Eminent Domain is seen as way to halt neighborhood blight from underwater mortgages
In an attempt to save blighted neighborhoods overrun with foreclosed homes, municipal leaders are considering using the power of eminent domain to protect homes from foreclosure.
According to a July 30 story on www.CNBC.com, Richmond, Calif., is prepared to become the first American city to claim eminent domain and keep families in their homes.
Eminent domain is the power of government that requires homeowners to sell their properties, or have them condemned, in order to allow for some form of civic improvement, often a new or expanded roadway.
According to www.thefreedictionary.com, eminent domain is when “federal, state, and local governments may take private property through their power of eminent domain or may regulate it by exercising their Police Power. The Fifth Amendment to the U.S. Constitution requires the government to provide just compensation to the owner of the private property to be taken.”
The argument by proponents of the eminent domain movement is that the government is protecting the property and the neighborhood by purchasing the mortgages rather than allowing them to fall into the mire of being a foreclosed property.
As expected, the idea is argued against by the Wall Street community, which has threatened lawsuits against any community that makes the eminent domain move.
“They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods,’’ said Richmond mayor Gayle McLaughlin.
Here is how the eminent domain plan in Richmond would be implemented: The city this week sent letters to the owners and services of underwater mortgage loans on Richmond properties, offering to buy the loans. The city is offering to buy both current and delinquent loans, but not any homes with large second mortgages.
The city is offering 80 percent of fair market value for the home, then would write down the debt significantly so that the homeowner could refinance at the lower amount through a government lending program. To the city and lenders, the property is worth its fair market value, while the homeowner would be out from under the previous mortgage and actually have a small equity stake in the home.
If the purchase offers are declined by the lenders, the city said it would use eminent domain to condemn the home, and then buy the loans.
CNBC.com said that Newark, N.J., Seattle, North Las Vegas and several other cities in California are considering the use of eminent domain to protect their neighborhoods.
Opponents are many and powerful. They include the Securities Industry and Financial Markets Association, the American Bankers Association, and the National Association of Realtors. They want the government to ban the practice.
The argument is that any community employing eminent domain to prevent foreclosure would no longer be attractive to lenders in the future. They argue that the winner would be the lender who works with the communities to provide financing for the plan, which in the case of Richmond is a company called Mortgage Resolution Partners.
But some lenders believe the program would benefit the housing market by severely reducing homeowner debt.
We are just not going to back down; we really feel it is the responsibility of the servicers and the banks to fix this, and they haven’t, so we are taking this into our own hands,” McLaughlin told the Los Angeles Times. “It is our community that is at stake here.”
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.