Nation

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Nation

EMINENT DOMAIN USE FOR ECONOMIC DEVELOPMENT UPHELD
In an important eminent domain case, the U.S. Supreme Court ruled on June 23 that local governments may seize homes and businesses to make way for private projects that serve a public purpose by promoting economic development. In a 5-4 ruling, the high court decided that the city of New London, Conn., did not violate constitutional rights by condemning non-blighted properties so a private mixed-use project could take shape. The city made the case that the riverfront project would provide a much-needed boost to the ailing local economy, thus benefiting the public. But the property owners involved in Kelo vs. City of New London argued that eminent domain should never be used for economic development or, alternatively, only used when there is a reasonable certainty that the government will receive the public benefits expected from the taking. Justice John Paul Stevens, writing for the majority, said local officials know best in deciding whether a development project will benefit the community, adding that states can pass additional laws restricting the use of eminent domain. "The city [of New London] has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including—but by no means limited to—new jobs and increased tax revenue," Stevens wrote. The development plan calls for a mix of residential, retail, commercial, and recreational uses. In a dissenting opinion, Justice Sandra Day O'Connor countered that government shouldn’t have power to take ordinary private property in order to convert the property from one use to another chosen by the government, even if the owners are compensated, and she expressed concern that wealthy developers would benefit the most. "The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms,” she wrote. The NATIONAL ASSOCIATION OF REALTORS® and the National Association of Home Builders in December filed a joint friend of the court brief supporting the property owners. The brief argued that if economic development is the sole justification for public use, the door is left open for local governments to abuse their eminent domain powers. Susette Kelo and other homeowners in New London filed the suit in 2000 after city officials announced plans to tear down their homes for the mixed-use development.

NAR TESTIFIES BEFORE THE HOUSE FINANCIAL SERVICES COMMITTEE
NAR President Al Mansell testified before the House Financial Services Committee on June 15, 2005 at a hearing titled "Protecting Consumers and Promoting Competition in Real Estate Services." This is the same name as a bill that Financial Services Chairman Mike Oxley (R-OH) and Ranking Member Barney Frank (D-MA) introduced last week. The bill, H.R. 2660, would allow national bank subsidiaries and financial holding companies to own real estate brokerage, leasing and management firms. President Mansell testified that the real estate business is a commercial activity that Congress has maintained is off limits to banks. That separation of banking and commerce is necessary to prevent the inevitable conflicts of interest that could occur when federally chartered banks, with all the advantages that their charter grants them, are allowed to operate commercial firms. Federally insured deposits could be at risk if the bank's commercial subsidiary gets into financial trouble. Plus a real estate broker would then have to go to his competitor to obtain financing. This presents too many conflicts of interest. Further, if banks are allowed to sell real estate, where does it end? Automobiles, boats and jewelry may be many Americans' biggest investments that may be financed by a bank. But should we allow banks to sell cars, boats or jewelry? Many members of the Committee agreed with NAR's position on this issue. Also testifying at the hearing were the named authors of the Gramm-Leach-Bliley Act of 1999. This is the law that granted banks the authority to operate securities and insurance agencies, and contains the provision being debated at the hearing. This provision gives the Federal Reserve Board and the Treasury Department authority to grant banks new powers that are incidental or complementary to banking. The witnesses named above along with witnesses from the American Bankers Association and the Real Estate Service Providers Council, testified that the federal regulators had the power to rule on whether banks could own real estate businesses. Under tough questioning from Chairman Oxley, President Mansell maintained the NAR position that allowing the huge banking conglomerates to own real estate businesses would be bad for consumers, small businesses and the real estate industry. President Mansell questioned whether Congress or the regulators should upset a system that is working to provide the highest level of homeownership in this nation's history. Also, a majority of House Members have signaled their agreement with NAR by cosponsoring the Community Choice in Real Estate Act. NAR is now pressuring Congress for an up or down vote on the Act.

HUD PLANNING NEW RESPA REFORM EFFORT
The U.S. Department of Housing and Urban Development plans to publish a notice soon announcing a series of roundtables to be held this summer on reform of the Real Estate Settlement Procedures Act. There will be three roundtable meetings held in Washington, D.C. with industry, consumer groups, and regulators, say analysts at the NATIONAL ASSOCIATION OF REALTORS®. NAR will be represented at the D.C. roundtables, the analysts say. The U.S. Small Business Administration and HUD will co-host three additional roundtables to be held around the country. HUD officials have had meetings with U.S. House Financial Services Committee and Small Business Committee staff on what is being called “a road map for RESPA reform.” HUD staff will draft reform proposals from late this summer. NAR will be working with HUD and congressional committee staff as well as industry partners as this round of RESPA reform gets underway, association analysts say.