California city backs plan to seize negative equity mortgages

[Eugene]

Source: Reuters

California city backs plan to seize negative equity mortgages

By Jim Christie
RICHMOND, Calif | Wed Sep 11, 2013 6:00am EDT

(Reuters) - Richmond, California's leaders approved on Wednesday morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes.

The power of 'eminent domain' allows governments to seize private property for a public purpose. Critics say the plan threatens the market for private-label mortgage-backed securities.

Richmond's city council voted 4 to 3 for Mayor Gayle McLaughlin's proposal for city staff to work more closely with Mortgage Resolution Partners to put the plan crafted by the investor group for the city to work.

Richmond can now invoke eminent domain if trusts for more than 620 delinquent and performing "underwater" mortgages reject offers made by the city to buy the loans at deep discount pegged to their properties' current appraised prices to refinance them and reduce their principal.

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Read more: http://www.reuters.com/article/2013/09/11/us-richmond-eminentdomain-idUSBRE98A0FN20130911

[niyad]

1. imagine a city doing something to actually help the citizens!!

[1StrongBlackMan]

2. I would think …

If the court applied ED law to this case, it might work. And if at all successful, the smallest effect will to be for the banks to break their necks to re-write mortgages (to current market valuations) and/or write down principals.

Here are my thoughts:

“To exercise the power of eminent domain, the government must prove that the four elements set forth in the Fifth Amendment are present: (1) private property (2) must be taken (3) for public use (4) and with just compensation. These elements have been interpreted broadly. http://legal-dictionary.thefreedictionary.com/Elements+of+Eminent+Domain”

I see two hurdles to leap: first, getting a court to identify the mortgage as the “private property”, rather than the residence securing the mortgage. That should not be such a problem (if the court follows precedent and applies a broad interpretation) since the courts already consider fixates, leases, options, stocks, and other non-residence property, property.

The second hurdle would be for the court to recognize the home price stabilizing effect of foreclosure prevention as a “public use.”

This ought to be interesting, though I have very little faith in the courts siding with middle and lower incomed property owners over banks.