«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 ...»
217 For purposes of this article, the terms abandon, abandonment, and abandoned shall be used in their common usage; that is, the loan documents should be understood to mean that a borrower who leaves his residence is one who intends to permanently move out of and does physically depart from the residence. Generally, common law abandonment requires a showing of intent to abandon the property and actual abandonment of it. Del Giorgio v. Powers, 27 Cal. App. 2d 668, 679–80 (1938). Thus, it is reasonable to infer that borrowers abandon without giving any thought to how the departure will affect his fee title.
218 See, e.g., Jones v. Wagner, 90 Cal. App. 4th 466 (2001) (discussing the sale of a foreclosed former partnership property); Hohn v. Riverside Cnty. Flood Control & Water Conservation Dist., 228 Cal. App. 2d 605, 613 (1964).
219 The strict legal rule of abandonment in California case law implicitly recognizes the typical borrower’s lack of concern about title when it declares that an owner in fee simple absolute cannot abandon his fee title. Gerhard v. Stephens, 68 Cal. 2d 864, 884, 886 (1968) (holding that owner of a profit a prendre can abandon such a fee interest since it is an “incorporeal hereditament” which interest will return to the estate out of which it was carved, as distinguished from a “corporeal hereditament” (i.e., a fee simple absolute title that represents “the totality of the possessory and corporeal rights of ownership in real property”), which cannot be abandoned, because “the reason appears to be that society cannot tolerate voids in the ownership of land”) (italics in original); Hunter v. Schultz, 240 Cal. App. 2d 24, 28 (1966); Carden v. Carden, 167 Cal. App. 2d 202, 209 (1959). But see Del Giorgio v. Powers, 27 Cal. App. 2d 668, 679–82 (1938) (recognizing the rule that one who holds an equitable title interest in a mining claim can abandon his interest).
2014] NATURE ABHORS A VACUUM AND SO DO LOCAL GOVERNMENTS 385 lender;220 or, (3) a borrower is not in possession of the property, which is occupied by a tenant that abandons the premises before the lease term ends, a holdover tenant, an unapproved subtenant, a trespasser, an adverse possessor, or some other person without consensual occupancy. In scenarios (2) and (3) the properties are occupied, but there is a breach of the loan or rental agreement, or a violation of law.221 This is not a question of whether there is a default since the lender has already filed a notice of default. The question is whether the property has since become vacant, because that is when the lender must start to maintain the property. Now, if the lender concludes the property is indeed vacant under hypotheticals (2) and (3) because the occupancy is not lawful, it will start its maintenance duties, which will surely please the city. However, if the lender determines the property is occupied and finds no breach of an agreement or violation of law, it will not begin maintenance. It is not unreasonable for a lender to draw this conclusion because a lender’s inspection could indicate nothing is amiss with regard to occupancy, and may delay from taking any action because it is not satisfied that there is a legal basis to conclude there is an unlawful occupancy. It may conclude there is a default but it is an immaterial one, it may be in communication with the borrower, or it may need time to weigh its options. The code enforcement official may not agree, depending on the official’s interpretation of the facts and personal discretion. Should that discretion be exercised against the lender, a fine or perhaps prosecution is sure to follow under the CVAPO’s strict liability standard. This would be an unjust result.
Take a different example. Suppose the borrower continues to make his loan payments and remains in possession, but because of hard economic circumstances refuses to incur extra costs for gardening, landscaping, or repairs.222 Instead, suppose that the borrower occupies the property but is such a bad steward that he allows weeds, debris, and other things to accuThis example assumes the owner-occupied provision in the trust deed requires the lender’s consent before the borrower vacates and leases the property or simply requires owner occupancy.
221 There are a considerable number of permutations from these basic hypotheticals when it is kept in mind that the CVAPO applies to all zoning districts, covering residential and commercial property, as well as improved and unimproved property. Though the matters of vacancy and the condition of the subject property will have been resolved long before the end of the five-year statute of limitation when an action to quiet title can be filed, the example of an adverse possessor illustrates the ambiguity of the CVAPO—adverse possession of the property would be “not legally occupied” before the end of the statute of limitation but would be afterward. An adverse possessor must satisfy the common law elements of adverse possession, California Maryland Funding, Inc. v. Lowe, 37 Cal. App. 4th 1798, 1803 (1995) (actual possession that is open and notorious, continuous and uninterrupted for 5 years, hostile and adverse, and under either color of title or claim of right), and the statutory elements, CAL. CODE CIV. P. § 325 (2013), in order to obtain a judgment to quiet title in his name.
222 Picture the all-too-frequent call to code enforcement personnel by the typical neighbor who complains about another’s untidy property.
mulate.223 Debris and disrepair exist, yet the property is occupied. Is it “not legally occupied” because it is in violation of public nuisance law? Is it abandoned because it “shows evidence of vacancy”? A lender should not be faulted for its decision because it is reasonable to infer that the city’s definition of “abandoned” property224 is understood to make the private loan agreement the standard for what is legal occupancy and vacant property.
Even so, the operative standard for the official remains the CVAPO. As a result, the respective interpretations may be at odds.
Further, the CVAPO is dissimilar to the ordinance in Ross in that the phrase “evidence of vacancy” is vague and leads to confusion. Here, a lender’s inspection could reveal the borrower or another occupies the property. As the lender conducts its monthly inspections, it could discover that the property has become untidy and unsightly. The question for the lender is whether these conditions are “evidence of vacancy” such that it must begin to maintain the property, notwithstanding the fact that there is an occupant.225 While the circumstances of disrepair in the CVAPO’s definition may indicate the property is vacant, they do not conclusively establish that it is.
Though the definition of the phrase delineates several examples of what suffices as evidence, the definition uses broad, general terms such as “overgrown” and “accumulation.”226 There is no indication of how overgrown the lawn, shrubs, trees, or vegetation must be or what amount of accumulated newspapers, circulars, mail, trash, junk, or debris must exist before the evidence is sufficient to deem the property abandoned. Unlike the disputed terms in Ross, the terms “overgrown” and “accumulation” are quantifiable. The CVAPO, however, provides no such descriptive guidance.227 In addition, “evidence of vacancy” can be shown by past due utility notices, but such notices that are mailed, not posted at the home, may not be visible because the notices are inside the house or in a mail box. Yet “evidence of vacancy” is defined as “any condition visible from the exterior,”228 which creates confusion as to what type of accumulated notices are “evidence” under the CVAPO. The definition of the phrase also includes 223 Code enforcement personnel certainly are aware that borrowers (or tenants) have different value systems and work ethic, making it a common occurrence that some occupants will allow weeds to grow, debris to accumulate, or structures and the property to fall into disrepair.
224 CHULA VISTA, CAL., MUN. CODE § 15.60.020 (2013) (“[A] property that is vacant and is under a current notice of default....”).
225 CHULA VISTA, CAL., MUN. CODE § 15.60.040 (2013) (“If the property is occupied but remains in default it shall be inspected by the responsible party/beneficiary, or their designee, monthly until (1) the trustor or another party remedies the default or (2) it is deemed abandoned.”). Property that is deemed abandoned is vacant or shows evidence of vacancy, id., and must be maintained and kept secure, id. at §§ 15.60.050, 060.
226 CHULA VISTA, CAL., MUN. CODE § 15.60.020 (2013).
2014] NATURE ABHORS A VACUUM AND SO DO LOCAL GOVERNMENTS 387 statements by certain persons (including passersby) that the property is vacant as evidence.229 While a statement might be understood on its face, it requires a lender to accept the statement blindly, without knowledge of underlying circumstances (such as the borrower’s long term work assignment or vacation) or of the relationship between the person who makes the statement and the owner–borrower (that could be contentious) or of the speculation by the person who made the statement. The statement may not be reliable, but sufficient in the mind of the code enforcement official.
The phrase “neighborhood standard” in the CVAPO is distinguishable from the view protection ordinance in Ross. The neighborhood standard refers to properties located within a 300-foot radius of the subject property, but those properties may display disparate levels of maintenance, quality of construction and landscaping, and accumulation of papers, mail, trash, junk, and debris. This calls for a subjective categorization of the neighborhood properties based on subjective evaluations of “curb appeal,” cleanliness, and aesthetic design features of the structure and landscape. The definition next requires a count of the number of properties in each category to determine which category is in the majority. The categorizing and counting are even more challenging when the 300-foot radius could include any combination of residential, commercial, improved, or unimproved properties.
The lender and the city personnel could very well categorize and count the properties within the radius quite differently. Neither the subjective categorizing nor the counting is involved in the view protection ordinance in Ross.
Finally, the director of development services can impose additional maintenance and security requirements on the lender,230 but the lender is not informed what those might be until after it has approved and funded a loan that later falls into default. That is, it would be very difficult if not impossible for a lender to factor into its cost of doing business those additional, yet unknown potential expenses it may incur should the loan go in to default.231 The CVAPO gives a short list of possible requirements, yet it leaves the list open-ended. Though it would be reasonable for an ordinance to give some flexibility to code enforcement personnel, it is equally reasonable for an ordinance that targets lenders to provide much more specificity. This is reasonable not because lenders are not sophisticated, but rather because they are heavily regulated and must account for the costs they incur to write loans, the costs they incur for poor and nonperforming loans, and the costs for administration of these details and reports to government regulators that 229 Id.
230 CHULA VISTA, CAL., MUN. CODE § 15.60.070 (2013).
231 This is not a far-fetched concern in a state like California that has no qualms about enacting carbon gas emissions regulations regardless of the exorbitant price tag. Green regulations could be mandated for housing structures too. The CVAPO does make clear, however, that maintenance does not include the installation of landscaping if it did not previously exist. CHULA VISTA, CAL., MUN. CODE § 15.60.050 (2013).
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disclose the percentage of poor and nonperforming loans within their portfolios. The more prudent step would be to delineate with more specificity what would be required of a lender that assumes the borrower’s maintenance duties.
The vagueness creates opportunities for substantial differences of opinion and could result in a fine as well as criminal prosecution of a lender that measures the facts on the ground contrary to the conclusions of code enforcement officials. Such results could occur because, after a notice of default is recorded, a lender that guesses incorrectly about whether the property is “not legally occupied,” shows “evidence of vacancy,” or does not conform to the “neighborhood standard” will expose itself to such sanctions if it does not begin to maintain the property.232 Moreover, the director could impose further maintenance and security requirements on the lender that further deepens the financial losses on the subject loan.233 Even in those instances where a lender responds promptly to a borrower’s monetary default, it may draw a different conclusion about these critical trigger points and find itself the subject of a fine or prosecution, dependent upon the personal discretion of the code enforcement official.
Therefore, the CVAPO is likely to be declared void as unconstitutionally vague. The rule of law is diminished because mortgage lenders are made vulnerable to the imposition of fines and criminal prosecution over a rational difference of opinion about unlawful occupancy and the standard of maintenance.
D. Are Abandoned Property Ordinances Fair and Equitable?
As described in Part II, it was a variety of governmental agencies, officials, and government sponsored enterprises that had just as much (if not more) to do with creating the financial crisis and the volume of foreclosures as other participants in the financial sector.234 Abandoned property ordinances were not enacted to address the root causes of the financial crisis;
rather, local legislatures had the opportunity to address and hold accountable a key factor—the borrower. In dealing with the fallout, such ordinances do not hold the borrower accountable, even though he most likely moved down the street and could be located without difficulty.235 Extant regulaCHULA VISTA, CAL., MUN. CODE § 15.60.090, 15.60.110 (2013).
233 Id. at § 15.60.070.
234 See supra Part II.