafted by the FHA. If it's ambiguous, then it's their fault. Likewise, there's a federalist principle here: we should defer to the state legislature, because they're the principle voice of democracy.
Homestead law, by the way, was a major part of the federal government's notion that it should not own everything. The feds gave away 40 acre parcels (mostly in the midwest) to anyone who would till and improve it. That generosity ended in Alaska about 50 years ago. Another meaning of "homestead" is "exempt from creditors." Each state defines homestead differently (law books, for example, are part of your homestead in WI). In many jurisdictions, a spouse has a homestead interest in real property owned by the other spouse.
An argument not raised in the opinion: the government can pre-empt, but their contract says "to the extent permitted by law..." Well, whose law? Federal law, says the FHA, but ambiguities should be interpreted in the buyer's favor, not FHA's.
So is the Federal Government a benevolent representative of all the citizens, or the ultimate colossal unequal bargainer? This is a tension that will recur in many cases.
Why should taxes go up just to protect a defaulter? Why should the law fall over backwards to protect defaulting tenants (or owners)? This just results in costs passed on to others. Plus, we don't want the government in the property management business.
Also, free contract, as in Bishop: the guy waived his redemption rights.
One other interesting issue: the federal court is deciding whether federal power vested in a federal agency trumps state law. Not surprising how they decide-- just as a point of sheer realism, the fact that federal courts have jurisdiction here sort of predetermines the outcome.
Now arguments against the court's holding...
Pre-emption should be hard. It's required to be explicit, at the very least. That didn't happen here. If congress wanted to give the FHA the power to pre-empt (instead of doing it themselves in person), they should have had to say so, so the states have notice, and can resist.
Plus, again, free contract: the FHA, who had all the power, wrote the contract for a mortgage (not a land contract), which should have an equity of redemption. They should have to live by that rule. Both sides, therefore, have very strong citations to Bishop.
Also, if this clause is unconscionable, the buyer can't really waive these rights. Suppose, for example, that congress passes a moratorium on evictions. Now I want to loan you money on the security of your house: I say that in order to borrow the money, you have to waive that moratorium. That's a classic case of unconscionability: you can't waive rights created by statute.
Also, what does this do to the lending business? We tell private lenders that they have to abide by the state laws, but then we let the feds circumvent all the rules. This demoralizes private industry, and ultimately leads to a contraction of the market we're supposed to be facilitating. If the government waives some responsibilities for itself, how can it hold others accountable?
And anyway, there are perfectly legitimate purposes for redemption statutes! We don't want to be driving owners into bankruptcy or homelessness: promoting those things is harmful.