LOS ANGELES—Real estate lawyers are calling for uniformity in real estate finance law, which varies from state to state. Kathleen Smalley, a partner at Locke Lord LLP, wrote a recent UCLA economic letter to investigate the lack of uniformity in real estate finance law following the recent mortgage crisis and how the presidential election has reignited the conversation. While there isn't currently a strong movement to create uniformity, Smalley opens the floor for discussion. We sat down with Smalley to discuss the letter and her perspective on the need for more uniformity in real estate finance law.
GlobeSt.com: How is the current discrepancy in real estate finance law.
Kathleen Smalley: Historically, real property law is something that is governed state-by-state. It is a complex area of the law, and there are balances between the rights and remedies allowed to each side in any transaction. Each state has struck those differently.
GlobeSt.com: Should the industry look to the federal government to create uniformity in these laws?
Smalley: The interesting thing is that this is not really federal. We think of federal as something coming out of Washington that governs the whole country, but we have these mechanisms now where states or lawyers in private practice have gotten together and compared notes on various solutions to things that are enforced differently in different states to come up with the best or a uniform solution. We have movements where people see the value of uniformity, not necessarily imposed by Washington, but by allowing the states to determine what is best and allowing states to opt into that rule or not. That has been the path of the uniform commercial code, but we just don't seem to do it in real estate. The reason that I got interested in this, is because there has been a steady march toward standardization, and we usually we think that law would track the progress of deals, but in this instance, it doesn't seem to. We have kept these pockets of different sets of rules that then impose costs on an increasingly standardized system.
GlobeSt.com: Has this been an ongoing issue? Why are we talking about it now?
Smalley: It is an issue that has been ongoing and we happen to be talking about it right now in part because I think that most of the electorate is much more focused on the whole federal system. There was so much news coverage of how the electoral college works the way that it does in relation to the election, and it makes us all stop and think about our federal system, which does some great things in terms of the relationship between the state and the national government. In this particular issue, when I take it back to my world or real estate finance, it is not clear to me that the law has grown up in a way that is supportive of business practices.
GlobeSt.com: Real estate is inherently local. What is the benefit of creating uniformity in real estate finance law?
Smalley: Some dimensions of real estate are almost necessarily local. Land use decisions and the like have to be informed by the people that live there and are going to be dealing with infrastructure impact of a project. Finance decisions, however, aren't quite that local. They always have been treated that way, but so many financing techniques that have evolved over the last 20 years as there has been a trend away from local lender making a loan on a single project to capital markets financing where there is a lot more value to uniformity. You can't accomplish that uniformity and geographic diversity if the rules are going to change as you move from jurisdiction to jurisdiction.
GlobeSt.com: What is the pathway toward uniformity?
Smalley: There are existing organizations that try to determine what would be a good solution for all states to buy into, and in several instances, we have got a solution that has been proposed, and yet we don't see state legislatures acting on it. That is where the inaction is. Whether that is going to be accomplished by a state legislature getting interested in it or by the industry urging a state legislature to do something about it, it is one of those two places.
GlobeSt.com: You mention the most recent mortgage crisis in your letter. How does it fit into a conversation about uniformity in real estate finance law?
Smalley: If we looked at the experience of different states with different sets of rules in this last go around and see who had the least pain, that would be a good start. My guess is that it is going to move very slowly. The purpose of the piece was not so much to show that I see a great wave of fixing this problem, but rather to get people to set back and think about a better solution for the long term.
LOS ANGELES—Real estate lawyers are calling for uniformity in real estate finance law, which varies from state to state. Kathleen Smalley, a partner at
GlobeSt.com: How is the current discrepancy in real estate finance law.
Kathleen Smalley: Historically, real property law is something that is governed state-by-state. It is a complex area of the law, and there are balances between the rights and remedies allowed to each side in any transaction. Each state has struck those differently.
GlobeSt.com: Should the industry look to the federal government to create uniformity in these laws?
Smalley: The interesting thing is that this is not really federal. We think of federal as something coming out of Washington that governs the whole country, but we have these mechanisms now where states or lawyers in private practice have gotten together and compared notes on various solutions to things that are enforced differently in different states to come up with the best or a uniform solution. We have movements where people see the value of uniformity, not necessarily imposed by Washington, but by allowing the states to determine what is best and allowing states to opt into that rule or not. That has been the path of the uniform commercial code, but we just don't seem to do it in real estate. The reason that I got interested in this, is because there has been a steady march toward standardization, and we usually we think that law would track the progress of deals, but in this instance, it doesn't seem to. We have kept these pockets of different sets of rules that then impose costs on an increasingly standardized system.
GlobeSt.com: Has this been an ongoing issue? Why are we talking about it now?
Smalley: It is an issue that has been ongoing and we happen to be talking about it right now in part because I think that most of the electorate is much more focused on the whole federal system. There was so much news coverage of how the electoral college works the way that it does in relation to the election, and it makes us all stop and think about our federal system, which does some great things in terms of the relationship between the state and the national government. In this particular issue, when I take it back to my world or real estate finance, it is not clear to me that the law has grown up in a way that is supportive of business practices.
GlobeSt.com: Real estate is inherently local. What is the benefit of creating uniformity in real estate finance law?
Smalley: Some dimensions of real estate are almost necessarily local. Land use decisions and the like have to be informed by the people that live there and are going to be dealing with infrastructure impact of a project. Finance decisions, however, aren't quite that local. They always have been treated that way, but so many financing techniques that have evolved over the last 20 years as there has been a trend away from local lender making a loan on a single project to capital markets financing where there is a lot more value to uniformity. You can't accomplish that uniformity and geographic diversity if the rules are going to change as you move from jurisdiction to jurisdiction.
GlobeSt.com: What is the pathway toward uniformity?
Smalley: There are existing organizations that try to determine what would be a good solution for all states to buy into, and in several instances, we have got a solution that has been proposed, and yet we don't see state legislatures acting on it. That is where the inaction is. Whether that is going to be accomplished by a state legislature getting interested in it or by the industry urging a state legislature to do something about it, it is one of those two places.
GlobeSt.com: You mention the most recent mortgage crisis in your letter. How does it fit into a conversation about uniformity in real estate finance law?
Smalley: If we looked at the experience of different states with different sets of rules in this last go around and see who had the least pain, that would be a good start. My guess is that it is going to move very slowly. The purpose of the piece was not so much to show that I see a great wave of fixing this problem, but rather to get people to set back and think about a better solution for the long term.
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