Government to use Eminent Domain to Acquire Distressed Properties?
Foreclosure crisis needs solutions, but eminent domain???? Is this idea right or wrong?
A federal agency is reviewing a proposal to use eminent domain to acquire
“underwater” mortgages that is under consideration in San Bernardino County and
other jurisdictions around the country.
The Federal Housing Finance Agency, which oversees government lending agencies such as Fannie Mae and Freddie Mac and the Federal Home Loan Banks, announced Wednesday, Aug. 8, that it has “significant concerns” about the proposal.
The agency stated it “could undermine and have a chilling effect on the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.”
As part of its review, the agency will accept comments from the public until Friday, Sept. 7. Following that process, “action may be necessary on its part to avoid a risk to safe and sound operations,” according to the agency statement.
Mortgage Resolution Partners, a San Francisco-based group, has proposed using eminent domain as a solution to the foreclosure crisis that has left many homeowners underwater — owing more than their house is currently worth — on their mortgages.
Steven Gluckstern, chairman of the company, released a statement saying that its proposal does not involve the use of federal resources and that local governments it partners with will comply with all applicable consumer protection laws.
“We expect that the FHFA will, after due consideration, respect state and local sovereign powers of eminent domain over private property within their jurisdictions,” he said
San Bernardino County has been in talks with the company since late last year and formed a joint powers authority in April with the cities of Fontana and Ontario that has the authority to condemn mortgage loans.
The mortgage owners would be paid at current, lower market rates, and homeowners would see their payments reduced, according to county and company officials.
The financial industry has criticized the idea in recent weeks, but other cities, including Berkeley and Chicago have announced their interest in exploring the idea also.
The concerns raised by the Federal Housing Finance Agency are the same as those expressed by trade groups in the financial and lending industries. A representative for the Securities Industry and Financial Markets Association, commended the federal agency for opening the review.
“SIFMA believes that this plan would likely significantly harm mortgage finance markets and reduce access to credit for mortgage borrowers,” stated Kenneth E. Bentsen, Jr., executive vice president for public policy and advocacy for the group.
Mortgage Resolution Partners has accused Wall Street of “distortions” and of trying to kill the proposal before it gets a fair hearing.
“We've seen this movie before,” Gluckstern said. “A handful of Wall Street firms and their Washington, D.C., lobbyists fight like hell to crush any solutions that might benefit average Americans.”
The bill is still in the development phase, but the county is exploring the idea of using the power of eminent domain to seize properties either prior to or in foreclosure and then sell them to a private firm that would sell them back to the borrower who is facing foreclosure.
The firm would structure payments the borrower could (presumably) meet, based on the value of the new loan. The borrower would owe nothing more on the property than the present day value -- something that itself becomes questionable if the plan were implemented.
Traditionally, eminent domain was the power government had to seize private property, known as a "taking" under the Fifth Amendment, and put it to public use such as building a highway. And, in fact, the Michigan Department of Transportation's website offers links to online information about eminent domain.
That traditional approach to eminent domain changed, though, with the U.S. Supreme Court's decision in 2005 in the case Kelo v City of New London. In Kelo, the Court upheld a government's attempt to use eminent domain to seize private property for a private purpose, which was for a private development that would, presumably, enhance New London's tax base.
Ironically, the Court's decision tracked with a case decided in 1981 by the Michigan Supreme Court, Poletown Neighborhood Council v City of Detroit, which allowed the city to seize homes and raze them to build a General Motors plant.
Poletown was overturned by the state's highest court in the 1994 case Wayne County v Edward Hathcock. So incensed were Michigan voters about the Kelo decision that in 2006 they voted overwhelmingly to amend the state's constitution to prohibit government seizures for economic development -- tailoring Michigan law to the original intent of the Constitution.
It's therefore doubtful that the San Bernardino scheme would be successful in Michigan, especially when tested -- as it certainly would be -- in our courts; however, that doesn't mean some government entity wouldn't try. Indeed, judging from Detroit Corporation Counsel Krystal Crittendon's tenacity, you would think it's almost a sure bet.
And this fall, Michigan's voters will decide whether to retain Supreme Court justices who respect the rule of law or elect ones whose personal feelings determine the outcome of cases -- and shape the landscape of our state's laws.
No one wants to see a neighbor go into foreclosure; it hurts everyone involved, especially families that are struggling in a stale economy. The promise of future prosperity we once held when we bought our homes 10, 20, or 30 years ago is today looking more like a looming financial armageddon, as government spending with its corresponding appetite for tax dollars spirals into the stratosphere.
On the other hand, there is, like the blunt point former President Ronald Reagan made, no such thing as a free lunch. If the San Bernardino plan were implemented, then some entity would be on the hook for the subsequent loss -- either the lender or an insurer of the mortgage.
That, of course, would lead to a inexorable weakening of the financial position of those lenders and a loss of confidence in giving credit -- does the term "bank crisis" ring a bell?
Moreover, what about the next-door neighbors who are current on their loans but who are also underwater? What is the county going to do for them? Why shouldn't they default out of choice, rather than necessity, force a foreclosure, and get the same deal?
The San Bernardino scheme isn't done with the intent to harm anyone, but it's certainly a negligent use of the power government has, or attempts to use.
Author Bio: Rob Alley earned a bachelors degree at Virginia Tech, in Blacksburg, VA in Biology. Rob Alley consults with homeowners regarding Real Estate transactions and speciliazes in listing and selling Charlottesville Real Estate. Realtor/Owner of Virginia Real Estate Solutions at RE/MAX Assured Properties
Charlottesville Real Estate Experts
Share on Facebook
The Federal Housing Finance Agency, which oversees government lending agencies such as Fannie Mae and Freddie Mac and the Federal Home Loan Banks, announced Wednesday, Aug. 8, that it has “significant concerns” about the proposal.
The agency stated it “could undermine and have a chilling effect on the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.”
As part of its review, the agency will accept comments from the public until Friday, Sept. 7. Following that process, “action may be necessary on its part to avoid a risk to safe and sound operations,” according to the agency statement.
Mortgage Resolution Partners, a San Francisco-based group, has proposed using eminent domain as a solution to the foreclosure crisis that has left many homeowners underwater — owing more than their house is currently worth — on their mortgages.
Steven Gluckstern, chairman of the company, released a statement saying that its proposal does not involve the use of federal resources and that local governments it partners with will comply with all applicable consumer protection laws.
“We expect that the FHFA will, after due consideration, respect state and local sovereign powers of eminent domain over private property within their jurisdictions,” he said
San Bernardino County has been in talks with the company since late last year and formed a joint powers authority in April with the cities of Fontana and Ontario that has the authority to condemn mortgage loans.
The mortgage owners would be paid at current, lower market rates, and homeowners would see their payments reduced, according to county and company officials.
The financial industry has criticized the idea in recent weeks, but other cities, including Berkeley and Chicago have announced their interest in exploring the idea also.
The concerns raised by the Federal Housing Finance Agency are the same as those expressed by trade groups in the financial and lending industries. A representative for the Securities Industry and Financial Markets Association, commended the federal agency for opening the review.
“SIFMA believes that this plan would likely significantly harm mortgage finance markets and reduce access to credit for mortgage borrowers,” stated Kenneth E. Bentsen, Jr., executive vice president for public policy and advocacy for the group.
Mortgage Resolution Partners has accused Wall Street of “distortions” and of trying to kill the proposal before it gets a fair hearing.
“We've seen this movie before,” Gluckstern said. “A handful of Wall Street firms and their Washington, D.C., lobbyists fight like hell to crush any solutions that might benefit average Americans.”
The bill is still in the development phase, but the county is exploring the idea of using the power of eminent domain to seize properties either prior to or in foreclosure and then sell them to a private firm that would sell them back to the borrower who is facing foreclosure.
Traditionally, eminent domain was the power government had to seize private property, known as a "taking" under the Fifth Amendment, and put it to public use such as building a highway. And, in fact, the Michigan Department of Transportation's website offers links to online information about eminent domain.
That traditional approach to eminent domain changed, though, with the U.S. Supreme Court's decision in 2005 in the case Kelo v City of New London. In Kelo, the Court upheld a government's attempt to use eminent domain to seize private property for a private purpose, which was for a private development that would, presumably, enhance New London's tax base.
Ironically, the Court's decision tracked with a case decided in 1981 by the Michigan Supreme Court, Poletown Neighborhood Council v City of Detroit, which allowed the city to seize homes and raze them to build a General Motors plant.
Poletown was overturned by the state's highest court in the 1994 case Wayne County v Edward Hathcock. So incensed were Michigan voters about the Kelo decision that in 2006 they voted overwhelmingly to amend the state's constitution to prohibit government seizures for economic development -- tailoring Michigan law to the original intent of the Constitution.
It's therefore doubtful that the San Bernardino scheme would be successful in Michigan, especially when tested -- as it certainly would be -- in our courts; however, that doesn't mean some government entity wouldn't try. Indeed, judging from Detroit Corporation Counsel Krystal Crittendon's tenacity, you would think it's almost a sure bet.
And this fall, Michigan's voters will decide whether to retain Supreme Court justices who respect the rule of law or elect ones whose personal feelings determine the outcome of cases -- and shape the landscape of our state's laws.
No one wants to see a neighbor go into foreclosure; it hurts everyone involved, especially families that are struggling in a stale economy. The promise of future prosperity we once held when we bought our homes 10, 20, or 30 years ago is today looking more like a looming financial armageddon, as government spending with its corresponding appetite for tax dollars spirals into the stratosphere.
On the other hand, there is, like the blunt point former President Ronald Reagan made, no such thing as a free lunch. If the San Bernardino plan were implemented, then some entity would be on the hook for the subsequent loss -- either the lender or an insurer of the mortgage.
That, of course, would lead to a inexorable weakening of the financial position of those lenders and a loss of confidence in giving credit -- does the term "bank crisis" ring a bell?
Moreover, what about the next-door neighbors who are current on their loans but who are also underwater? What is the county going to do for them? Why shouldn't they default out of choice, rather than necessity, force a foreclosure, and get the same deal?
The San Bernardino scheme isn't done with the intent to harm anyone, but it's certainly a negligent use of the power government has, or attempts to use.
Author Bio: Rob Alley earned a bachelors degree at Virginia Tech, in Blacksburg, VA in Biology. Rob Alley consults with homeowners regarding Real Estate transactions and speciliazes in listing and selling Charlottesville Real Estate. Realtor/Owner of Virginia Real Estate Solutions at RE/MAX Assured Properties
Charlottesville Real Estate Experts
Share on Facebook
Comments
Post a Comment