Like a visiting relative who won't go home, the idea to seize underwater-but-performing mortgages is still hanging on. The llatest chapter is brought to us by way of our New York colleague Mike Rikon, who writes:
At a press conference on the steps of City Hall, City Council members and housing advocacy groups called on the Mayor to help homeowners who are at risk of foreclosure. Such help would come in the form of using eminent domain to “buy back mortgages where homeowners owe more than their houses are worth.”According to a CBS report on June 25, 2014, “under the proposed plan, City government would purchase the mortgages from banks and refinance them to match the home’s value to prevent foreclosure.”
Mike notes that nearly two years ago (and several times since), we suggested that this plan was not clearly legal, and even if it were, was not really a great way to address any problem with the difficult mortgages. Eminent domain can be a very effective tool when the government must acquire privately-owned land that it needs for public works projects, but not so effective when it is used "creatively" as a tool for social engineering and economic redistribution:
The idea was the subject of a discussion by a panel of eminent domain experts at the annual ALI-CLE Eminent Domain and Land Valuation Litigation Seminar held in Miami Beach, Florida on January 24, 2013.* Robert Thomas, author of Inverse Condemnation, an indispensable blog [barista's note: mahalo for the nice plug, Mike], wrote in a paper on the subject:We still think that's the case, and despite more time to vet the legal issues and the economics, the plan doesn't seem any better, nor the issue any more pressing. For a flavor, see some of our earlier myriad posts on the issue:I turn now to the recent proposal that seems to be gaining the most traction in California, for municipal governments to use eminent domain to seize underwater-but-performing mortgages, the topic of our discussion. Proponents of the scheme argue it will fix the burst bubble and right the housing market, all at little to no cost to the public. Call me a skeptic, bu this plan sounds like those from my home jurisdiction that went all farpotschket. But I won’t go into the wisdom of the plan as that is beyond my meager powers as a lawyer; let’s just say I was officially agnostic until I heard the CEO of Mortgage Resolution Partners– the outfit that is spearheading the proposal– remark at a recent conference on the topic that eminent domain will have no cost. Call me a skeptic, but any time someone suggests a plan, whether or not it involves leveraging the power of eminent domain, I become highly skeptical. Eminent domain will have “no cost”? For a plan that, I think, has not fully thought out whether it will pass muster under even the low Berman-Midkoff-Kelo bar or the particulars of California’s law of necessity. And the proponents’ belief that they have correctly calculated just compensation for the underwater-but-performing mortgages appears overly simplistic and too optimistic to me. If that situation ever develops into litigation, it will be the “one-percenters,” not our homeless friends on Skid Row, who will be asserting and defending property rights.
- Mortgage Monday (links to stories about Richmond, California's on-again, off-again plan to do the same).
- Guest Post: More On The Two Federal Lawsuits Challenging The Underwater Mortgage Taking Scheme (the Richmond plan was attacked in Federal Court immediately before the case was ripe).
- New FOIA Complaint Seeks Information About Underwater Mortgage Eminent Domain Issue (a federal agency was served with a complaint to disclose its documents on the issue).
- Surprise - New Article In Mortgage Resolution Partners Law Review: Use Of Eminent Domain To Take Mortgages OK! (a law review article published by Robert Hockett, the lawprof who thought up this scheme).
- Materials And Links From Today's ALI-CLE Presentation On Condemnation Of Underwater Mortgages (stuff from a presentation we did on the issue in January 2013 with co-panelist Professor Robert Hockett).
- Professor Ely, You Magnificent Bastard, I Read Your Book! (Our original commentary on the plan).
As we say, stay tuned, especially if New York City actually follows through on this plan.
