Friday, June 29, 2012

Deficiency case makes us ask, what's ownership?

Some  perspective-changing implications in Fait v. New Faze Development, Inc., a California appellate case decided Wednesday. The case allowed the former owners of a building to sue its buyers for tearing the place down before they fully paid for it. The buyers had meant to build something fancier on the site instead, but they never did do so. The rationale for the suit by the sellers, who were also effectively lenders on the deal, is that the borrower destroyed existing value in the property so that less remained to foreclose on when the time came.

It wouldn't have run this way in all foreclosure cases. The main issue before the court was whether the suit was barred under prior case law interpreting California's antideficiency statutes, which ban some claims against defaulting borrowers on the principle of not kicking people nor property values while they're down. Decision was, an act of "waste" such as the demolition is "bad faith" waste, the actionable kind, if it's "not committed as a result of the economic pressures of a market downturn." It doesn't have to be "reckless" to be "bad faith."

Deeper question raised, being, what's ownership? What ownership of a place or thing ever is or should be absolute, to the point of holding a power of extinction over it? For that matter, is there something downright perverted about anyone having the absolute right to destroy a thing, owner of it or not?

In the particular Fait case, it sounds like wastage did happen in the ordinary sense: needless entropy happened.

Per the court's narration, the building at its sale was a functioning property that "housed two tenants: a church and a small social services agency." The buyers, who had big development plans, evicted the tenants and tore down the building. Then it just sat, until the would-be developers ran out of money and the sellers went to foreclosure and finally bought back what was left.

Anyone who has lived South of Market in SF for a while can feel this decision.

In our part of San Francisco, we've seen a lot of evictions inflicted on spec where popular and useful tenants were replaced by cobwebs. I can think of several cases where, OK, maybe they wouldn't be defined as "waste" in a legal sense -- it would take too much technical research to say so definitely, and then only on the basis of facts I haven't got -- but these are cases where, in the general moral sense, needless entropy was introduced:

There was the emptying of the social service offices over the Golden Gate Theatre in 1994. I worked as a law student manager in one of the offices that were evicted from there. The managers told us there had been complaints about our clients' behavior in the building, and that the trouble was only with our clients, no one else's. Then we heard they'd been saying the same thing to an AIDS nonprofit upstairs. Up From the Deep says the eviction was in '95. Maybe it ended then but, with respect, it definitely started in '94.

The 20 Tank Brewery on 11th Street, a popular welcoming microbrewery that sold pizza, was reduced to silence on spec during the Web 1.0 bubble of the late 1990s. So was the area's other pizzeria at the time, Pizza Love on Folsom.

The nonprofits and other small offices in the Grant Building on the southeast corner of Seventh and Market fought off a mass eviction in 2001 but the place was finally emptied anyway in 2011.

And of course there are the miscellaneous Ellis Act residential buildings, left vacant for years after mass evictions of rent-controlled tenants as the price of going TIC or condo. One of them, on our block, is finally getting some attention but for years it was where the stoners hung out on the steps. (Next door to where AirBnB was founded, as it happens.)

I have to wonder (don't know) if something similar happened just the other day with the closure of the Caffe Trieste branch on Upper Market... but, well, if not in that case, I would guess that in other cases we'll be seeing more speculative emptying-out soon because the market around here is overheated as it hasn't been since those Web. 1.0 days.

So it's helpfully unsettling to consider that a landlord's commission of "waste" can be defined as a wrong, whether legally or merely morally. The flip side is to think of ownership as more a matter of limited fiduciary status than of absolute power.

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