Protecting Status: the Mortgage Crisis, Eminent Domain, and the Ethic of the Homeownership

Fordham Law Review Volume 77 Issue 3 Article 1 2008 Protecting Status: The Mortgage Crisis, Eminent Domain, and the Ethic of the Homeownership Rachel D. Godsil David V. Simunovich Follow this and additional works at: https://ir.lawnet.fordham.edu/flr Part of the Law Commons Recommended Citation Rachel D. Godsil and David V. Simunovich, Protecting Status: The Mortgage Crisis, Eminent Domain, and the Ethic of the Homeownership, 77 Fordham L. Rev. 949 (2008). Available at: https://ir.lawnet.fordham.edu/flr/vol77/iss3/1 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact [email protected]. Protecting Status: The Mortgage Crisis, Eminent Domain, and the Ethic of the Homeownership Cover Page Footnote * Professor of Law, Seton Hall University School of Law. The authors would like to thank Carl Coleman, Jim Freeman, Tristin Green, Solangel Maldonado, and Jon Romberg, as well as all of the participants in Brooklyn Law School's faculty colloquium, and Seton Hall School of Law's summer faculty workshop for constructive suggestions on earlier iterations of this Article. I would also like to thank Daniel Gottleib for superb research assistance, and Ronald Day, of the University of Pennsylvania Law School, for his tremendous library research assistance in the fall of 2007. ** J.D., magna cum laude, Seton Hall University School of Law; B.A., Political Science, summa cum laude, University of California, Los Angeles. This article is available in Fordham Law Review: https://ir.lawnet.fordham.edu/flr/vol77/iss3/1 FORDHAM LAW REVIEW Vol. 77 December 2008 No. 3 CONTENTS ARTICLES PROTECTING STATUS: THE MORTGAGE CRISIS, EMINENT DOMAIN, AND THE ETHIC OF HOMEOWNERSHIP ................. Rachel D. Godsil 949 & David V. Simunovich WHITE CARTELS, THE CIVIL RIGHTS ACT OF 1866, AND THE HISTORY OF JONES V. ALFRED H. MAYER Co...... Darrell A. H. Miller 999 INTENTIONAL SEX TORTS ............... Deana Pollard Sacks 1051 NOTES INTERPRETING THE PHRASE "NEWLY DISCOVERED EVIDENCE": MAY PREVIOUSLY UNAVAILABLE EXCULPATORY TESTIMONY SERVE AS THE BASIS FOR A MOTION FOR A NEW TRIAL UNDER RULE 33? ........ Mary Ellen Brennan 1095 SENTENCING LUXURY: THE VALUATION DEBATE IN SENTENCING TRAFFICKERS OF COUNTERFEIT LUXURY GOODS .... Jana Nicole Checa Chong 1147 PROPER ASSERTION OF THE DELIBERATIVE PROCESS PRIVILEGE: THE AGENCY HEAD REQUIREMENT ................................ Shilpa Narayan 1183 ARTICLES PROTECTING STATUS: THE MORTGAGE CRISIS, EMINENT DOMAIN, AND THE ETHIC OF HOMEOWNERSHIP Rachel D. Godsil* David V. Simunovich** Homeownership is in crisis. Millions of families are at risk of foreclosure as they are caught between declining housing values and rising interest payments on adjustable-ratemortgages. The primary concern for such families is not that they will become homeless-mostfamilies who lose their homes could afford to become renters-but rather that they will lose their status as homeowners. Forfamilies required to sell their property by the government's use of eminent domain, a similar issue arises, as the 'fair market value" of some homes (the standard measure of compensation) is generally not enough to allow the family to purchase another home. The harm of losing one's status as homeowner has afar-reachingimpact at both the individual and collective levels. Property ownership ties one to the larger community in myriad ways. As compared to renters, homeowners-even those with the same income, education, and other socioeconomic characteristics-tendto be more civically active and more apt to engage in market transactionslinked to their homes. Losing this link to the larger market and community will harm a family's long-term prospects. When many families lose these connections, whole communities suffer. The link between the mortgage crisis and the full-scale financial meltdown has led to bipartisan support for a degree of government * Professor of Law, Seton Hall University School of Law. The authors would like to thank Carl Coleman, Jim Freeman, Tristin Green, Solangel Maldonado, and Jon Romberg, as well as all of the participants in Brooklyn Law School's faculty colloquium, and Seton Hall School of Law's summer faculty workshop for constructive suggestions on earlier iterations of this Article. I would also like to thank Daniel Gottlieb for superb research assistance, and Ronald Day, of the University of Pennsylvania Law School, for his tremendous library research assistance in the fall of 2007. ** J.D., magna cum laude, Seton Hall University School of Law; B.A., Political Science, summa cum laude, University of California, Los Angeles. FORDHAM LAW REVIEW [Vol. 77 intervention unseen since the Great Depression. In this Article, we explore why homeownership is so highly valued-and whether the loss of homeownership status should impel government action. We conclude that this loss does warrant government intervention-but also argue that the myopic focus on homeownership absent an adequate regulatory regime and a broader economic agenda has had dire effects. The families caught by the subprime mortgage debacle were often targeted by predatory lenders because of their membership in vulnerable groups. The government's failure to prevent this exploitative behavior then requires its intervention now. However, it is crucial to ensure that government intervention does not create insurmountable barriers to entry for aspiring homeowners or moral hazard. Accordingly, our status-preservationistapproach would protect only those who would have received loans had sound lending practices been utilized and would counsel against the view that homeownership alone is adequate to ensure healthy communities. Rather, homeownership has in the past been linked to behaviors that create sound communities. In the context of eminent domain, the argumentfor status preservation is even stronger, as it is justified by the U.S. Supreme Court's maxim that compensation should be based on fair market value unless doing so "would result in manifest injustice to owner or public." We conclude by consideringthe broader implications of the economic meltdown and reflect on whether it has so permanently altered our conception of homeownership that homeowner status is in the process of losing its value. TABLE OF CONTENTS IN TRO DU CTION ...........................................................................................95 1 I. HOMEOWNERSHIP AND ANXIETY ...........................................................954 A . Who Owns Their Homes? .........................................................956 B . Mortgage Crisis........................................................................ 959 C . Em inent D om ain .......................................................................964 II. STATUS PRESERVATION ........................................................................969 III. T AKIN G STA TU S ..................................................................................975 A. Jurisprudence ofJust Compensation .......................................975 B. EvaluatingProposed Alternatives to FairMarket Value .........977 1. Percentage Prem ium Plans .................................................978 2. Harnessing the Market: Tax and Insurance Schemes .......980 3. Variable Compensation Plans ............................................982 C. Status-Preserving Compensation .............................................983 IV. PRESERVING STATUS IN THE FACE OF DEFAULT ................................985 A . FederalProposals .................................................................... 986 1. Voluntary or Market-Based Responses ..............................986 2. Judicial Intervention ...........................................................988 3. Taxpayer-Funded Responses .............................................989 B. State and Local Responses .......................................................990 20081 PROTECTING STATUS C . Critical R eception ..................................................................... 991 D. Status Preservationin the Face of Foreclosure....................... 994 V. RECONCEPTUALIZING HOMEOWNERSHIP AND STATUS ........................ 995 C O NCLU SIO N .............................................................................................. 997 INTRODUCTION The loss of one's home triggers powerful emotions. Our homes are often the locus of our families and communities. They are akin, some scholars suggest, to a diary, a family album, or a wedding ring.' A home is not merely a fungible piece of property easily replaced by another. This set of ideas helps explain part of the political response to the mortgage crisis as well as the criticisms of the current degree of compensation paid to those whose homes are forcibly bought by the government when it exercises its power of eminent domain. In this Article, we are concerned with perhaps an even more profound loss: the loss of one's status as a homeowner. This loss is implicitly assumed for many families caught by the subprime mortgage debacle-if their homes are foreclosed upon as a result of an inability to pay their mortgages, their ability to obtain another mortgage to purchase a home is severely compromised. The impetus for government action to assist families in these situations (by providing short-term loans, fixing their interest

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