The Article 12 experience in the past 25 years

Because of the experience foreign investors have had with their real estate investment over the past 20 to 30 years, they are now reluctant to make further investments in the CNMI if the present land ownership regime continues. The restriction as now set forth in Article 12 of the NMI constitution is, without a doubt, rigid and inflexible. Any transaction in violation of Article 12 results in the nullification of the land transaction, ab initio (i.e. void from the very beginning). Article 12 does not give the courts any power to fashion a remedy (short of nullification) that would be fair and equitable to both sides. The law, in essence, ties the hands of the court in terms of the remedy (legal and equitable) that the court could order or decree. The only remedy available under the NMI constitution for an Article 12 violation is for the transaction to be declared void from the beginning, no matter how harsh such remedy is on the parties or on innocent third-parties.

The amount of litigation in the area of Article 12, in the past, consumed so much time, energy and resources for both the landowner and the investor. Over a period of more than ten years—from 1985 to about 1995, most of the major land issues were litigated and decided by the courts. In the end, however, much damage was done to the trust and confidence between landowners and investors. What were the reasons for this sad state of affairs? There were many reasons actually. The first major litigation was a direct challenge to the constitutionality of the land alienation restriction under Article 12, pursuant the Equal Protection Clause of the U.S. Constitution. The federal courts ultimately determined that the land alienation restriction does not violate the Equal Protection Clause of the U.S. Constitution, since land ownership is not considered a fundamental right in the territories; unlike the 50 States where property ownership is considered a fundamental right.

The second set of litigation dealt with the issue regarding the transfer of land title to a person other than the one furnishing the purchase-money for the land being purchased. Reversing the NMI Supreme Court on this issue, the federal courts eventually resolved this issue in favor of the new titleholder, provided that he/she is a person of NMI descent. It was decided that no “equitable fee ownership” results in favor of the person not of NMI descent who furnished the purchase money for the land. It ruled that Article 12 itself prohibits an equitable fee simple ownership from arising in favor of the person (who furnished the money to purchase the land) if he/she is not of NMI descent. It decided that Article 12 itself trumped the common law principle that equitable fee ownership in the land is automatically created in favor of the person providing the purchase-money for the purchase of the land. So this issue has been laid to rest through the judicial process, but its bitter-taste still remain for many on both sides of the Article 12 dispute.