Can Eminent Domain be Used to Take Over Mortgages?

June 13, 2012

In a controversial move, a mortgage firm on the West Coast is pushing lawmakers in California and other states to use eminent domain to take over underwater mortgages. Eminent domain is a power that can be used by government to get a court order to seize property -- not loans -- for the public’s interest, like to extend a highway or construct a school. 

Mortgage Resolution Partners in San Francisco says that by using eminent domain on underwater mortgages city officials will be able to take them away from private lenders and bondholders. The company then says it would work to restructure the loans and help underwater home owners reduce their monthly mortgage payments. The company says it’s a way to help avoid any more foreclosures and prevent home values from dropping any more. 

Mortgage Resolution Partners proposes helping local lawmakers find institutional investors who would finance the condemnation process. Then, taxpayers wouldn’t get stuck with the bill to acquire the mortgages, the company said. 

Many in the real estate community are concerned about the proposal, questioning its legality and suggesting it violates property rights. The Inland Valleys Association of REALTORS® has already spoken out against the proposal.

“We want to help home owners, too, but we want to make sure that we aren't causing damage in other areas," says Paul Herrera, Inland Valleys Association of REALTORS®’ government affairs director. 

Source: “Investors Tout ‘Condemnation’ for Housing Fix,” Reuters (June 11, 2012)

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