U.S. warns against eminent-domain mortgage seizures
Source: Los Angeles Times
The nation's top housing finance regulator threatened to choke off mortgage lending in cities that use eminent domain to seize underwater loans from lenders.
The salvo from the Federal Housing Finance Agency came Thursday, on the heels of a lawsuit directed by major Wall Street firms and U.S.-sponsored mortgage giants Fannie Mae and Freddie Mac against the Bay Area city of Richmond.
... The federal housing agency, which regulates Fannie and Freddie, on Thursday made clear it doesn't intend to let this happen. The agency said it would instruct Fannie and Freddie to "limit, restrict or cease business activities" in any jurisdiction using eminent domain to seize mortgages.
... Richmond Mayor Gayle McLoughlin said: "The fact these threats are being put out there are very, very disturbing — but we are not afraid to go to court. We are looking forward to it, because we think fully that our legal reasoning will win."
Read more: http://www.latimes.com/business/la-fi-eminent-domain-lawsuit-20130809,0,6390434.story
= new reply since forum marked as read
Highlight:
NoneDon't highlight anything
5 newestHighlight 5 most recent replies
PoliticAverse
(26,366 posts)dballance
(5,756 posts)This seems to me just a way for the connected banks and mortgage lenders to avoid having to go to court - thanks to the revolving door between them and the governemnt. Think of the savings in lawsuits they won't have to file.
avaistheone1
(14,626 posts)
Yo_Mama
(8,303 posts)They have found a way (they think) to get governments to blackmail creditors to sell property to them very cheaply. These are private capitalists putting up the funds under the cover of the government to buy properties very cheaply.
They always knew that they wouldn't be able to refund the mortgages.
I'm amazed at the lack of critical thinking here.
In the end, the homeowners will be the ones to lose everything.
99th_Monkey
(19,326 posts)don't know if they'll win or not, but it's definitely a "good fight" they
are taking on.
And if 80% of the jurisdictions in the USA do eminent domain then
that's a big fuck you to the chicken shit lenders.
truedelphi
(32,324 posts)bigapple123
(23 posts)would a lender want to lend money if the city can seize the mortgage note from the lender?
msongs
(67,361 posts)
angstlessk
(11,862 posts)rhett o rick
(55,981 posts)villager
(26,001 posts)n/t
Spitfire of ATJ
(32,723 posts)
limpyhobbler
(8,244 posts)
AtheistCrusader
(33,982 posts)bigapple123
(23 posts)MBIA, Ambac etc all bankrupt?
In any case, I think the insurance doesn't cover eminent domain. Just regular foreclosures.
dkf
(37,305 posts)
JDPriestly
(57,936 posts)we will have to see what a court thinks of them. You never know.
However, Fannie Mae and Freddie Mac are being less than honest if they are saying that the city, by exercising its power of eminent domain would somehow cause the mortgage holders to lose money.
The city of Richmond would not be allowed to pay a price it would like to pay for the properties in question but rather would pay fair market value.
That is determined as described here:
The government is required to pay the "fair market value" of the property it acquires by eminent domain. California's Eminent Domain Law generally defines fair market value as:
"The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by the seller, being willing to sell but under no particular or urgent necessity for doing, nor obliged to sell, and a buyer, being ready, willing and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available."
Evidence of fair market value is generally presented to the jury by real estate appraisers retained by each of the parties. Real estate appraisal is not an exact science, and as such, appraisers often differ in their opinions of value in a particular case. In fact, in a great many cases, the government's appraiser and the owner's appraiser may disagree by tens of thousands, hundreds of thousands, or even millions of dollars!
http://www.eminentdomainlaw.net/handbook3_3.php
Even if the properties were taken by eminent domain and sold to the original homeowners at market value, the investors to whom the mortgage debt is owed would not lose more than they have already lost. They would just have to recognize the loss of the debt that they have lost. This would require Fannie Mae and Freddie Mac to honestly inform their investors that they have lost money on their mortgage investments.
It would not change the reality of the mortgage or real estate market that much. It would simply force the investors to whom the money is owed to realize how much money they have lost. Cruel reality would become evident.
Then there is the question as to whether saving communities and preventing blight in a city can be considered a public use of a property that justifies the government's taking the property.
I remember when California had a very active policy of exercising eminent domain on supposedly blighted properties, properties that were not well maintained, and selling them to private companies for development. No one seemed to object but there was a lot of haggling in court over the fair market value.
If the homes in Richmond are abandoned, foreclosed on and left in disrepair and if no or very low taxes are paid on them because they have been abandoned, then that could be considered to be blight and eminent domain could then be exercised. Chances are that if the houses should be abandoned and foreclosed on and left in disrepair, when the inevitable eminent domain is exercised based on blight, the investors holding the mortgages will be paid far less than they might be paid if the houses are taken by eminent domain to save the community from blight.
I remember a Supreme Court case a few years ago in which the Court decided that the power of eminent domain could be exercised in a case involving its exercise for the gain of a private party. If the taxes on the properties are maintained at good levels and therefore the State of California and the local governments are benefited by the higher tax revenue, that could justify the taking seems to me would be the city's argument.
Spite on the part of mortgage lenders is an ugly thing.
Kelo v. City of New London, 545 U.S. 469 (2005)[1] was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.
The case arose in the context of condemnation by the city of New London, Connecticut, of privately owned real property, so that it could be used as part of a “comprehensive redevelopment plan.” However, the private developer was unable to obtain financing and abandoned the redevelopment project, leaving the land as an empty lot, which was eventually turned into a temporary dump.[2]
http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
Everybody lost in that case even though under eminent domain law, the person from whom the property is taken usually gets the fair market value of the property. I don't know whether the mortgage or trust deed in California can be taken by eminent domain. I just don't know about that.
I understand that Montana has a bank. Maybe California needs a bank to lend to homeowners following a city's use of eminent domain to save neighborhoods from blight and abandonment.
Yo_Mama
(8,303 posts)Just what the hell do you think the "fair market value" is going to be?
This a transparent gambit by a bunch of private money guys to get the government to allow them to buy properties for very little.
KamaAina
(78,249 posts)Maybe we do need one. But the banksters would scream bloody murder if gummint were to compete with them in the world's 9th-largest economy.
Vinnie From Indy
(10,820 posts)program in Richmond is about or how it is used?
bigapple123
(23 posts)The city wants to seize underwater mortgage loans from the trusts of non-agency mortgage securities.
They would pay an amount less than the fair market value of the house and less than the fair market value of the loan (the loan can be worth more than the fair market value of the house if it is performing).
My questions are:
(1) Is the "just compensation" criteria of the Takings Clause satisfied if compensation is less than fair market value of the loan
(2) If cities start seizing loans because the collateral is underwater, why would lenders ever lend again in such cities? Can cities demand that car loans be written down to fair market value the moment the car is driven off the lot?
What about you? Do you have any idea how this program will work?
Vinnie From Indy
(10,820 posts)Here is a pretty thorough argument in favor of the eminent domain program.
http://www.newyorkfed.org/research/current_issues/ci19-5.pdf
Cheers!
bigapple123
(23 posts)the most important sentences in this piece
"Using their traditional eminent domain powers—a legal authority enshrined in our state and federal constitutions for precisely such exigencies as the foreclosure crisis presents—states or their sub-units can compulsorily purchase underwater loans from private-label securitization trusts at fair value"
"First lienholders who help finance the purchases from their PLS trusts receive loans that are higher in expected value in exchange for loans with lower expected value. First lienholders who do not thus participate receive fair value for otherwise unmarketable assets."
Richmond wants to pay anything but fair value for the loans.
LanternWaste
(37,748 posts)Why on earth would a person want to borrow money for a home loan if the bank can take their house away from them...? 
(insert distinction without a difference here)
dkf
(37,305 posts)But it makes sense to protect Fannie and Freddie's interests.
bigapple123
(23 posts)but Richmond is trying to seize mortgages in private label securities. Not sure where Fannie and Freddie are involved.
silvershadow
(10,336 posts)
eggplant
(3,908 posts)And so the threat is to make it so FHA loans wouldn't be available to them.
silvershadow
(10,336 posts)concern them (inho).
dkf
(37,305 posts)No loans, less sales, lower values for properties Fannie and Freddie own, higher potential losses. Add to that the governments desire to get out of mortgages and this is exactly what the government doesn't want.
MannyGoldstein
(34,589 posts)Oh, good.
House of Roberts
(5,163 posts)at what these properties are really worth, instead of the bubble value from before the crash, they would have to declare insolvency. The only thing keeping them in business is a lie.
Ed Suspicious
(8,879 posts)cascadiance
(19,537 posts)... and manipulating them with derivatives for their own criminal profits!
I think people should think about just surrounding this agencies offices tomorrow or Monday to have them think twice about ruling this way again and remind them who they REALLY should be working for instead of the crooks that they seem to be doing here.
Igel
(35,275 posts)I mean, if you get a car loan the car depreciates in value at first far faster than you pay off the loan.
You're immediately underwater, so to speak. Should your loan immediately be lowered because the collateral is worth less than the loan?
Or perhaps if you buy a house and the value appreciates the loan should increase with it--or does this only work to benefit the homeowner?
You borrow money from a friend, you pay it back as agreed. Doesn't matter what you borrowed it for. You borrow it to buy a car and use it instead to go to France, tough. You borrowed the money. Your choice. In some situations if your collateral declines, you need to pony up more collateral. Fortunately the bank loan industry isn't set up that way.
Of course, this shouldn't be the case if you were somehow forced into unfavorable terms. But that's different from being greedy or assuming that you could easily wait for the property to appreciate and refinance.
House of Roberts
(5,163 posts)They are so far under the prudent thing to do would be to walk away and let the bank keep it. The bank is already in a losing position.
Sirveri
(4,517 posts)So if you walk away from a 300k loan on a 200k property, the bank gets the house, you are considered to have gotten 300k, unless you declare bankruptcy to wipe it out, and it has to be declared that same fiscal year.
House of Roberts
(5,163 posts)I know that 'discharged debt' in a bankruptcy is considered income for tax purposes. That is only on unsecured credit, where the creditor received nothing of value when the debt was cancelled.
On a house loan the creditor receives the house when the debt is cancelled. There isn't any cancelled debt income because it's secured credit, also called a 'non-recourse loan'.
In your example, if you gave the bank back a house worth $200k, and they canceled $300k of debt, the most you could be looking at would be $100k, as a capital gain, if the total of the payments made on the house plus repairs and upkeep were zero. You're allowed to deduct up to $250k in a home sale off your capital gain, so I see no tax liability in that scenario.
I'm no tax attorney, and state taxes could be different, but I'm only considering federal in this case.
Sirveri
(4,517 posts)She knows the details better than I would here. When she told me, it made ZERO sense. Basically the bank gets a free ride, and she gets screwed over from every direction. Hearing about it is really disturbing, she has the issue because she didn't declare bankruptcy immediately and managed to stay afloat because I bailed her out repeatedly to the tune of 20 thousand dollars so far. In hindsight I'm not sure that was the correct path to walk, but too late now.
Spitfire of ATJ
(32,723 posts)Safetykitten
(5,162 posts)AtheistCrusader
(33,982 posts)Gotta have more foam, the fucking bankers are only making billions per year now.
jtuck004
(15,882 posts)So they take their ball and go home, the houses drop to a less inflated value because people can no longer get their overblown loans, and investors who see value step in and do private financing. FHFA then gets all miffed and pulls out of others, whereupon prices drop and investors seeing better value and people who try to pay their bills when they are not being skinned and robbed, and now the bills are much more affordable, provide financing. Credit default swaps provide insurance (reasonable ones, not those built on hot air like we are still paying for).
In town after town the market drops to the level of realistic value it would be at if the feds had not propped up the criminals in the big banks and mortgage companies with their bailout, and working people can afford a house again. The banks start dumping some of the 7,000,000 homes they are holding on their balance sheets as they play with people's lives and try to manipulate prices upward, (which they are able to do because the government is funding their little party), and housing values start to drop all over the country. Pensioners and others find out that the government has been promoting a deception to keep prices high on the backs of 50 million people on food stamps, a crumbling infrastructure, and 100 million people below 200% of the poverty line, and those with real money find that they have less, and those who have less find out...well, they find out they still have less, so not much changes for them.
And the next election begins to look very interesting as people begin to get a bit more educated about how they are being used for the benefit of the wealthy...
Trying to see the downside here...
Like the poster above said, "President Dimon . . ."
I see differences between the two parties on social issues, but not so much on economic issues. I've continued to vote democratic because of social issues, but I'm starting to question, can you have social justice without economic justice?
and I find it interesting that this federal agency can make a statement and a strongarming action on the activities or proposed activity yet others cannot.
For example, where is the DOH on decertifying state healthcare facilities from being qualified to receive federal reimbursements if they refuse a full range of women's healthcare?
CrispyQ
(36,424 posts)"In a just society, there is no limit to how high one can climb, but there is a limit to how far one can fall."
~Jared Bernstein, author of "All Together Now: Common Sense for a Fair Economy"
annm4peace
(6,119 posts)Richmond should do it anyhow.. start it now!
AllyCat
(16,152 posts)Really. Just take your shovels and pails and go home then. We'll find something else valuable to do.
DeSwiss
(27,137 posts)
- They can't do shit. Corrupt bastards.
K&R
polynomial
(750 posts)From my view as a boomer, and millennium thinker, eminent-domain in its most basic concept needs reform, redesigned, it needs a makeover.
The basic law in eminent domain is a fundamental one percenter sided law.
The concept of eminent anything falls in the domain of that Gaussian distribution curve, economist call the bell curve, the speed bump. We the people should very well think of it as the Gaussian curse, but the banks know it is a blessing. In all probability like cards or many could say banking roulette, this curve favors the house banking game.
For the last century the Jekyll Island banking club made this plan way before you and me were born, this year exactly one century ago. Most if not all the banking rules, were developed by just a few at the time. Likely, members in it are even a lot less than one percent of the whole population of the world. This club is currently called the Federal Reserve members by appointment only. The original members also included the who’s who in money of central Europe. Many can sense the reason our laws seem like antiquated and tyranistic based from a vanishing feudal mind.
Is all that fair for a Democracy, of the people by the people, or we the people, simply answered; especially NO, for the lack of transparency in all the secrecy that is done in the Federal Reserve over the last century fails the fairness doctrine of plain old transparency in Democracy. The transparency is basic the knowledge to know what in heaven’s name your voting for. Transparency is the bedrock of Democracy; it is honesty in your own mine with God. Here, for some reason our money is imprinted with that thought to carry forward “In God We Trust”.
dickthegrouch
(3,169 posts)If I were refused a loan by Fannie or Freddie merely because of where I live, I'd try to sue under equal protection.
bigapple123
(23 posts)firstly, Fannie or Freddie doesn't make loans. They buy loans and guarantee/securitize them. Your local bank or mortgage broker would be the one making the loan. I don't think equal protection can force banks or mortgage brokers to make loans to anyone they consider an unjustified risk (other than for legally-protected discriminatory reasons).
secondly, Fannie or Freddie also have criteria for what loans they buy ("conforming"
. I guess they could just add a new criteria "high risk of seizure by local government" (but this is moot under my next point).
thirdly, Fannie or Freddie are GSEs so I'm thinking under the supremacy clause state eminent domain laws cannot seize the loans that they guarantee or buy.
JimDandy
(7,318 posts)Richmond is trying to do what the middle class begged Obama to do four years ago: help alleviate the foreclosure problems created by the banks. Now after making his 'I'm going to help the middle class with or without you' speech aimed at the Repubs in Congress, he is given the chance to do so.
And he fails miserably, again!
He is just so much hot air that it has become truly pathetic.
forestpath
(3,102 posts)Smickey
(3,305 posts)that regular people are just so much fodder.