«JOURNAL OF LAW, ECONOMICS & POLICY VOLUME 10 SPRING 2014 NUMBER 2 EDITORIAL BOARD 2013-2014 Steve Dunn Editor-in-Chief Crystal Yi Meagan Dziura Sarah ...»
168 Friends of Davis v. City of Davis, 83 Cal. App. 4th 1004, 1012 (2000) (“To be valid, zoning regulations must be expressly or impliedly based upon a finding by the governing body of the municipality that such regulations are necessary for the general welfare of the community.”) (citation omitted).
169 See supra Part III.B.2.
the city in general and for their department specifically, but having “a sense of things” is not the standard for such enactments. As happens all too often, the clouds may gather but the storm does not come.
Despite these deficiencies, in the end a court that classifies the CVAPO solely as a traditional public nuisance regulation would most likely rule that the CVAPO is valid, notwithstanding the lack of a substantial finding of blight because of the current broad interpretation of police power which permits the imposition of strict liability without an adjudication of fault. Under present day jurisprudence, the speculation of a threat such as blight likely would be sufficient to rule that the objective of blight-free homes and neighborhoods rationally relates to the CVAPO’s imposition of maintenance obligations on lenders as a reasonably necessary means for the general welfare.
4. The Validity of the CVAPO as a Land Use Regulation That Impairs Contracts Typical public nuisance ordinances do not modify private agreements.
Because the CVAPO significantly alters a contract that grants substantial property rights, it is necessary to ask: Is an ordinance that rewrites a contract provision to shift property maintenance obligations to the lender when the borrower defaults on the loan and abandons the property valid as the proper means to achieve the objective of preventing blight that might result from an increase in the volume of foreclosures without a finding by the local legislative body that blight actually exists? California courts have not had the opportunity to address this question.
Across the country there was an astonishing increase in the number of foreclosures at the time of the subprime mortgage fiasco.170 Local government became concerned about the potential problems that might follow.
For many, the focus became the prevention of blight.171 Government can respond, but only when it has been established that there is an existential crisis before it takes measures to alter private contracts. This section of the article will review the courts’ treatment of rent control ordinances because it provides guidance for abandoned property ordinances. Rent control price fixing, which was thought by some to be a good way to deal with housing shortages, interferes with private property rights of landlords and tenants, and alters private landlord–tenant agreements. Nonetheless, rent control ordinances are upheld in part because there is a substantial finding that a housing shortage actually exists.
Just as ordinances that adopt a redevelopment plan to combat blight have been held valid,172 rent control ordinances have been upheld as constitutional.173 Generally, redevelopment ordinances do not directly change private agreements. Rent control ordinances, on the other hand, directly change an agreement by setting the price of rent. A local rent control regulation is not made invalid merely because it intervenes in private contractual relationships that modify the private parties’ arrangement of rights and obligations.174 The focus of the analysis is not the urgency that may exist or the rent price that is set, but rather whether the ordinance reasonably relates to the legitimate governmental purpose.
[T]he United States Supreme Court’s previously described enlargement of its view of the scope of the police power to regulate prices and its consequent repudiation of any ‘emergency’ prerequisite for price or rent controls find their parallels in our own decisions. It is now settled California law that legislation regulating prices or otherwise restricting contractual or property rights is within the police power if its operative provisions are reasonably related to the accomplishment of a legitimate governmental purpose and that the existence of an emergency is not a prerequisite to such legislation.175 In Birkenfeld v. City of Berkeley, the California Supreme Court pointed to the fact that the city’s charter amendment stated the conditions that connected the objective of the public health and welfare with the rent control regulation, which the court found to be within its police power.176 For it to be a constitutional rent control regulation, the court ruled that the municipality was also required to make a finding of “a housing shortage and its concomitant ill effects of sufficient seriousness” before a rent control ordinance is considered a “rational” solution.177 The Birkenfeld court viewed this requirement as a protection against local government actions that are arbitrary, capricious, and unreasonable.178 A regulation may itself express its purpose to identify the relationship between the regulation and its objective of public health and welfare, but it is necessary for the local authority to do more. Under Birkenfeld, local government need not establish that an emergency exists, but it must make a finding that a serious problem actually exists.179 Because rent control ordinances are analogous to the abandoned property ordinances in the way 172 Boelts v. City of Lake Forest, 127 Cal. App. 4th 116, 120, 136–37 (2005); Friends of Mammoth v. Town of Mammoth Lakes Redevelopment Agency, 82 Cal. App. 4th 511, 560 (2000) (holding that the town’s proposal was not valid because there was no evidence showing that the area suffered from blight); County of Los Angeles v. Glendora Redevelopment Project, 185 Cal. App. 4th 817, 832 (2010).
173 Birkenfeld v. City of Berkeley, 17 Cal. 3d 129, 135–36 (1976).
174 Id. at 142–43.
175 Id. at 158 (citations omitted).
176 Id. at 160, n.28.
177 Id. at 160; see also Berman v. Downing, 184 Cal. App. 3d Supp. 1, 4 (1986).
178 Birkenfeld, 17 Cal. 3d at 161.
179 Id. at 160.
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they change contracts and interfere in property rights, a court is likely to rule that an abandoned property ordinance must satisfy the same criterion before it is found to be valid. Thus, a local government acts within its police power if it can show that its ordinance makes a finding of a serious problem that needs to be solved.
In accordance with this reasoning, the Chula Vista City Council stated the purpose of blight prevention in the subject ordinance itself.180 But it also was required to make a finding that blight actually existed before the CVAPO was enacted. As detailed above, though, the Chula Vista councilmembers did not make a finding of blight,181 which makes the CVAPO invalid under the Birkenfeld reasoning.
Property owners and lenders retain rights that are unfortunately subject to the courts’ expansive view of police power and local governments’ expansive application of them. Extraordinarily broad police power is the current norm, but it has had detrimental affects, especially when a contract is rewritten to interfere with property rights.182 The lender–borrower loan agreement manifests the parties’ bargained-for choices for the assignment of rights, duties, and risks. Abandoned property ordinances like that in Chula Vista ignore the standard provision that obligates the borrower,
which states in part:
7. Preservation, Maintenance and Protection of the Property; Inspections. Borrower shall not destroy, damage or impair the Property, allow the Property to deteriorate or commit waste on the Property. Whether or not Borrower is residing in the Property, Borrower shall maintain the Property in order to prevent the Property from deteriorating or decreasing in value due to its condition.183
The pertinent part of the typical trust deed provision that such ordinances rewrite states:
9. Protection of Lender’s Interest in the Property and Rights Under this Security Instrument.
If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Interest or to enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including 180 See CHULA VISTA, CAL., MUN. CODE § 15.060.010.
181 See supra Part III.B.2.
182 See generally infra note 190 and related text. In another case involving a real property guaranty agreement, the guarantor sought to “upset a judgment in favor of” the lender’s successor, but the court, which affirmed the lower court’s grant of a motion for summary judgment, stated: “We cannot rewrite contracts when the economy suffers a severe downturn.” Gray1 CPB, LLC v. Kolokotronis, 202 Cal.
App. 4th 480, 482 (2011).
183 California-Single Family-Fannie Mae/Freddie Mae Uniform Instrument, Form 3005 01/01, § 7 (italics added).
2014] NATURE ABHORS A VACUUM AND SO DO LOCAL GOVERNMENTS 379 protecting and/or assessing the value of the Property, and securing and/or repairing the Property.... Securing the property includes, but is not limited to, entering the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have utilities turned on or off. Although Lender may take action under this Section 9, Lender does not have to do so and is not under any duty or obligation to do so. It is agreed that Lender incurs no liability for not taking any or all actions authorized under this Section 9.184 Abandoned property ordinances completely reverse the contractual maintenance and security obligations in a way that arbitrarily abrogates the parties’ intent and encourages the borrower’s disregard for contractual commitments. A borrower in default can walk away with what is in effect impunity; he is permitted to externalize a part of his home ownership costs onto lenders and future borrowers. This type of regulatory scheme undermines the concept of private contract law and freedom of contract. Vested contract and property rights are rendered less valuable because they are less certain; the holder of such rights cannot rely on legislatures or courts to protect his rights. Nor is it clear that a lender will achieve through foreclosure full recovery of the fees and costs it incurs under the obligations the ordinance transfers to it.185 Perhaps worst of all, the CVAPO concentrates more control and power in government, rather than limiting government to the role of creating an environment in which private activity can flourish, albeit balanced by individual responsibility and accountability. Rather than regulation of land use, contract and property rights abuse is what demarks abandoned property ordinances like the CVAPO.
Curiously, the Recitals say nothing of the borrower as the source of the problem of abandoned residences and potential blight.186 It is borrowers who vacate their homes in complete disregard of all contractual obligations to occupy, maintain, and secure their property. By giving the borrower a pass as if he has made no personal commitment to the lender, the CVAPO obliterates the protection granted to the lender by Cal. Civ. Code § 2929, which declares that a borrower shall not impair a mortgagee’s security.187 In fact, it is arguable that the city council created a defense for the borrower, who can now claim that in effect, the CVAPO releases the borrower of his contractual obligation to not impair the security notwithstanding the protection afforded a mortgagee under Cal. Civ. Code § 2929.188 Chula Vista councilmembers bypassed the borrower and instead focused on “the 184 Id. at § 9 (italics added).
185 See infra Part IV.B.3.
186 See supra notes 122–28.
187 CAL. CIV. CODE § 2929 (West 2012) (“No person whose interest is subject to the lien of a mortgage may do any act which will substantially impair the mortgagee’s security.”).
188 In contrast, the ordinance in Las Vegas expressly states that the regulation does not create or imply a cause of action in favor of any person other than the city, and adds that no act of the lender creates a duty or obligation to or creates a cause of action in favor of anyone other than the city. See LAS VEGAS, NEV., MUN. CODE §§ 16.33.090(A)–(B) (2013).
responsibility of out of area, out of state lenders and trustees” and their failure “to adequately maintain and secure” the property.189 An apt quotation from Hettinga v. United States, captures the severity
of the local government’s abandoned property ordinance:
First the Supreme Court allowed state and local jurisdictions to regulate property, pursuant to their police powers, in the public interest, and to “adopt whatever economic policy may reasonably be deemed to promote public welfare.” Then the Court relegated economic liberty to a lower echelon of constitutional protection than personal or political liberty, according restrictions on property rights only minimal review. Finally, the Court abdicated its constitutional duty to protect economic rights completely, acknowledging that the only recourse for aggrieved property owners lies in the “democratic process.” “The Constitution,” the Court said, “presumes that, absent some reason to infer antipathy, even improvident decisions will eventually be rectified by the democratic process and that judicial intervention is generally unwarranted no matter how unwisely we may think a political branch has acted.”....
The hope of correction at the ballot box is purely illusory. In an earlier century, H.L.