NEWBERG, Ore. -- A worker at Michelle Michelsen's horse ranch runs a brush along the flank of a chestnut mare. The horse whinnies and snorts in the bright sunlight, as a breeze rustles the white blossoms of a pear tree.

It's all very bucolic, what you would expect in rural Oregon. But in the background, the sound of a backhoe punctures the air. Just a few hundred feet up the hill from Michelsen's home, neighbor John Kroo is building a road.

Michelsen has known Kroo for most of her life.

"He was like a second father to me," said Michelsen. "His son and I have been best friends since I was 9-years-old."

But that relationship was torpedoed when Kroo filed plans to build a 10-lot subdivision on 31 acres.

The new housing development would threaten her business by drawing water from the same spring, Michelsen said. She also worries about kids from the subdivision getting into the fenced area where she keeps horses.

Michelsen has filed an appeal with county commissioners to stop the development.

Kroo wouldn't comment on Michelsen's concerns, refusing an interview request.

"They're entitled to their opinion, that's all I have to say," said Kroo.

The clash between Michelsen and Kroo is rooted in a controversial property rights law passed by Oregon voters in 2004.

The law, known as Measure 37, requires governments to pay longtime homeowners for property value lost because of land-use restrictions. If authorities can't cough up the money -- and with claims having reached an estimated $12 billion, almost none can -- land-use regulations must be waived.

The law was intended to loosen restrictions on what Oregonians could do with their property. It's done that, but environmental groups say it could also lead to giant subdivisions sprawling across some of the nation's most fertile farmland.

And the collateral damage is often more personal -- causing alarm among neighbors who fear the planned developments will lower the value of their own properties or spoil the charms of the areas where they live. Most of the Measure 37 claims have been to develop property in Oregon's cherished farm and forest lands.

"People who I've known for a long time, people who ride their horses on my property," said Mary Holtan, a 65-year-old widow and Measure 37 claimant, are "meeting about what they think I am going to do."

Holtan said she filed to have the same land-use rights she and her husband had when they acquired land in the 1970s when the 28-acre property could lawfully be divided into 2-acre parcels. But she says she intends to build just two houses on the property, one for her son and one to sell.

"I filed to restore my rights," said Holtan.

Over 7,000 claims have been filed, but many are still in legal limbo as the Legislature feverishly works to craft solutions that will satisfy the rights of claimants and protect their neighbors. In the meantime, court cases continue to pile up. The measure has resulted in over 150 lawsuits involving the state -- many filed by people upset about subdivisions and other developments that could be popping up next door.

The issue has become one of the state's biggest headaches and threatens to fracture the Legislature along party lines if a bipartisan deal isn't reached soon that gives local and state agencies guidance in how to process claims.

"Extremists of both stripes are going to disavow this whole thing," said Sen. Kurt Schrader, D-Canby, of a framework he helped draft that would limit more concentrated subdivisions but expedite claims for up to three dwellings. Members from both parties initially endorsed the proposal but GOP members refused to endorse the plan as more details from the framework emerged.

If lawmakers fail to pass a bill this session, some have said they may return the issue to voters. "If push comes to shove," Schrader said, he believed that "60 percent of Oregonians" would endorse a proposal similar to the group's framework.

As lawmakers argue, so do neighbors. And land disputes between family members are not uncommon.

"People are taking sides," said Gary Rhinhart, a fourth-generation wheat farmer in the Eastern Oregon town of Pendleton who is in a land dispute with a distant cousin, Jerry Wyland.

"If you create an issue for a neighbor and there's no way to resolve that, I just don't know where that's going to go. I honestly think there is the possibility of violence."

Wyland, Rhinhart's neighbor, has a Measure 37 claim pending that would let him divide his property into housing parcels.

"He's got it in his head that we are going to go out here and cut everything up," said Wyland. "Well, that's not going to happen."

But, says Wyland, who has also farmed the property for most of his life, "I feel that I should be able to do what I want to do."

Some neighbors have simply stopped talking to each other.

"It's hard to visit about things when that's the number one issue in some people's minds," said Dean Freeborn, a grass seed farmer in the Willamette Valley town of Rickreall who has multiple claims near his property.

Near Mount Angel, another Willamette Valley town, Lori Pavlicek grows crops next door to a property owner who also has filed a Measure 37 claim.

"We can't be too emotional about it," said Pavlicek, who raises garlic, hops and grass seed with her family. "We have to farm next to these people."

But some relationships between neighbors may be permanently ruined.

"When you come neighbor to neighbor, when it's a conflict like this, it's going to be really tough to ever repair fences," said Bev Davis, Michelle Michelsen's mother.

"I don't think it's ever going to happen with a lot of neighbors."