Real Property Law in Emerging Markets

1
Real Property Law in Emerging Markets

• Harland L. Miller, III
• Visiting Fulbright Scholar
• Pravna Fakultete
• Univerze v Mariboru
• Lecture 6 21.3.2008

2
Foreclosure

• Lender can start a foreclosure.
• Two types of foreclosures
• Sale
• Strict Foreclosure

3
Judicial foreclosure

• The lender must go to court and the court will
  oversee the foreclosure process. It will
  determine the amount due, a redemption period for
  the borrower, and whether a sale will be held.

4
Redemption period

• A final right of a borrower or debtor to pay-off
  a loan and restore ownership of the real property
  free and clear of the mortgage. In a judicial
  foreclosure this right of redemption is
  established by the court.

5
Foreclosure sale

• The sale of real property pursuant to a mortgage
  deed whereby the sale proceeds will be used to
  satisfy the amount owed the lender.
• Any excess proceeds will be paid to junior
  creditors, if any, and then to the owner of the
  real proeprty.

6
Deficiency

• If the foreclosure sale does not realize enough
  funds to satisfy the mortgage debt, the borrower
  may still be held liable for the remaining
  amounts due the deficiency amount.

7
Strict Foreclosure

• A court decree in a foreclosure action that will
  vest title in the foreclosing lender on default
  of payment by the borrower and the expiration of
  any redemption period established by the court
  without any sale of the property.

8
Sub-Prime Mortgages
9
Secondary Mortgage Market

• Banks would not hold on to their mortgage loans.
  They sell them on the secondary mortgage market.
• Mortgages were pooled and sold to investors in
  the form of securities.

10
Contributing Causes

• Unsound underwriting of loans
• Interest only payments
• Variable Rate loans with artificially low rates
  at the beginning
• 125 loan to value ratios

11
Result

• Due to unsound (and in some cases unscrupulous)
  loan underwriting, consumers ended up with loans
  they could not afford.

12
Real Estate Market

• The real estate boom did not last forever. (It
  never does)
• Result FALLING PRICES

13
Investor Confidence

• Sub Prime Mortgage Credit Crunch Oil prices
  Gold Weak US
• RECESSION !

14

• EMINENT DOMAIN

15
Eminent domain

• The lawful power of the government to take
  privately owned real property to be used for a
  public use.

16
U.S. Constitution Fifth Amendment

• No person shall be held to answer for a capital,
  or otherwise infamous crime, unless on a
  presentment or indictment of a grand jury, except
  in cases arising in the land or naval forces, or
  in

17

• the militia, when in actual service in time of
  war or public danger nor shall any person be
  subject for the same offense to be twice put in
  jeopardy of life or limb nor shall be compelled
  in any criminal case to be a witness

18

• against himself, nor be deprived of life,
  liberty, or property, without due process of law
  nor shall private property be taken for public
  use, without just compensation.

19
Vermont Constitution, Chapter 1, Article 2nd

• That private property ought to be subservient to
  public uses when necessity requires it,
  nevertheless, whenever any persons property is
  taken for the use of the public, the owner ought
  to receive an equivalent in money.

20
Condemnation Proceeding

• Civil Complaint in U.S. District Court
• Authority for taking
• Intended use of property
• Description of property
• Interest or estate to be taken
• Identification of owners

21
Commencement of Action

• Personal Service of notification on the property
  owners.
• In rare circumstances, a Court may allow service
  by publication (advertisement in Newspaper). This
  must be supported by an affidavit.

22
Two Elements

• Public Necessity (a question of fact that the
  court or jury must decide not the government)
• Damages (what must the Government pay the
  property owner for the value of the property
  taken)

23
Public Necessity

• Three types of takings for public use
• 1. Private ownership to Public ownership (Roads,
  Hospital, Jails)
• 2. Private ownership to Private party who makes
  property available for public use (Railroads,
  public utility, football stadium)

24
Public use (cont.)

• Private ownership to private parties to serve a
  public purpose.

25
Kelo v. City of New London

• The concept of pubic purpose was the issued
  raised by the property owners opposing the
  taking.
• Intended result
• Creation of jobs
• Increased tax revenues

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Opponents position

• No elimination of public harm (public saftey) or
  exercise of police powers
• The taking was merely transferring ownership
  from one group of private individuals to another
  (wealthier) group with no real public purpose.

27
Holding

• The majority decision in a 5-4 vote upheld the
  legality of the taking, finding there was a
  sufficient public purpose to satisfy the public
  use requirement in the Fifth Amendment.

28
Reaction to the Kelo decision

• Approximately 30 states have enacted legislation
  of some sort that restricts or prohibits the
  States right to use eminent domain for private
  use.

29
Just Compensation

• Two elements need to be determined
• Scope of property rights to be taken
• Fair Market Value of those rights

30
Scope of Property Rights

• Fee Simple - the land on which the highway is to
  constructed.
• Easement in perpetuity - Drainage easement for
  water run-off
• Temporary Easement Extra land needed for
  construction only.

31
Valuation

• If the parties cannot agree on the fair market
  value, the court or jury must decide.
• Each side presents evidence (the Battle of the
  Appraisers)

32
Court Order

• The final decision of the Court will set forth a
  specific finding of necessity, identify what real
  property is to be taken and the value to be paid.
  This Court Order will be recorded in the land
  records.

33
Voluntary Takings

• Most Eminent Domain cases do not go to trial. It
  is expensive and time consuming for the
  Government and they will make every possible
  effort to reach an agreeable purchase price with
  the private land owners.

34
State Government

• State Governments and municipal governments also
  have condemnation powers.
• The procedures and safeguards are very similar.