The Dirty Dozen Feeling the Heat from the Feds?

When it rains, it pours.  The fallout from the artificially generated housing bubble and the attendant financial crisis is really starting to take hold against the various major players in the banking industry.  It seems everyone with any stake in the mortgage meltdown, from individual home owners to purchasers of mortgage-backed securities, are seeking their pound of flesh from the likes of Bank of America, JP Morgan Chase, CitiBank, Ally Financial, Wells Fargo, UBS, Goldman Sachs, Deutsche Bank, and others.

The New York Times broke the story yesterday that the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, the failed government agencies relegated to taxpayer-backed conservatorship three years ago, is set to file lawsuits against twelve of the major banks.  The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under the nation's securities laws and missed evidence that borrowers' incomes were inflated or falsified.

The FHFA issued sixty-four subpoenas last year to issuers and servicers of mortgage-backed securities - one of the largest investigations to date of alleged securities fraud stemming from the housing bust.  The FHFA, with subpoena power, has a huge advantage over private investors, which have had a harder time gaining access to the loan files, critical to filing lawsuits against the banksters.  The suits are likely to be filed now because regulators are concerned that it will be much harder to make claims after a three-year statute of limitations soon expires.

In the heyday of loan originations and sales into the secondary market, Fannie and Freddie couldn't purchase those loans directly, but they were allowed to invest in slices of "private-label securities" that were backed by subprime and other risky loans, but were rated as safe AAA investments by the ratings agencies.  Indeed, Fannie and Freddie were among the largest investors in those securities.  Freddie and Fannie began increasing their purchases of private-label securities early last decade in order to boost profits while satisfying government mandates to support affordable housing.  By law, Fannie and Freddie were required to back loans to low-to-moderate income borrowers, and the private-label securities were counted toward those goals. In 2005 alone, Freddie Mac purchased $180 billion in private-label securities, up from $24 billion four years earlier.

In the the lead up to the financial crisis, “the market was so frothy then it was hard to find good quality loans to securitize and hold in your portfolio,” said David Felt, a lawyer who served as deputy general counsel for FHFA until January 2010. Moreover, the private-label securities carried higher yields at a time when the two mortgage giants could buy them using money borrowed at rock-bottom rates, thanks to the implicit federal guarantee they enjoyed.  According to Felt, “Fannie and Freddie thought they were taking AAA tranches, and like so many investors, they were surprised when they didn’t turn out to be such quality investments."  This despite the fact that Freddie was warned by regulators in 2006 that its purchases of subprime securities had outpaced its risk management abilities, but the company continued to load up on debt that ultimately soured.

Fannie and Freddie still hold billions of dollars in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans.  Sadly for the American taxpayer, these securities have been among the poorest performing mortgages.  The U.S. government has spent $141 billion to keep Fannie and Freddie afloat. Freddie Mac allegedly estimates its total gross losses stand at roughly $19 billion, while Fannie Mae allegedly estimates its losses at nearly $14 billion.

While the FHFA has been making noise about pursuing the banks for some time, as Naked Capitalism has reported, "the overarching story remains the same: the more rocks you turn over in mortgage land, the more creepy-crawlies emerge."  In Arizona, when you turn over rocks in the desert, you often find scorpions.  They creep and crawl and they pack a mean sting.  It remains to be seen just how many stingers the Too Big To Fail camp have.

Breathing Underwater

A great article by Don Lee - Tribune Washington Bureau - highlights how underwater mortgages are a serious contributor to the dismal performance of the national economy.  It is estimated that there are 15 million homeowners who are undewater on their mortgages, many of whom can and continue to pay on their mortgage, but have no means to refinance and are stuck paying on homes in which the value may not return for 10-15 years.  In other words, they are stuck.  Lenders are not likely to offer any modifications so long as they are current on their loans.  So for many, it is continue to pay and hope for a quick (though unlikely) recovery in home prices, walk away and suffer the attendant consequences, or hope that lenders become more proactive in offering modification or refinance options.  If the economy continues to drag, which by all accounts it will (even with new quantitative easing by the Federal Reserve), the threat of more strategic walkaways in non-recourse states is likely to become a more serious problem.  

Careful When You Close The Door Behind You

A San Diego police officer and his wife recently pleaded not guilty to accusations that they trashed their foreclosed home in Riverside County, taking $44,000 in appliances and fixtures with them when they moved out.  Both have been charged with one felony count of damaging or carrying away items from a foreclosed property.  Damage was estimated at over $165,000.

If convicted, they could face up to four years in prison.  As reported in the Press-Enterprise and the Signon Sand Diego, the damage included stones smashed off the facade, dye poured on carpets, wiring pulled out of walls, spray-painted the walls, cut and chopped-down shrubs tossed in the backyard swimming pool, and pulled out electrical wires and cut them.

Supervising Deputy District Attorney Arthur Chang said the damage was "indicative of a great deal of maliciousness and bitterness."  Robert Acosta's attorney, Albert Arena, raised questions about the ownership of the property and the conduct of the Acostas' lender. He said it was "a stretch" to charge the couple with a crime

Robert Acosta is a 12-year veteran of the San Diego Police Department and served eight years in the U.S. Marine Corps.  San Diego police officials said Acosta is on administrative leave.

Riverside County authorities said this is the only case they can recall in which a former homeowner has been charged with a crime for damage to a foreclosure.

A witness saw the Acostas June 12 removing items from the home, court records state. Later, investigators recovered $7,920 in stolen property, including appliances, chandeliers, shutters, iron gates and exterior lights in the Acostas' storage units in San Diego County.

While a likely majority of homeowners in Arizona will be protected by the anti-deficiency statutes in the event of a foreclosure, if a homeowner causes "waste," the lender can seek recourse against those borrowers.  It will be interesting to see whether criminal charges become more prevalent as the foreclosure crisis continues.     

MERS: The Risk of Efficiency

MERS or the Mortgage Electronic Registration Systems, little known before the foreclosure tsunami struck, was developed in the early 1990's by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans, streamline the mortgage process through electronic commerce, and eliminate the need to prepare and record assignments when trading residential and commercial mortgage loans.  MERS describes itself as "innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked."  Sounds nice, right? 

Well, as detailed by Floyd Norris of the New York Times in his article "Some Sand in the Gears of Securitizing," and elsewhere, MERS has been under attack for its part in the massive securitization of the American housing market. 

Indeed, as alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al., MERS was a very serious contributor to the financial crisis: "Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans." 

In other words, without MERS, transparency would have ruled the day, counties would have been paid their recording fees, consumers, attorneys, and title companies could easily track chain of title, and foreclosures would have been processed much more effeciently.  Instead, we have servicers with their own vested interests pitted against investors who cannot readily make decisions about their pooled notes; thus, the entire foreclosure process grinds away glacially, subject to legal attack at every turn.

 


 

 

 

Loan Modification Scam

Let's start out with this - I'm incensed today.  The newest cottage industry to crop up in the wake of the foreclosure tsunami are the loan modifiers.  Many of the most notorious loan modification companies were headed by the same individuals that were all to happy to originate loans that never should have been considered in the go-go days of the real estate bubble bath.  Now, there may be some legit people out there really trying to help out with loan modifications, including some attorneys perhaps, but most do not require money upfront and promise things they can't deliver on.

I met with someone today who just came from the courthouse steps after learning that his home had been sold at a trustee's sale.  He showed up at the sale with all the money necessary (so he thought at least) to reinstate his loan.  No can do.  The problem for him is that under Arizona's lender-friendly statutory scheme for trustee's sales, he was required to come forward with payment by 5pm the day before the trustee's sale.  He didn't know that because the average person on the street would have no reason to know that - that is what we attorneys are apparently for. 

The reason I am incensed is that many in the loan modification industry (and many lawyers for that matter), don't understand the law or the dynamics of how servicers are processing loan modifications.  It is well established that the servicers of loans have their own financial interest at heart when it comes to loan modifications and they are not too terribly interested in saving people from foreclosure.  Indeed, the loan servicers, who often have competing interests to the very investors that own the loans, don't much care whether they foreclose or not, as they get paid.  In the end, loan modifications are expensive, time consuming and do not pad the servicers' bottom line, and the servicers run a parallel track of claiming to consider a loan modification and moving along the foreclosure at the same time.  See Diane Thompson's very well researched and explained article on why servicers foreclose rather than modify loans.  It is a relative expose on the lending industry. 

Had the loan modification company that was supposedly trying to help this individual understood the law and the dynamics of how servicers lull borrowers into the trap of believing that a modification is forthcoming, while processing the foreclosure at the same time, this company would have known that this guy needed to come due with the money the day before the sale or attempt to stop the sale if he had a defense.  This company falsely believed that the modfication was coming too - a big mistake.  This guy paid $1,500 and lost his house.  A quick trip to an attorney could have saved this fiasco.  We need more education out there - that is for certain.  Sad day - yet another preventable foreclosure.

Tax Lien Foreclosure: Collecting Attorney's Fees

In one of my prior blog posts (April 6, 2010 - "Tax Lien Foreclosure: Ready, Willing, and Able to Redeem"), I wrote about an unpublished Memorandum Decision from the Arizona Court of Appeals, Division 2 - Leveraged Land, Montgomery, v. Hodges, 2 CA-CV 2009-0057.  In that Decision, the Court overturned a default judgment that a tax lien investor had obtained through service by publication in a newspaper, which restored the owner of record's ability to pay off the delinquent property taxes.  Service by publication is often the only way to notify someone about a pending lawsuit, because in many cases all efforts to personally serve someone prove unsuccessful.  Because service by publication is not the preferred manner of serving defendants, the courts allow a default judgment that is obtained through serving a defendant by publication to be challenged for up to a year after the judgment is obtained. 

In the Leveraged Land case, even though service by publication was warranted, the Court, based on prior precedent, ruled that the owner of record, because he was ready, willing, and able to pay off the tax lien, should be entitled to do so.  Additionally, the Court ruled that the tax lien investor must understand that any default judgment obtained through service by publication is open to attack for up to a year, and the fact that the tax lien investor later decided to sell the property to a third-party before that time period had run was their own fault.

The Arizona Court of Appeals recently issued a written Opinion stemming from the same litigation.  In this set of appeals, the Court was faced with two primary issues on appeal: (1) were Appellants Raven II Holdings, LLC ("Raven"), Hanna 120 Holdings, LLC ("Hanna"), and Bingham Arizona Land, LLC ("Bingham"), the subsequent purchaser of the property from Leveraged Land, LLC,  "bona fide purchasers" of the property that was the subject of the tax lien foreclosure case? and (2) was Leveraged Land entitled to recover all of its attorneys' fees under A.R.S. Section 42-18206. 

A "bona fide purchaser" is used to refer to one who purchases property for value with notice.  Regarding the issue of whether Raven, Hanna, and Bingham were "bona fide purchasers," the Court held that because Leveraged Land properly recorded the Treasurer's Deed and the Default Judgment was attached to it, all subsequent purchasers were given "constructive notice" that the Default Judgment was subject to legal challenge, and "the risk of disruptions to any subsequent conveyances of the foreclose property fell squarely on" Leveraged Land and its successors.

Leveraged Land appealed the trial court's award to it of attorney's fees in the amount of $1,500.00. The trial court ruled that the amount of attorney's fees that Leveraged Land requested was "unreasonable," though it provided no basis for such a determination.  Leveraged Land argued on appeal that such an award was arbitrary and had no reasonable basis, especially when it had already been determined by the Court of Appeals that service was done correctly, thus entitling Leveraged Land to recovery of its fees if the owner of record later redeemed, which is what Hodges did in this case.  Hodges, who was permitted to redeem the tax lien, argued that Leveraged Land was not entitled to attorney's fees it incurred in opposing his redemption.  The Court ruled that, over a dissenting opinion, a plain reading of A.R.S. 42-18206 leads to the conclusion that Leveraged Land is entitled to recover its attorney's fees even if it was eventually unsuccessful in its appeal on the issue of whether Hodges was entitled to redeem the tax lien.  The Court of Appeals, ruling that the trial court had abused its discretion, has remanded the case back to the trial court for a determination of the amount of attorney's fees that Leveraged Land is entitled to.

One has to wonder just how much the subject property was worth in order to justify the level of expenditures in the underlying case, which resulted in three different appeals.  In the end, the Court of Appeals made it clear that A.R.S. Section 42-18206 is unambiguous and permits a party to recover its attorney's fees if the owner of record redeems a tax lien after proper service of process, and will leave it to the trial courts to determine what fees are "reasonable."  

 

Tax Lien Foreclosure - Sub-taxing

Tax lien investors need to understand the importance of sub-taxing their tax liens in Arizona.  When a tax lien investor purchases a tax lien at the February Pima County tax lien sale, for example, that investor then has the right to purchase the next year's delinquent taxes if the owner does not pay the subsequent year's taxes prior to June 1st of each year.  

For example, if a tax lien investor purchased a 2008 tax lien at the 2010 Pima County tax lien sale and failed to sub-tax in subsequent years, that tax lien investor subjects herself to another tax lien investor redeeming out her position, thus losing her priority position.  Additionally, and perhaps more troubling, is the ability of an owner of record to redeem the tax lien investor's tax lien.  Suppose the tax lien investor, who owns the 2008 tax lien, wishes to begin the tax lien foreclosure process after three years (2013).  In this example, all the owner of record would have to do is redeem the 2008 tax lien and the investor's lawsuit has been thwarted.  However, had the 2008 tax lien holder sub-taxed the 2009, 2010, 2011, and 2012 taxes, not only would there have been no competing tax lien holders, in order for the owner of record to redeem, that owner would have to pay the delinquent taxes for 2008 through 2012, as opposed to just 2008. 

While there is certainly the possibility of successfully obtaining a property by only buying a single year's tax lien and not sub-taxing, the chances of redemption by another tax lien holder or the owner of record are substantially higher.  If you can afford to sub-tax your liens, do it. 

Tax Lien Foreclosure: Ready, Willing, and Able to Redeem

In the tax lien foreclosure world, appropriate service of process is absolutely crucial.  Consider what is at stake in a tax lien foreclosure case - the potential forfeiture of the right of the owner of a property to pay off their delinquent property taxes, which practically speaking means the likely loss of their property.  If you are going to foreclose on someone's property, for their failure to pay property taxes for five consecutive years, you better give them adequate notice of the pending case against them.  

A recent memorandum decision from Division 2 of the Arizona Court of Appeals, Leveraged Land, Montgomery, v. Hodges, 2 CA-CV 2009-0057, deals with the issue of what happens in a tax lien foreclosure case where the owner of record has only been served by publication in a newspaper.   Memorandum decisions, while instructive for lawyers to consider how the courts may rule in a future case, unfortunately cannot be cited by as legal authority.  

In Hodges, the tax lien investor filed a complaint to foreclose the owner's (Hodges) right to redeem the tax lien.  The tax lien investor apparently was unable to serve Hodges personally and served Hodges by publication.  A default judgment was eventually entered against Hodges and the tax lien investor obtained a Treasurer's Deed and then sold the property.  Hodges later filed a motion to set aside the default judgment, arguing in part that the judgment was void because he had "good cause" entitling him to a new trial.  The trial court denied his motion and Hodges appealed. 

Hodges argued in his appeal that he was "ready, willing, and able to redeem the property" and that entilted him to a new trial.  Under Rule 59(j)(1) of the Arizona Rules of Civil Procedure, when a judgment has been entered on service by publication, and the defendant has not appeared, a new trial may be granted upon application of the defendant for good cause shown by affidavit, made within one year after the judgment has been entered.  Relying on a 1942 case that was very similar in facts, the appeals court held that because Hodges was "ready, willing and able to redeem the property," the trial court erred in not granting the new trial.  The court remanded the case back to the trial court stating that the trial court should give Hodges a new trial. 

After sending the case back to the trial court, Hodges paid off the property taxes after working with some third-party investor who took a partial legal interest in the property.  The tax lien investor appealed the new judgment of the trial court arguing that Hodges did not have the ability at the time of the original case to pay off the tax lien, which Hodges admitted he did not.  The appeals court went on to rule that "the end result of a successful Rule 59(j) challenge is the restoration of a defendant's right to redeem."  The appeals court, applying equitable principles, stated that "purchasing tax liens entails risk and the onus is on the purchaser to protect its own interests."  The Court also stated that the tax lien investor must understand that any default judgment obtained through service by publication is open to attack for a year, and the fact that the tax lien investor decided to sell the property before that time had run was their own fault. 

Warning tax lien investors: if you are going to get into the tax lien investment world; beware, as there are pitfalls that come up that late night infomercials do not tell you that. 

Warning attorneys: do your due diligence upfront and get people served personally. 

Additional warning attorneys: it seems pretty clear that the court does not look too favorably on tax lien investing. 

Arroyo Grande - The New Land Department

It has been interesting to watch the transition in the State Land Department, whose long-standing mission has been "to enhance value and optimize economic return" for the State Land Trust.  In practice, the Department has simply sold trust land to the highest bidder at public auction, which historically have been developers.  Despite ongoing attempts at State Land Trust reform through the initiative process, it seems that the State Land Department has slowly begun to internalize changes as to how state trust lands are to be managed.

The Town of Oro Valley's proposed annexation of nearly 9,000 acres of State Trust Land known as "Arroyo Grande" is a case in point.  On November 19, 2008,the Town of Oro Valley voted 6-1 to adopt a general plan amendment, which will allow the process to begin for the possible annexation of Arroyo Grande.

Arroyo Grande will likely be a proving ground for the future of how the State Land Department manages the state trust lands.  Various stakeholders already have been very active in the process.  Interestingly, while Oro Valley initiated the annexation discussion with the Department, Pima County has effectively dictated much of the development of the conceptual plan.  Pima County, who has been the prime orchestrator of the Sonoran Desert Conservation Plan, has been openly critical of Oro Valley's commitment to preserving open space.  Pima County Administrator Chuck Huckelberry recently sent a memo to Oro Valley Town Manager David Andrews expressing concern over the absence of wording in the general plan ensuring that open space in Arroyo Grande and a wildlife corridor are sold for below-market value for conservation purposes.  Despite Pima County's desire to purchase some 6,000 acres of the Arroyo Grande, it recently abandoned such efforts.

Oro Valley's Andrews recently responded to such criticism by stating that "The preservation of open space in perpetuity is a deal breaker for the town."  The next phase - the pre-annexation development agreement - will prove the most interesting as the stakeholders hammer out what actually will be included in the final annexation agreement.  Whether Oro Valley is truly committed to the same goals as Pima County remains to be seen.  Nothing better than watching jurisdictions joust. 

Arizona State Land Trust - "The Highest & Best Use"

When Congress established the Territory of Arizona in 1863, Congress set aside sections 16 and 36 of each township of the Territory of Arizona for the benefit of the Common Schools, a practice first established by the Northwest Ordinance in 1787.  Congress recognized then the value of land and the importance of public schools to the developing nation.  In addition to the land set aside by Congress in 1863, the 1910 Arizona-New Mexico State Enabling Act, which allowed the Territory of Arizona to prepare for statehood, also set aside sections 2 and 32 of each township to be held in trust for the Common Schools.  The set aside for the Common Schools in Arizona currently totals approximately eight million acres. 

One of the early actions by the Arizona legislature after statehood was to create the State Land Commission, who were charged with assessing, evaluating, and making recommendations about the use of the state land trust .  The Commission, which later became the Arizona State Land Department, concluded that Arizona should not sell its Trust land outright, as other states had done.  Instead, it should put the lands to their "highest and best use."  This concept may well have been gleaned from the General Mining Act of 1872, which effectively states that mining on federal lands is deemed to be the "highest and best use" of that land.

The "highest and best use" concept has historically led the Arizona State Land Department to attempt to maximize the revenue for the designated beneficiaries of the trust, namely the Common Schools.  Increasingly, this concept has been criticized because it fails to incorporate any potential for conservation of those lands. 

Indeed, a 2006 initiative attempted to give the state of Arizona more power in managing the state land trust and also attempted to set aside over 600,000 acres of state trust land for conservation purposes.  However, that initiative failed.  A similar initiative will be on the ballot in 2008, which proposes setting aside some 570,000 acres of state trust land.  Undoubtedly, the competing interests of maximizing revenues for the state land trust and the pressure to conserve sensitive state trust lands will continue to play out in both the Arizona legislature and through the public initiative process.

The Rising Tide

Whether you believe in global warming or not, there is ample evidence that ocean levels are rising, which has created some very interesting legal issues, namely what happens when a public beach moves onto private property? This is precisely the issue in Surfside, Texas - a small beach town south of Houston. To read an article about the struggle of one homeowner dealing with this issue in Surfside, Texas, NPR has written an interesting article on it.

At issue in Surfside is private property rights and the provisions of the Texas Open Beaches Act, a 50 year old act, which was passed in order to protect the public's right for "free and unrestricted" access to state-owned beaches.

Enforcement of the Act has effectively resulted in the state and the lowers courts ruling that once land is on a public beach -- through erosion or another factor -- any private structure has to be moved. Enforcement of the Act has resulted in lawsuits over the state's ability to enforce the Texas Open Beaches Act. For example, Wayne and Janice Mikeska and Mose and Carol Smith filed a lawsuit against the City of Galveston for its refusal to grant permits for reconnection of their homes to utility services after Tropical Storm Frances.

Until 1998, when Tropical Storm Frances hit the coast of Texas causing erosion of the vegetation line, their homes were landward of the public beach. After Frances, their homes were entirely seaward of the vegetation line- i.e., the homes were completely situated on the public beach as defined by Texas law. Along with 105 other houses that were also fully positioned on the public beach, their properties were placed on the Texas General Land Office 100% List. The 100% List consisted of 107 homes on the Texas coast that, after Frances, were 100% seaward of the natural vegetation line and therefore considered encroachments on the public beach. The 100% List was submitted to the Texas Attorney General to decide whether the listed homes should be removed.

The City of Galveston then condemned their homes, disabling a number of important utilities including electricity, sewer, and water services. Although the Attorney General concluded that their homes did not require removal, the Attorney General's office notified the homeowners by letter that it was deferring any questions as to the reconnection of utilities services to the City. The owners submitted a number of requests for the reconnection of their electricity, water, and sewer lines. As to the sewer lines, the homeowners requested connection to the City's newly constructed line. Their requests, along with those from five others were rejected.

The homeowners subsequently filed suit in federal court seeking both a preliminary injunction to force the City to allow the restoration of utility services and compensatory damages. The district court granted the preliminary injunction request, and the appellants pursued their suit for money damages, averring that the City violated their substantive due process and equal protection rights under the color of state law.

On the City's motion for summary judgment, the district court dismissed the owners' complaint. According to the district court, the City's actions were rationally related to the protection of open access to the public beach (substantive due process) and to the City's obligation to follow state law to "protect the public beaches from interference" (equal protection). The homeowners filed an appeal in the Fifth Circuit Court of Appeals.

The owners argued to the appeals court that neither the City's persistent denial of the appellants' requests for utility connections nor its differential treatment of appellants' homes vis-a-vis similarly situated houses was rationally related to any legitimate governmental interest.

The appeals court ruled that the City must conform its discretionary actions to its constitutional obligations; because the City did not demonstrate the requisite rational relationship to sustain a motion for summary judgment at this stage of litigation, the court vacated the district court's determination as to the substantive due process claim.

The homeowners' equal protection claim was based on their contention that there are a number of other similarly situated homes that were allowed reconnection of their utility services. In contrast to a due process action, which looks solely to the government's exercise of its power vis-a-vis the appellants, an equal protection claim asks whether a justification exists for the differential exercise of that power. To bring such an equal protection claim for the denial of zoning permits, they had to show that the difference in treatment with others similarly situated was irrational. The appeals court ruled that city's actions indeed were irrational.

This case, along with the ongoing "just compensation" issues raised by the Porters in the NPR article, perhaps foreshadow the various legal issues that may well occur as coast lines continue to encroach on private property.

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Stucco vs Equines

A recent article in the Arizona Daily Star discussed and highlighted an increasingly controversial land use issue: what happens when the suburbs run into rural land uses, namely small horse ranches. Interestingly, I represent one of the landowners in the article that is facing the opposite situation - what happens when a horse owner alters a property for horse uses in a residentially zoned property? The issues my clients are facing are slightly different that the encroachment cases, which have an interesting legal history in Arizona, and are discussed below.

Seeking a place to ride their horses and enjoy the relative quiet of a more rural existence, historically, horse owners located well outside Tucson's city limits. However, the increasing pressures of suburban sprawl have resulted in some contentious disputes between the once rural dwellers and their new suburban neighbors.

Obviously, many horse owners never had to concern themselves with their neighbors either because their neighbors were located some distance away or shared a similar lifestyle. Now, the encroaching neighbors are none too excited at the prospect of horse corrals and the potential for manure and flies.

A classic Arizona land use case, Spur Industries, Inc. v. Del E. Webb Development Co, 108 Ariz. 178 (1972), dealt with the issue of what happens when suburban development runs into a prior existing use. In Spur, an action was brought by Del Webb to enjoin Spur Industries' cattle feeding operation. Spur Industries' predecessor began operating the cattle ranch about 15 miles outside of Phoenix in 1956. In 1959, Del Webb began the construction of the community now known as Sun City. While Del Webb was not initially concerned about the odors from the cattle operation, Del Webb later had trouble selling lots near the southern edge of the feed lot.

Del Webb's filed a lawsuit against Spur Industries, complaining that the feeding operation was a public nuisance because of the flies and the odor which were drifting or being blown by the prevailing south to north wind over the southern portion of Sun City. Del Webb's suit to enjoin the alleged nuisance was an equity claim, which allows the courts to use their broad powers to reach an fair and reasonable solution. Indeed, the courts have long recognized a special responsibility to the public when acting as a court of equity:

This case dealt with what is known as "coming to the nuisance." The courts have held that the residential landowner may not have relief if he knowingly came into a neighborhood reserved for industrial or agricultural endeavors and has been damaged thereby. In other words, a party cannot justly call upon the law to make that place suitable for his residence which was not so when he selected it.

The court described the case as an example where a business established at a place remote from population is gradually surrounded and becomes part of a populous center, so that a business which formerly was not an interference with the rights of others has become so by the encroachment of the population.

The court found that Spur Industries was required to move, not because of any wrongdoing on the part of Spur Industries, but because of a proper and legitimate regard of the courts for the rights and interests of the public. However, the court went on to say that Del Webb is not blameless in the matter, because it brought people to the nuisance to the foreseeable detriment of Spur Industries, and Del Webb must indemnify Spur Industries for a reasonable amount of the cost of moving or shutting down.

The issues addressed in Spur are alive and well in the context of the Arizona Daily Star article. How the courts choose to deal with the inevitable clash between competing land uses remains to be seen. However, it is clear that these issues will remain contentious going forward.

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