Let the Real Estate Litigation Roll: Current Trends in Louisiana Property Litigation

During the past five years, the State of Louisiana has experienced major changes and challenges to the existing real estate regulatory structure, both at statewide and local levels. In its 2024 session, the Louisiana legislature passed several laws on a host of real estate issues – most notably, changes in requirements for buyer agreements and real estate service agreements.

Additionally, the State of Louisiana sits at the forefront of both state and federal constitutional challenges that recent restrictions on short-term rentals and short-term rental platforms impinge on the ability of property owners to exercise their fundamental property rights. As judges in the Eastern District of Louisiana and at the US Fifth Circuit of Appeals are addressing these novel constitutional challenges, judges in the Western District of Louisiana seem to be facing a spate of lawsuits whose disposition should have always been easy to predict. Multiple borrowers in western Louisiana have unsuccessfully sought to avoid their mortgage obligations simply because, as is common, their notes and mortgages are transferred from one lender to another. This article discusses the current trends affecting property and real estate across Louisiana’s legislative and judicial branches.

2024 legislative update

Legislative changes to real estate licensing law – Louisiana Act 690 (HB366)

Effective 19 August 2024, Louisiana Act 690 – authored by the Honourable Paula Davis (R-69) – requires all Louisiana real estate licensees to execute a written “buyer agreement” when assisting buyers in connection with the purchase (or the submission of an offer to purchase) a home. Act 690 is specific as to any residential property consisting of one to four units occupied or intended to be occupied as a single-family dwelling. It focuses heavily on the buyer – narrowly defining “buyer” as:

• “a person who utili[s]es the services of a real estate licensee in connection with the purchase, or the submission of an offer to purchase, a home; or
• [a person who] utili[s]es, or seeks to utili[s]e, the services of a real estate licensee with the objective or purported objective o[f] entering into a contract to purchase a home”.

Act 690 necessitates multiple disclosures, requiring that buyer representation agreements contain compensation disclosures – including that the agreement state the amount of buyer broker compensation or how that amount will be calculated – and a description of the services the broker will provide to the buyer.

Legislative changes to real estate service agreements – Louisiana Act 363 (SB 506)

Effective 28 May 2024, Act 363 (SB 506) provides that obligations in a real estate service agreement for the sale of residential property cannot be secured by a mortgage or security interest on the property – known as Non-Title Recorded Agreements for Personal Services (NTRAPS) – and prohibits parties from recording such agreements. Authored by State Senator Rick Edmonds (R-6), Act 363 makes NTRAPS an unfair trade practice, actionable by the Attorney General. The law is an effort to protect homeowners from agreements that offer small, upfront cash payments in exchange for decades-long contracts for exclusive rights to sell the property, even after the homeowner has died.

Under a typical NTRAPS, if a homeowner or an heir sells a property using a different listing agent, the homeowner could be forced to pay a penalty far greater than the original cash payout (often up to 3% of the purchase price). Act 363 prohibits such agreements – distinguished from Louisiana commercial broker’s liens for commercial commissions – from becoming liens on the property and provides a method for homeowners to request a court to order NTRAPS to be removed from a home title. Louisiana joins more than 30 other states with similar laws.

Challenges to New Orleans short-term rental ordinances

US Fifth Circuit Court of Appeals

The US Fifth Circuit Court of Appeals examined the City of New Orleans’ 2019 short-term rental (STR) licensing regime in Hignell-Stark v City of New Orleans, 46 F 4th 317 (5th Cir 2022). The initial 2017 STR licensing process allowed for an effective period of one year for licences issued. Although it maintained that renewal licences would be issued in the same manner as the initial STR licences, the City of New Orleans was clear to note that issuance was within its discretion; a licence was “a privilege, not a right” (Id at 320).

Under the 2019 Ordinances, the licensing procedures were revised. The City of New Orleans imposed:

• residency requirements for STRs, such that no person could receive a licence for an STR in a residential neighbourhood unless the property was the applicant’s primary residence (which the City of New Orleans would determine by verifying whether the applicant had a homestead exception for the property); and
• prohibitions on the advertising of illegal STRs and on advertising that legal STRs have greater capacities than allowed under the licence.

The plaintiffs were property owners seeking to obtain STR licences – some of whom had licences that the City of New Orleans chose not to renew and others who were denied licences under the 2019 Ordinances. In suing the City of New Orleans, they asserted that:

• the City of New Orleans’ failure to renew the licence was violative of the takings clause;
• the residency requirement violated the dormant commerce clause as discrimination on interstate commerce; and
• the advertising restrictions infringed upon First Amendment rights to freedom of speech.

Ultimately, the Fifth Circuit rejected the takings clause claim, ruling that the plaintiffs did not have a protected property interest in the renewal of STR licences. In so holding, the court placed weight on the City of New Orleans’ discretion in licence issuance. The court sidestepped the First Amendment claim upon concluding that it lacked jurisdiction to rule on the claim. Plaintiffs found success, however, on their claim that the residence requirement ran afoul of the dormant commerce clause.

The Fifth Circuit noted that the US Supreme Court had “long interpreted the commerce clause as an implicit restraint on state authority, even in the absence of a conflicting federal statute”, which applied also to municipalities (Id at 325). A law that discriminates against interstate commerce – ie, one that results in “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter” is “virtually per se invalid” (Id at 325–326). The court ruled that the residence requirement was discriminatory on its face against out-of-state residents who owned property in the City of New Orleans, given that it forbid such persons from participating in the New Orleans STR market altogether. All of the interests that the City of New Orleans argued were served by the residence requirement – namely, preventing nuisances, promoting affordable housing, and protecting neighbourhoods’ residential character – could, the court concluded, be served by reasonable non-discriminatory alternatives (Id at 328).

The reasonable non-discriminatory alternatives offered by the court included:

• increased penalties and enforcement efforts;
• STR licence revocation for repeat offenders;
• an increase in taxes on STRs;
• having an operator stay at an STR during the night to offer supervision;
• reduction of housing regulations to encourage more residential construction; and
• capping the share of housing units permitted to be used as STRs.

Following the Hignell-Stark decision, the City of New Orleans seems to have relied on the Fifth Circuit’s list of reasonable non-discriminatory alternatives in promulgating the 2023 and 2024 Ordinances governing STRs.

Eastern District of Louisiana

However, many owners for STRs remained unhappy. On Valentine’s Day 2025, a group of plaintiffs filed suit in the federal court in New Orleans against the City of New Orleans over these new ordinances, which they allege place “unprecedented restrictions on short-term rentals and short-term rental platforms”. The plaintiffs include various homeowners, a rental limited liability company, and the online rental platform Airbnb; they challenge Ordinance No 29381 MCS, Ordinance No 29382 MCS (the “2023 Ordinances”), Ordinance No 30074 MCS (the “2024 Ordinance”), and the City’s actions in implementing those ordinances.

i) Why does it matter?

The plaintiffs argue at length that what is at stake is a long-recognised, fundamental “bundle” of property rights. This “bundle of rights” includes the right to exclude others. Of course, as the plaintiffs argue, the necessary corollary of the right to exclude is the right to include or to decide who does or does not get to enter the homeowner’s property – a right dating back to the USA’s founding when early Americans wished to protect themselves from takings or unwarranted searches and seizures by King George of England.

Moreover, the plaintiffs argue that permitting STRs incentivises homeowners to invest substantial capital in developing and improving their homes, whereas the prohibition of STRs deprives homeowners of essential income that allows them to pay their own mortgages, keep up with the cost of living, and otherwise financially support themselves and their families. Not to mention that permitting STRs, the plaintiffs argue, comes with numerous benefits to the City of New Orleans and to the State of Louisiana as a whole.

ii) What did the 2023 and 2024 Ordinances do?

The 2023 Ordinances cap the number of STRs to one per square block in more than 30 zones throughout the City of New Orleans. This means that, if multiple homeowners on the same square block apply for a licence, they are left to a lottery to determine which one of them can lease their home and tap into the full value of their property – thereby forcing neighbours into conflict over who can exercise the right. If a home is located on a block with an existing bed-and-breakfast or in the French Quarter, the homeowner is deprived of even a chance at short-term leasing, as the 2023 Ordinances excluded rentals from such locations entirely.

Even if a homeowner has the capacity to rent more than one unit, that homeowner is precluded from renting more than one. For the select few who are permitted to rent their property short-term, the 2023 Ordinances regulate how the property can be used and impose what the plaintiffs allege are burdensome and arbitrary requirements. The plaintiffs allege that, through the 2023 Ordinances, the City of New Orleans discriminates against out-of-state homeowners by requiring an on-site operator for any STR – making STRs logistically and economically impossible for most out-of-state homeowners. Further, the plaintiffs allege that the City of New Orleans has also:

• delegated discretion to suspend or revoke STR licences to hearing officers without limitation or guidance;
• created a private right of action to pit neighbours against each other;
• added far-reaching requirements for hosting, such as:
1. mandating that “[beds]heets must be sufficient width and length… and be turned under the mattress so as to properly secure the sheet”;
2. requiring that hosts “resolve complaints within one hour” of being contacted by neighbours, guests, or the City of New Orleans; and
3. prohibiting “offensive odours” (whatever the hearing officer might think that means); and
• devised harsh penalties to enforce these restrictions.

The 2024 Ordinance imposes onerous regulations on STR platforms such as Airbnb. By way of example, the 2024 Ordinance requires that platforms must police STR registration eligibility even before those properties are listed and assess whether the host who published the offered rental complied with the registration requirements. Essentially, the plaintiffs argue, the 2024 Ordinance shifts the burden of enforcing the City of New Orleans’ own registration requirements from the City of New Orleans to the platform itself – improperly deputising platforms to enforce these requirements. In doing so, they allege, the 2024 Ordinance and the City of New Orleans treat platforms as publishers of third-party content in violation of the Communications Decency Act. The 2024 Ordinance also requires platforms to:

• provide the City of New Orleans with monthly reports that the plaintiffs allege contain confidential, sensitive, and private data concerning Airbnb’s business, hosts, and hosts’ properties; and
• name the City of New Orleans as an additional insured on their commercial general liability policies.

iii) What are the allegations?

The plaintiffs allege that the 2023 Ordinances violate the takings clause of both the US Constitution and the Louisiana Constitution by preventing the plaintiffs and other homeowners from exercising their fundamental right as property owners to lease their property to short-term guests and to realise the full value of their homes. The plaintiffs argue that these restrictions violate the due process clause of the US Constitution and the Louisiana Constitution because they are not rationally related to a legitimate government interest and deprive hosts of their rights to lease, to use and control their property and to associate freely and that they also deprive hosts of privacy in their homes. Further, the plaintiffs allege that these restrictions are unconstitutionally vague and impermissibly regulate the private civil relationship between Airbnb and hosts, and between hosts and guests, in violation of the Louisiana Constitution.

Per the plaintiffs, the reports Airbnb would be forced to provide the City of New Orleans with afford no legal process – and no opportunity for pre-compliance judicial review – and thus violate the Fourth Amendment of the US Constitution. Moreover, the plaintiffs allege that the date the City of New Orleans is requiring Airbnb to disclose is data that Airbnb is prohibited from disclosing under the Stored Communications Act. Finally, the plaintiffs argue that the 2024 Ordinance violates Airbnb’s First Amendment rights by restricting Airbnb’s speech and impermissibly compelling Airbnb’s speech to the City of New Orleans through the monthly disclosure and verification requirements. They also allege that the City of New Orleans is taking Airbnb’s property without just compensation by requiring Airbnb to name the City of New Orleans on its general liability insurance policy.

iv) Predictions

The City of New Orleans’ onerous restrictions on STRs have been challenged before. In 2016, City Council amended the Code of the City of New Orleans (the “Code”) and the City of New Orleans’ Comprehensive Zoning Ordinance (CZO) to limit STRs. The amendments required licences for STRs, limited whole-home STRs in residential zones to 90 days per year, and banned all STRs in most of the French Quarter. Additionally, in 2019, the City of New Orleans again amended the Code and CZO to restrict licences to property owners’ primary residences (the “2019 Ordinances”).

As noted, in Hignell-Stark v City of New Orleans, property owners sued the City of New Orleans to challenge the 2019 Ordinances. In 2022, the Fifth Circuit put New Orleans on notice that discriminating against out-of-state property owners is unconstitutional by holding that the residency requirement violated the dormant commerce clause. Although the Hignell-Stark plaintiffs litigated a takings claim, they did so only as to their short-term rental licences and they did not claim – as the new plaintiffs do – that the 2023 Ordinances appropriate homeowners’ fundamental property right to lease their property to host short-term guests and therefore constitute an uncompensated taking. These new plaintiffs also raise several new constitutional and statutory claims that the Hignell-Stark plaintiffs did not.

These new plaintiffs argue that the “bundle of rights” that comes with owning property and the right of travel are both clearly fundamental to federal and Louisiana state law. Of course, taken to the extreme, these arguments would strike down practically all zoning laws and requirements. All of these constitutional principles include weighing of equities. By way of example, the fact that a restriction may – as a practical matter – require more effort for an out-of-state resident than for someone who lives down the block does not necessarily mean that the restriction violates the dormant commerce clause. It remains to be seen whether the courts will find that these new ordinances flout or rather heed the Fifth Circuit’s ruling in Hignell-Stark or whether the statutes not at issue in Hignell-Stark prohibit or instead are silent on the City of New Orleans’ new requirements.

Challenges to mortgage obligations in the Western District of Louisiana

Meanwhile, there also appears to be a pattern of Louisiana mortgagors suing to avoid their mortgage obligations when their mortgages are transferred from one lender to another – presently a common practice in the mortgage industry. The Louisiana federal courts (particularly the United States District Court for the Western District of Louisiana) are especially familiar with these types of suits, as multiple such cases have been filed and dismissed in recent years.

Most recently, in the case of Marcus Emanuel Jackson v Mortgage Research Center, LLC et al (“Jackson”), the plaintiff sued both his original mortgage lender as well as Planet Home Lending, LLC for lack of standing to foreclose, fraud in the concealment, fraud in the inducement, intentional infliction of emotional distress, slander of title, quiet title, declaratory relief, violation of the Truth in Lending Act (TILA), violation of the Fair Debt Collection Practices Act (FDCPA), violation of the Real Estate Settlement Procedures Act (RESPA), and rescission.

The basic facts in Jackson seem both undisputed and commonplace. To memorialise a USD221,490 loan to him by the Mortgage Research Center (MRC), Marcus Emanuel Jackson signed a promissory note that same day for the same principal amount with an annual interest rate of 7.625%. Under the note, Marcus Emanuel Jackson promised to make monthly payments of USD1,567.69 beginning on 1 January 2024. The MRC recorded the mortgage in the mortgage records of Lafayette Parish, Louisiana, and the note contained a provision that the MRC could sell and/or transfer its rights under the note and mortgage, which it did.

Afterwards, the MRC sent Marcus Emanuel Jackson notice that it had transferred the note and mortgage to Planet Home and that Planet Home would begin servicing the loan on 1 January 2024 and thus that Marcus Emanuel Jackson’s monthly payments thereafter should be sent to Planet Home. Rather than pay the monthly payments to Planet Home, Marcus Emanuel Jackson sued both the MRC and Planet Home in an attempt to void the mortgage and remove Planet Home’s ability to foreclose based on Marcus Emanuel Jackson’s failure to meet his obligations. Of note, he also attempted to prevent the MRC from being able to foreclose on the property; however, as the MRC had sold all of its rights related to the property to Planet Home, that claim was worth less than the paper it was printed on.

For the Western District of Louisiana, there was likely a sense of déjà vu. The language of Marcus Emanuel Jackson’s complaint closely tracked the language from the complaint filed in 2016 in the same court in Warren v Hancock Mortgage Corp (“Warren”), whereby identical TILA claims were dismissed based on a lack of supportive factual allegations.

Under TILA (15 USC Section 1601(a)), “a lender in a commercial credit transaction is required to disclose certain terms and conditions of the transaction to a borrower prior to consummating the loan”. The plaintiffs in Jackson and Warren each alleged that the lenders violated TILA by failing to provide them with certain disclosures required under TILA. However, neither plaintiff was able to successfully articulate what their lenders failed to disclose. TILA does not impose an obligation on lenders to anticipate and address every hypothetical question a borrower may have.

The plaintiffs in Jackson and Warren each also represented themselves and perhaps competent legal counsel could have advised them against filing their suits. Although the courts readily dismissed both lawsuits, the fear is always that even a spate of unfounded lawsuits attempting to avoid obligations under a mortgage could have a chilling effect on the willingness of lenders to lend in certain areas. Thankfully, there does not yet appear to be evidence that the lending community as a whole is backing off from residential lending in western Louisiana or elsewhere.

Outlook

Real estate trends in litigation continue to develop and change across the state. While the legislature continues to pass legislation geared at protecting homeowners, Louisiana courts are faced with numerous challenges to actions by both government and private parties as potential over-reach impinging on the constitutional rights of those same homeowners. Some challenges are easy to reject: borrowers should not get a free hall pass just because their lender sold their loan to someone else. The STR issues are not so easy, however – precisely because parties on either side of the issue have legitimate complaints and concerns. The outcome of these pending challenges is difficult to predict and remains to be seen.