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Sunday, September 08, 2013

Update on "eminent domain" for mortgages: North Las Vegas rejects "hair-brained scheme"

by Calculated Risk on 9/08/2013 06:21:00 PM

I haven't written much about the use of "eminent domain" to buy mortgages because it is such a dumb idea - and I expect it to go away fairly quickly (the city of Richmond is proposing to use eminent domain to help individual homeowners who are underwater - who may or may not be able to afford their mortgage - obviously not an intended use of eminent domain).

The North Las Vegas city council rejected the use of "eminent domain" 5-0 last week. Here is a funny quote from the Nevada Association of REALTORS® President Patty Kelley:

“Their rejection of the contract with MRP is in stark contrast to the decision of the previous council on this matter, and is a reflection of the serious ramifications associated with this hair-brained scheme foisted on the council by MRP officials."
emphasis added
And on Richmond from the Contra Costa Times: Both sides in Richmond eminent domain plan set for showdown at City Council meeting
[B]ackers of a plan that would make Richmond the first city in the nation to seize underwater mortgages using eminent domain are set to make a furious push for survival. ...

[T]he city can't secure insurance protection to shield it from a potential court judgment if the plan is found unlawful.
emphasis added
What a surprise - no one wants to insure an almost certain legal loser.

An appropriate public policy to help underwater homeowners would be cramdowns in bankruptcy (see Tanta's Just Say Yes To Cram Downs), but having cities use "eminent domain" is obviously not.

I still don't understand why the Obama Administration didn't push for cramdowns in early 2009.  Oh well ...