Foreclosed, Distressed and Abandoned Properties

78 Pages·2011·2.03 MB·English

Presenting a live 90‐minute webinar with interactive Q&A
Foreclosed, Distressed and Abandoned Properties: 
Legal Challenges for Municipalities
Leveraging Ordinances, Judicial and Agency Proceedings, Land Banks and Other Tools 
to Minimize Burdens and Maximize Opportunities
TUESDAY, AUGUST 23, 2011
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
TTodday’’s ffacullty ffeatures:
Dwight H. Merriam, Partner, Robinson & Cole, Hartford, Conn.
David S. Silverman, Partner, Ancel Glink Diamond Bush DiCianni & Krafthefer, Chicago
Julie A. Tappendorf, Partner, Ancel Glink Diamond Bush DiCianni & Krafthefer, Chicago
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

opened….”5 In the end, the public officials all recognized reinvestment and redevelopment. In promoting
that economic distress was not a basis for a variance: such development, the specific intent of this article
“Ron Pizer–Planning Commissioner, said the Planning is to allow for the use of vacant and under-utilized
Commission could not make the findings for the variance lands and buildings through the use of flexible
either; said the Pavilion project had other elements, such as development and redevelopment standards;
being a distressed property that had been vacant for many sustainable development practices, including
years.”6 compatible architectural design; environmental
performance standards, and by strictly prohibiting
Overlay Districts any use that would substantially interfere with the
For other than the smallest communities, I prefer overlay development, continuation or expansion of such
districts because they: uses within this district.7
• allow for great variation in the criteria for Apparently, the first use of that flexible overlay district
How about that old aphorism, “when all you’ve got is designation; was in the fall of 2007, when a pharmacy, Rite Aid, applied
lemons, make lemonade?” There are opportunities with • may vary in the size of the area; for approval to assemble four properties, one of them
distressed properties to turn them into beneficial uses, but, • are, as map amendments, usually characterized developed with a Jiffy Lube business, and the three others
in most instances, some type of zoning relief will be necessary. It is as “legislative” and, as such, are most easily vacant.8
axiomatic that distressed properties are likely to be older properties defended; and
that are physically, functionally, and economically obsolescent in • can permit site-specific determinations when The Los Angeles Approach
some form. Along with such obsolescence typically comes the coupled with a somewhat discretionary approval The City of Los Angeles, California, has had an Adaptive
unhappy status of being a nonconforming use. And along with that process, such as a special use, or conditional use, Reuse Ordinance since 1999. The ordinance is intended to
comes the inability to expand or alter the use because one or more permit. “incentivize” the conversion of underutilized commercial
of the dimensional requirements at the site have been exceeded, or For example, Springettsbury Township, Pennsylvania, buildings into housing in the downtown area. Since its
the use proposed is simply not permitted. has adopted a flexible development overlay district—a adoption, numerous older commercial buildings have been
The alternatives for relief are several. They start with the most floating zone—to enable assembly of distressed properties converted into thousands of apartments, condominiums,
conventional approaches and run to the possibility of a new type so as to facilitate redevelopment. It was adopted as part live-work units, artists’ lofts, and other housing. The
of zone, created especially for these recent times of the credit crisis of zoning regulation changes enacted in June, 2007. The concept has been extended into other areas of the city,
and distress in the real estate economy. purpose section of the regulations states: including Chinatown, Lincoln Heights, the Hollywood
§ 325-88. Purpose. The Flexible Development and Koreatown CRA project areas, and Central Avenue
Conventional Rezoning District (F-D) is hereby established as a district between the Santa Monica Freeway and Vernon Avenue
Usually, the best place to start is in the world of the status quo, in which regulations are intended to permit and (enabled by a specific plan for that area).9 Here is the
the as-of-right, and the zoning ordinance as it exists. If you have encourage flexibility in development to encourage purpose section for the downtown adaptive reuse area:
an underdeveloped, older group of apartments that is economically 26. Downtown Adaptive Reuse Projects
distressed and the zoning allows a higher density in a preferable (1921—published 1924) to save regulations from constitutional (a) Purpose. The purpose of this Subdivision is to
layout, then an as-of-right application would be the typical first attack when an individual property was rendered valueless, they revitalize the Greater Downtown Los Angeles Area
choice. The instances where this is possible are few and far have, instead, become the easy way out of many ordinary zoning and implement the General Plan by facilitating
between. limitations, except when someone challenges their issuance. The the conversion of older, economically distressed
applicant for a variance can seldom truly meet the “practical or historically significant buildings to apartments,
Permits for Nonconforming Uses difficulty” and “unnecessary hardship” requirements. However, live/work units or visitor-serving facilities.
A special use or conditional use permit—same thing, different most variances that are granted are never appealed and, thus, This will help to reduce vacant space as well as
name—can provide a helpful avenue of escape from the constraints escape scrutiny. preserve Downtown’s architectural and cultural
of the nonconforming use. These site-specific discretionary Variances have come into play in dealing with distressed past and encourage the development of a live/
approvals can allow for limited physical expansion, and even some properties. In Long Beach, California, a property owner recently work and residential community Downtown, thus
change in use for properties that predate the existing zoning. For requested a variance to eliminate the three-foot side-yard setback, creating a more balanced ratio between housing
example, a two- or three-family house that is nonconforming as to in order to further the reconstruction of a nonconforming duplex. and jobs in the region’s primary employment
the number of units, and nonconforming as to side yards and lot There was some discussion during the hearing as to whether the center. This revitalization will also facilitate the
coverage, might be allowed to expand its footprint to add a much- work could have been done without the variance. However, one development of a “24-hour city” and encourage
needed first-floor bathroom, or a deck to the rear of the building. commissioner “…commented that the benefit of doubt should mixed commercial and residential uses in order to
Modest improvements to existing nonconforming properties can be given especially when upgrading a distressed property.”1 improve air quality and reduce vehicle trips and
assist in keeping them from becoming obsolescent and strengthen Ultimately, the Planning Commission granted the variance 5-0, vehicle miles traveled by locating residents, jobs,
them economically. subject to the condition that the applicant demonstrate that a hotels and transit services near each other.10
Similarly, such site-specific discretionary approvals can be structural alternative was not possible.2 Eligible buildings in the downtown project area include
applied to distressed properties to reposition them. Criteria for the Gardner, Massachusetts, in its list of distressed properties, makes buildings constructed in accordance with building and
application of the distressed properties special use permit might a point of giving information on where to get a zoning variance.3 zoning codes in effect prior to 1974; buildings constructed
include location in a designated area and evidence that the current And in Hermosa Beach, California, following the recommendations after 1974 are eligible if they meet the specified criteria,
size, layout, or use is uneconomic. Economic hardship is never a of the Director of Community Development and the City Manager, including the zoning administrator’s finding that the
basis for a variance, but it can be for a special use permit. Speaking the City Council upheld the denial of a variance for a banquet building “is no longer economically viable in its current
of variances …. facility.4 Testimony in support of the variance included claims uses or uses.”11
of economic need, supported by the Executive Director of the In addition to the findings otherwise required, the zoning
Variances Hermosa Beach Chamber of Commerce and Visitors’ Bureau, administrator is required to find that the uses of property
Variances are the Swiss Army Knife™ of land-use permitting. who said “the business was important to the economic health of surrounding the proposed location of the adaptive reuse
Intended by the drafters of the Standard State Zoning Enabling Act the City, because $500,000 had gone toward sales tax since [it] project “will not be detrimental to the safety and welfare
200 Kansas Government Journal • July 2009 Kansas Government Journal • July 2009 201
of prospective residents;” that the project will not displace viable in an existing building or as part of a new mixed-use The traditional variance is always available, but may not be IMLA is a non-profit, professional organization that has been an
industrial uses; and that the project complies with the standards for development within a single-structure. legally defensible in most cases. advocate and resource for local government attorneys since 1935.
dwelling units, joint living and work quarters, and guest rooms, as Otherwise, all other requirements and standards An approach for most communities that has proved workable IMLA serves more than 2,500 member municipalities and local
set forth in the Code.12 established by other chapters of this title, as well as is the overlay district, designating targeted areas in advance, and government entities in the United States and Canada, and is the
any other applicable metropolitan government, state or qualifying individual buildings and properties under definitive only international organization devoted exclusively to addressing
Nashville and Davidson County federal regulation, shall apply to the development and use criteria. The overlay district approach may include a quasi- the needs of local government lawyers. Further information about
The Metropolitan Government of Nashville and Davidson of properties shown on discretionary, site-specific review process by incorporating the IMLA is available at IMLA’s website, www.imla.org
County is fortunate to have one of the country’s leading land- the final site plan. In case of conflict between the standards special use or conditional use permit.
use planners, Rick Bernhardt, as the Executive Director of the of this section and other chapters of this zoning code, the (Author’s Note: This article was originally prepared for ALI-ABA
Metro Planning Department. The regulations for adaptive reuse provisions of this section shall control, except for Council Land Use Institute, in August 2008.).
of commercial areas within the Urban Zoning Overlay District approved plans such as planned unit developments, urban
About the Author
along arterial and collector streets are exemplary.13 The Metro design overlay districts, and redevelopment districts.16
Dwight H. Merriam founded Robinson & Cole’s Land Use Group
Planning Commission, by the way, really likes overlay zones. In If further relief is needed, alternative design standards are
in 1978. He represents governments, land owners, developers,
my review of the Zoning Code, I came across ten other overlay provided for where a proposed residential development cannot
and individuals in land use matters. Dwight is a Fellow and Past
districts, including a Historic Overlay District, Greenway Overlay comply with the standards, and allow an applicant to seek a special
President and of the American Institute of Certified Planners, a
District, Floodplain Overlay District, Airport Overlay District, exception from the Zoning Board of Appeals. That board—and
former Director of the American Planning Association, Vice-Chair
Adult Entertainment Overlay District, Urban Design Overlay this is smart—is prohibited from granting some variances and,
of the American Bar Association of State and Local Government,
District, Institutional Overlay District, Impact Overlay District, where the variance would involve a PUD, the board must consider
a Fellow of the Royal Institution of Chartered Surveyors, a Fellow
and a Neighborhood Landmark District.14 the Planning Commission’s recommendation.17
of the American Bar Foundation, a Fellow of the Connecticut Bar
The Urban Zoning Overlay District ordinance starts with this A slide show in PDF from a 2004 presentation to the Metro
Foundation, a Counselor of Real Estate, a member of the Anglo-
preamble: Planning Commission, explaining how the Adaptive Reuse
American Real Property Institute, and a member of the American
WHEREAS, there are existing, vacant non-residential Ordinance works, is available online.18
College of Real Estate Lawyers. He teaches land use law at the
buildings and underutilized properties along arterials and
Vermont Law School, and has published five books and 200
collector roadways within the Metropolitan Government Conclusion
articles. Dwight received his B.A (cum laude) from the University
of Nashville and Davidson County as shown on the Major Most distressed properties are physically, functionally,
of Massachusetts, his Masters of Regional Planning from the
Street Plan; and economically obsolescent. They will almost certainly be
University of North Carolina, and his J.D. from Yale.
WHEREAS, residential uses would benefit existing, nonconforming dimensionally, and probably as to use. Repositioning
marginally viable commercial and retail areas by fostering these properties to restore their economic viability requires zoning 1. Long Beach, Ca., City Planning Commission Minutes (July 19, 2007), available at
pedestrian-oriented neighborhoods due to daily services, relief. Conventional map changes and text amendments under the http://www.longbeach.gov/civica/filebank/blobdload.asp?BlobID=16842, or Google “Long
Beach Planning Commission Minutes, July 19, 2007,” and scan the hits.
amenities, and shops being located within walking existing ordinance are possible in many cases, and the as-ofright 2. Id.
3. City of Gardner, Department of Community Development and Planning, Distressed Property
distance, if not within the same building as one lives or existing discretionary approval approach frequently may work.
List (2006), available at http://www.gardner-ma.gov/forms/DistressedProperty.pdf.
thereby reducing traffic on local roads and interstates and However, it may be necessary to create a somewhat discretionary 4. Hermosa Beach, Ca., Resolution No. 05-6389, To Deny the Conditional Use Permit and Variance
for Union Cattle Company (Apr. 26, 2005).
in turn, improving the regional air quality by providing and site-specific approach using the special use or conditional 5. Hermosa Beach, Ca., Minutes of the Regular Meeting of the City Council (Apr. 26, 2005) available
residential densities along major transit commercial use permit. The availability of this type of relief for older, at http://www.hermosabch.org/departments/cityclerk/agenmin/cca20050426/minutes.html.
6. Id.
corridors; and, nonconforming properties may help prevent them from becoming 7. Springettsbury Township, Pa., Zoning Ordinance 07-08, art. XX F-D, § 325-88 (2007). A copy
of the ordinance is available at http://springettsbury.govoffice.com/vertical/Sites/%7B4CA0C2A3-
WHEREAS, encouraging residential development where obsolete and economically distressed by enabling modest changes
83C3-431C-8CE2-5C40D45B8BA2%7D/uploads/%7B3A51BB12-1EA3-4674-A968-
growth can be easily accommodated due to the long- in dimension, bulk, and use. F2D3F0A4967C%7D.PDF or, to avoid this impossibly-long address, just Google “Springettsbury
zoning.” It’s probably worth taking a look at and saving for future reference.
term capital investment by the Metropolitan Government 8. Rite Aid gets green light for Springetts site, THE YORK DISPATCH, Nov. 27, 2007.
of Nashville and Davidson County in services and 9. Los Angeles City Council Expands Adaptive Reuse Incentives, available at http://livableplaces.
org/policy/adaptive.html.
infrastructure will help to preserve Nashville’s single- 10. LOS ANGELES, CA., CODE, ch. I, art, 2, § 12. 22-A, 26 (2001). The entire Code is available
at http://www.amlegal.com/nxt/gateway.dll?f=templates&fn=default.htm&vid=amlegal:lapz_ca
family neighborhoods and increase Nashville’s housing
or just Google “Los Angeles zoning code” and click on “planning and zoning code.” A 229-page
stock.15 Los Angeles Zoning Code Manual and Commentary can be found at http://www.ladbs.org/zoning/
zoning_manual.pdf. A particularly useful resource is the book, City of Los Angeles, Adaptive
The design standards are remarkably loose, being: Reuse Program (Feb. 2006) at http://www.scag.ca.gov/Housing/pdfs/summit/housing/Adaptive-
a. All Residential Uses: The standards of this section shall Reuse-Book-LA.pdf. For the downtown program, go to http://lafd.org/prevention/pdfforms/
adaptive_reuse_ord.pdf, or Google, “Los Angeles downtown adaptive reuse.”
apply only to a building or portion thereof converted to 11. LOS ANGELES, CA., CODE, ch. I, art, 2, § 12. 22-A, 26(d) (2001). According to the Los
Angeles Adaptive Reuse Program book mentioned in the preceding endnote, “In making this finding,
residential use, and any addition to an existing building
the Zoning Administrator shall consider the building’s past and current vacancy rate,
for residential use, where a minimum of 40% of the existing and previous uses, and real estate market information.” Id. at 30.
12. Los Angeles, Ca., Adaptive Reuse Incentive Areas Specific Plan, Ordinance No. 175,038, §
building’s gross floor area is devoted to residential use, 6 (2003).
as explicitly shown on the approved final site plan under 13. Metropolitan Government of Nashville and Davidson County, Tenn., Ordinance No. BL2004-
492 (Feb. 02, 2005), available at http://www.nashville.gov/mc/ordinances/term_2003_2007/
the authority of Section 17.40.170.A of this title, except bl2004_492.htm, or go to www.nashville.gov and search “BL2004-492.”
14. METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY, TENN.,
as provided below for new construction. The standards of
CODE, ch. 17.36, Overlay Districts (2008). The Code is available using the Online Library at
this section shall not apply to any building proposing to www.municode.com.
15. Metropolitan Government of Nashville and Davidson County, Tenn., Ordinance No. BL2004-
devote less than 40% of the gross floor area to residential 492 (Feb. 02, 2005).
uses. 16. Id. at § 2.
17. Id. at § 11.
b. Single-Family and Two-Family Residential Uses: 18. See ftp://ftp.nashville.gov/web/mpc/Adaptive_Reuse_Ordinance.pdf.
Single-family and twofamily uses shall be permitted only This article was first published by the International Municipal
Lawyers Association (IMLA), 7910 Woodmont Ave., Bethesda,
MD. 20814, and is reproduced with the permission of IMLA.
202 Kansas Government Journal • July 2009 Kansas Government Journal • July 2009 203
LIND_LEAD_MACRO_FINAL 3/6/2011 7:09 PM

Can Public Nuisance Law Protect Your Neighborhood from Big
Banks?
Kermit J. Lind1
I. INTRODUCTION
This article considers how the law of public nuisance might be applied to
protect neighborhoods from the destructive forces of the mortgage crisis.2 For
more than thirty years I have been a close observer and a participant in
community development at the neighborhood level in Cleveland, Ohio.3 I now
supervise a law school clinical practice that provides legal counsel to an array
of nonprofit community development corporations that, for more than thirty-
five years, have been renewing housing and neighborhood sustainability in a
city going through major social and economic change.4

1. Clinical Professor of Law, Assistant Director of the Urban Development Law Clinic, Cleveland-
Marshall College of Law, Cleveland State University. I acknowledge with thanks the help of my research
assistant, David Moore, and the helpful suggestions of colleagues Tom Wagner and Joe Schilling. This article
is the product of years of clinical practice and has been nourished by contributions from many students and
professional colleagues. The responsibility for errors or omissions, however, is mine alone.
2. The term “foreclosure crisis” is frequently used to describe the phenomenon that I refer to as the
“mortgage crisis.” The difference between the two terms is significant. The increase in foreclosure actions has
produced stresses on, and demonstrated inadequacies in, the various procedures for foreclosing the right of
redemption held by borrowers, as well as the procedures for selling property that is subject to mortgage or
judgment liens. The flood of foreclosures is only a symptom of a broader, more complicated set of problems
that starts with bad lending and borrowing practices and is exacerbated by the pooling and servicing of
mortgages for securitization of various investment products. This problem is further exacerbated by borrowers’
and lenders’ abandonment of care of the collateral, and results in the contamination of whole neighborhoods by
the spread of abandoned, blighted houses. Foreclosure is but one part of this larger crisis.
3. The history of community development in Cleveland has been documented in numerous articles,
lectures, and classes by my colleagues Professors Norman Krumholz and Dennis Keating. See generally
REBUILDING URBAN NEIGHBORHOODS: ACHIEVEMENTS, OPPORTUNITIES, AND LIMITS (W. Dennis Keating &
Norman Krumholz eds., 1999); Norman Krumholz & W. Dennis Keating et al., The Long-Term Impact of
CDCs on Urban Neighborhoods: Case Studies of Cleveland’s Broadway-Slavic Village and Tremont
Neighborhoods, COMMUNITY DEV., Dec. 2006, at 33; see also, Kermit J. Lind, The Perfect Storm: An
Eyewitness Report from Ground Zero in Cleveland’s Neighborhoods, 17 J. AFFORDABLE HOUSING &
COMMUNITY DEV. L. 237 (2008).
4. The Urban Development Law Clinic is an integral part of the academic program at Cleveland State
University’s Cleveland-Marshall College of Law. Serving as a teaching law practice, the Urban Development
Law Clinic provides advanced law students with supervised experience advising nonprofit community
development organizations whose mission involves housing and community development. Students enrolled in
the Urban Development Law Clinic have opportunities to: (a) engage in real estate, transactional, and
corporate governance matters with small nonprofit community developers; (b) work on the development and
enactment of public policies and programs designed to advance and protect the community development
Electronic copy available at: http://ssrn.com/abstract=1796063