Victory For Commercial Affordable Housing

by:  Katharine A. Muscalino

Private commercial developers have struggled to install affordable housing in New Jersey’s municipalities for decades, facing opposition from communities, local governments, and the municipal zoning boards.  The Appellate Division has just eased the burden of private developers by holding, for the first time explicitly, that affordable housing built by a commercial developer (as opposed to a non-profit or public entity) qualifies as an “inherently beneficial use” in Conifer Realty LLC v. Township of Middle Zoning Board of Adjustment (September 9, 2011).  By being categorized as an inherently beneficial use, commercial affordable housing is subject to a less stringent standard for obtaining use variance relief.  In support of this holding, the Appellate division noted that the courts have previously recognized that affordable housing is an inherently beneficial use in a “variety of circumstances” and that housing needs are “clearly related to the general welfare under the zoning laws.”

The Appellate Division found that the zoning board construed previous opinions holding that affordable housing is an inherently beneficial use too narrowly.  The board had maintained that because all existing caselaw had addressed affordable housing constructed by public of non-profit entities, a commercial developer’s affordable housing could not qualify as an inherently beneficial use.  The Court directed that in analyzing whether a proposed use is inherently beneficial, “the focus of the inquiry is whether the proposal furthers the general welfare, not whether the undertaking is one that is not-for-profit or a commercial enterprise.”

In addition to remanding the application to the Board for consideration under the less stringent inherently beneficial use standard (the Sica test), the Appellate Division found the Board’s concerns regarding the negative criteria to be arbitrary, capricious, and unreasonable.  The Appellate Division noted that the Board’s rejection of the application, base on density and environmental concerns, was contradicted by the Township’s Fair Share plan, which included the project, minimized the environmental impact, and promised to amend the zoning and density for the project.

Surprise! You Don’t Have To Pay As Much As You Thought On That Mortgage

by:  Peter J. Gallagher

Last week, Bank of America agreed to a multi-billion dollar settlement with upset investors who had purchased securities comprised of subprime mortgages originated by Countrywide Financial (which Bank of America acquired in 2008) and serviced by Bank of America ("Bank Of America Settles Claims Stemming From Mortgage Crisis").  Among other things, the investors claim that that Countrywide "created securities from mortgages originated with little, if any, proof of assets or income," and that Bank of America then "failed to heed pleas for help from homeowners teetering on the brink of foreclosure."  While the settlement still needs to be approved by a judge, and has already run into some opposition ("Investors Challenge Bank Of America Settlement" and "Bank Of America's Proposed Mortgage Debt Settlement Criticized"), it was generally seen as the first major concession by a bank in connection with its role in the mortgage meltdown

On the heels of this settlement comes news that Bank of America (along with JPMorgan and a few other lenders) is also taking a more proactive approach with homeowners who are not even in default.  As the New York Times reports in its article, "Big Banks Easing Terms On Loans Deemed As Risks," the banks are "quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk."  The article tells the story of Rula Diosmas, a Florida (of course) woman who had $150,000 shaved off of the mortgage of her Miami condominium by JPMorgan even though she did not request a modification and was not in default.  The bank explained its reasoning as follows:

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

. . .

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

. . .

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm [a spokesman for Bank of America] said.

The banks' efforts have not come without some critism, however, including the claim that the banks are behaving in "contradictory and often maddening ways" — showing concern for those who might get in trouble while at the same time being punished by regulators for doing a poor job modifying mortgages that are already in default.