Real Estate Litigation Hits High Point During “Roaring 2005’s”

By Porter Feild

Originally appeared in the Memphis Business Journal, June 14- 20, 2013

In handling matters in real estate litigation, a practitioner gains experience and develops an expertise by handling cases and studying matters which have occurred in the past; but to continue to have good productive work in the future, one must be prepared for what type of cases will be produced by the market.

In the past, I gained my start in real estate litigation the same way that many practitioners did.  My senior partner, Mr. Lucius Burch, introduced me to two of his clients by making the statement to them “This is Porter Feild. He is one of our experts in condemnation matters.”  I had been practicing law less than two years at that time.  I did my best to handle that case, which was settled with the state.

Issues which were prevalent in my practice in the 1990s, and perhaps reflective of what other practitioners in real estate litigation were also handling, were issues which signaled a robust growing market.  I was exposed to contract disputes, enforcing contracts by specific performance and litigating over whether backup contracts were effective.  These cases were reflective of a market with buyers desirous of purchasing.  Other trends in the market in the late nineties dealt with other future development matters such as the advent of low income tax credits, historical tax credits, and later new market credits.  These are designed to bring new development into the market.

Coming into the 2000s, there came an explosion of mortgage and mortgage-broker related issues.  The refinancing market, and for that matter the sales market, was very robust.  Many issues arose causing real estate practitioners to deal with out of control mortgage brokers, who were largely unregulated by the State of Tennessee at that time. Brokers were paid multiple points for closing a refinancing deal, with sometimes financing a greater value than the worth of the property.

Predatory lending cases became an area ripe for growth.  This trend was largely led, in the Memphis area, by Memphis Area Legal Services Fair Housing Unit, which was committed, and still is committed, to protecting the rights of its clients.  These claimed unscrupulous tactics by certain lenders, generally national lenders not with a Memphis connection, who were preying on an unsophisticated and unrepresented population.  These activities were going on during a time period that I have referred to as the “roaring 2005s.”

During the roaring 2005s, there was an explosion of residential development, and condominium development in our market.  Cases which were available related to design flaws, neighborhood design and environmental condition problems with land, as well as professional negligence cases in engineering and surveying.

With the downturn in the economy and the constricting home prices, there came a vast turn in the availability of cases in the real estate area.  There are a multitude of cases involving remedying problems that were created during the roaring 2005s.  There are title claims which require proposed remedies and litigation.

There are multiple foreclosure issues that are presently being litigated.  To some extent, the paradigm relating to the foreclosure of an interest by a lender has been turned on its head.  Prior to the roaring 2005s, in the event a borrower did not pay his or her mortgage, after only a short time, the lender would issue notice and proceed to foreclosure.  After the downturn in the economy, once a borrower failed to pay, the lender has choices to make.  Some lenders have chosen not to foreclose, leaving a delinquent borrower in their home for long periods of time, sometimes longer than a year.  This allows the lender to at least have someone in occupancy of the property, avoiding some cost of maintaining a property that will not sell in the market.

The cases that have erupted both locally and nationally relate to the existence of MERS and its identification as a real party in interest, the responsibility of the foreclosing entity to produce the original copy of a Note, and other misrepresentations allegedly associated with dividing the responsibility between servicer and owner of the debt.

Considering the current state of real estate litigation, what are the future trends and what should a real estate litigation practitioner be ready for in the future?

There are certain signs that the market may be moving back toward a seller’s market.  Based on recent news reports, the number of foreclosures appears to be going down.  Home prices are rising.  This may signal a need for further development of residential real estate, and the accompanying litigation matters which follow.

There is a growing market in green usages of property following the advent of LEED certification and green design of buildings.  There is an increase of usages of solar panels on buildings, and even examples of “angel companies” who will lease roof space in order to place solar panels on them.

New urban usages may give real estate practitioners, and also real estate litigators, ways to be productive in the future.  Infill developments and rehabilitation of historic properties is a growing area.  Municipal planners and community organizations like Memphis Heritage no longer appear to be a road block to development, but work to coordinate efforts to use the historical value of certain areas to spur new development.  Examples of this are the redevelopment of the South Main District of Downtown Memphis, and the proposed development of the Sears Building on Cleveland.  New urbanism may take part in the redevelopment of the Fischer Steel area on Germantown Parkway, as well as the Fairgrounds, with its center piece, the Kroc Center.  Shelby Farms Park, and its accompanying Green Line, together with the other greenway corridors, has sought to allow a connection between the communities around these areas and the parks.

After the economic downturn in 2009, a real estate broker commented to me that there had not been a permit pulled in two years for a commercial retail project.  This may have been an exaggeration, but it is symbolic of the fact if a real estate practitioner was the world’s leading expert in the review of commercial leases, he or she did not have much to do after 2009.  The real estate litigation practitioner should be aware of what the trends are in the market and be prepared to meet them.

Porter Feild practices at Burch, Porter & Johnson and focuses on the areas of commercial and business litigation, as well as real estate and insurance law.