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To address the housing bust, some cities in California are considering invoking eminent domain to restructure mortgages.
San Bernardino County may invoke eminent domain to deal with how the housing bust is affecting its cities. While eminent domain is typically used by the government to acquire property and reuse it for the public interest, local officials are planning to acquire property with underwater mortgages, restructure them according to the market value of the property, and resell the mortgage to private investors.
The use of private investors is key, as the avoidance of public funds allows the plan to go forward without approval from the city council or board of supervisors. This idea is drawing criticism from those in the Securities Industry and Financial Markets Association, who stress that this practice will only make banks more unwilling to lend. Mortgage Resolution Partners, the firm which came up with this idea, says that’s already the case.
Which side is right? Is invoking eminent domain acceptable for such a purpose? Is this a better route than declaring bankruptcy, which other cities have done? What could this plan mean for you?
Graham Williams, Chief Executive Officer, Mortgage Resolution Partners LLC
David Wert, Spokesperson & Public Information Officer, San Bernardino County
Chris Thornberg, Principal at Beacon Economics
Jim Burling, director of litigation at Pacific Legal Foundation