http://www.nytimes.com/2013/07/30/business/in-a-shift-eminent-domain-saves-homes.html?pagewanted=all&_r=0

basically, Richmond, CA is going to use eminent domain to prevent foreclosures on houses in the city. They aren't going to take the property; instead, they are going to take the mortgage on the property from the banks.

My take is that, while it seems like a misuse of eminent domain on the surface, a deeper look suggests that it's perfectly fine. There's certainly a public interest in preventing properties from being foreclosed on because of the resulting affect on surrounding properties and the tax-base of the city. Economic development is not helped by having a shit ton of empty houses falling apart. It does feel weird to be taking the mortgage, but that is as much a "property" as the real property backing the mortgage. It will be interesting to see how the prospect of paying far less than the mortgage value will hold up, though.

It does lead to some interesting questions, though, like what else can the gov't seize... Money in your bank account, directly, simply because it could be "better used" elsewhere for "the public good"? It's hard to argue that there is a significant difference between liquid assets and a mortgage in this respect. It will also be interesting to see how banks respond if it goes through. I suspect all banks would cease mortgage lending in that area, or change the terms drastically to account for that uncertainty.

Weird stuff

8/8/2013 6:45:05 PM

Fuck a system where rich dickbags running banks fuck over the country, but yet still get millions in pay and bonuses, cause people to lose their jobs or their home values to tank, and then have the audacity to foreclose on them.

8/9/2013 2:00:56 PM

I find the legal argument interesting; especially given some of the other strange things eminent domain has been used to seize. Usually I'm a proponent of a strict interpretation of the 5th amendment where it specifies property be taken for "public use". That means I'm against eminent domain being used to seize private land to facilitate private development projects and other private undertakings deemed beneficial to a broadly defined "public good".

In this case, I'm a little uncomfortable with the fact the public money is being spent with a direct financial benefit to only a few; namely the ones who are having their mortgages purchased. It sets the kind of precedent where a town counsel spends public funds to buy the mortgages of their rich cronies.

8/9/2013 2:56:34 PM

I'm cool with anything that screws these fucks in the Big Banks and on Wall St.

8/9/2013 9:39:05 PM

There are so many legal and moral reasons that this should be stopped in court I don't even know where to begin.

8/9/2013 9:50:48 PM

Well, please, start, lol.

8/9/2013 10:02:05 PM

http://www.wralsportsfan.com/rental-tied-to-unc-player-gets-12-parking-tickets/12761143/

This sums some of it up pretty nicely. It's not a legitimate use of eminent domain and when you get past the verbage it's essentially a bank robbery.

I know people are still mad at banks and upset that they're dealing with underwater homes, but it's not morally acceptable to use the force of government to steal from investors.

8/9/2013 10:11:43 PM

Damn, UNC basketball is part of the housing crash, too? I didn't realize it went so deep

8/9/2013 11:11:40 PM

Quote :

"The results will be closely watched by both Wall Street banks, which have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt,"

Big fucking surprise.

It's long been established that "property" can refer to both tangible and intangible things, so this will without a doubt set a precedent. The city needs to show that the broken windows theory could manifest itself and I think they have a solid case for protecting the general public welfare.

If lenders aren't willing to offer solutions or compromises to address the problem, then the city has no choice but to be proactive.

8/9/2013 11:17:46 PM

Quote :

"If lenders aren't willing to offer solutions or compromises to address the problem, then the city has no choice but to be proactive."

This sounds fine, assuming that the action they take is legal. Just saying...

8/9/2013 11:38:53 PM

haha, wow, didn't even realize I had pasted the wrong link. WTG, Kurtis.

http://reason.com/archives/2013/08/09/california-proposes-crony-capitalism-to

8/10/2013 4:58:48 AM

Ok, I get that there is a public benefit to not having a bunch of foreclosures, but how would this be taking property for "public use"? Of course, after the Kelo decision I guess anything is possible with eminent domain. And I'm still unclear as to why we need the government to save people from their own bad choices.

Quote :

"It does lead to some interesting questions, though, like what else can the gov't seize... Money in your bank account, directly, simply because it could be "better used" elsewhere for "the public good"?"

Absolutely, and they will eventually. Some crisis will come along and savers will need to "take a haircut" for the public welfare.

8/10/2013 9:59:11 AM

Quote :

"And I'm still unclear as to why we need the government to save people from their own bad choices."

I suppose an argument could be made that it'sless about protecting the people who made bad decisions and more about protecting everyone else. ie. business owners, neighbors whose property value will plummet further due to empty unkempt houses. Of course, where does it stop? *shrug*

8/10/2013 11:43:32 AM

No sir, I don't like it.

8/10/2013 12:44:29 PM

Three things

- the city has offered to straight buy the mortgages from banks before using eminent domain. By bundling a lot of the mortgages together they may be able to negotiate a very reduced price. Which would be better for everyone.

- the city may have done the math and found that it would be much more expensive to temporarily house the new homeless, police all the abandoned homes, and loss in property taxes due to dropping home prices, etc.

- there's been evidence throughout the US that a lot deeds on record with cities/counties are incomplete or otherwise not quite legal. This move could save the city a lot of legal headaches(and legal fees)

8/10/2013 1:44:50 PM

The city's offer to buy the mortgages at 30-40% of the actual outstanding amount can't really be used as a show of good faith.


From Kurtis' article...

Quote :

"Lt. Gov. Gavin Newsom, a vocal supporter of the MRP plan, called for a federal investigation of lenders who have opposed it."

On what fucking grounds? I was not aware that not supporting your legislation was a criminal offense.

8/10/2013 7:14:28 PM

The bank will be lucky to get 30-40% of those mortgages in a lot of cases. I really don't understand why they wouldn't be happy to get them off their balance sheet.

When you are negotiating a mass deal like that of course you are going to get a discount. Governments, big business, and the rich renegotiate their debt all the time. Only when you are some individual plebe does paying off the exact original debt become written in stone.

^ they probably want those banks investigated either because of predatory lending practices or the banks haven't done enough of the required loan modification in the area.

8/11/2013 8:53:40 AM

Quote :

"I really don't understand why they wouldn't be happy to get them off their balance sheet. "

My guess would be probably because they're booking them at some unrealistic amount thus inflating their bottom line

8/11/2013 3:05:36 PM

Quote :

"I really don't understand why they wouldn't be happy to get them off their balance sheet."

If I'm correctly recalling from the article, these particular loans are, administratively speaking, difficult to modify because they've all been rolled into mortgage based securities. Apparently that makes them require more effort to alter terms than banks are willing to put forth.

8/11/2013 9:21:37 PM

Quote :

"And I'm still unclear as to why we need the government to save people from their own bad choices."

You do realize that many of those underwater or foreclosed on made good decisions that turned bad when crooks fucked over the entire housing industry, leading to a major recession, job loss, and major property value declines? It's not "their own bad choice" when the industry fucks over everyone and sends the economy crashing, leading to some losing their jobs and then not being able to pay their bills. Sure, some people shouldn't have been given mortgages which led to this mess, but when the banks are misinforming people and handing the shit out to anyone, it's hard to blame only the home buyers and certainly not all home buyers who are truly innocent victims of banking crooks.

[Edited on August 12, 2013 at 11:18 AM. Reason : .]

8/12/2013 11:17:36 AM

Quote :

"The bank will be lucky to get 30-40% of those mortgages in a lot of cases. I really don't understand why they wouldn't be happy to get them off their balance sheet. "

They very well might. Do we really need local governments bankrupting themselves bailing out mortgage lenders? If the property is worthless, let the mortgage lender unload it for a song. No need to have the city suffer that loss.

Remember, the banks have far more political influence than taxpayers do. If these transfers take place, I guarantee you the government will be overpaying, eminent domain or not.

^ Bad things happen to good people. Doesn't mean we should violate the rule of law for no benefit beyond rearranging the chairs on the sinking ship.

[Edited on August 12, 2013 at 11:36 AM. Reason : .,.]

8/12/2013 11:33:29 AM

^or ignore the rule of law and let big bangs fuck over the people. We should just continue to let big business and banking roll over everyone and not to things to help the victims, right?

8/12/2013 12:31:25 PM

Quote :

"If the property is worthless, let the mortgage lender unload it for a song. No need to have the city suffer that loss. "

Because in the meantime, the city is deteriorating. I'd agree that most often it is best just to let this situation work itself out. The people of Richmond have obviously decided thats not an option for them, the problem is too large and serious. They've been averaging nearly 1,000 foreclosures a year in a city with a population of just over 100,000. The residents clearly value holding their community "together" more than the risk associated with taking on the mortgages.

Of course, that risk may not be as great as what shows up on the ledger. We live in the age of the bailout (for better or worse). I know that California has "bailed out" other municipalities (really just allowing them to shift earmarked money around). If banks are allowed to continue to operate within this moral hazard, then why shouldn't the rest of us get similar treatment? In a lot of ways the people of Richmond are just mimicking the way the most successful banks in the US operate.

Quote :

"Remember, the banks have far more political influence than taxpayers do. If these transfers take place, I guarantee you the government will be overpaying, eminent domain or not."

Again, the costs extend beyond just what the city forks over for the mortgages. If the city does nothing there will be costs associated with dropping property values, losses of property tax, policing the foreclosed properties, housing the homeless, etc. Hopefully they've done some cost/benefit analysis and come to the conclusion that just taking on the mortgages is a better deal.

[Edited on August 12, 2013 at 12:39 PM. Reason : ^yes]

8/12/2013 12:37:53 PM

Quote :

" If banks are allowed to continue to operate within this moral hazard, then why shouldn't the rest of us get similar treatment? In a lot of ways the people of Richmond are just mimicking the way the most successful banks in the US operate."

Because two wrongs don't make a right? You don't fix the problem of special treatment for the banks by giving everyone else special treatment, you stop giving the banks special treatment in the first place.

Quote :

"Again, the costs extend beyond just what the city forks over for the mortgages. If the city does nothing there will be costs associated with dropping property values, losses of property tax, policing the foreclosed properties, housing the homeless, etc."

I wonder what the costs are associated with banks deciding not to lend in a given area are. And the costs associated with continuing the violation of the concept of eminent domain as taking property for public use and turning it into "any taking which can be justified by saying 'general welfare'".

Quote :

"Hopefully they've done some cost/benefit analysis and come to the conclusion that just taking on the mortgages is a better deal. "

Hopefully, but that assumes that politicians are working for the good of the people, not for their own careers and short term gain. That's a bad bet to make.

8/12/2013 4:33:29 PM

Quote :

"Because two wrongs don't make a right? You don't fix the problem of special treatment for the banks by giving everyone else special treatment, you stop giving the banks special treatment in the first place."

you're claiming that doing this would cause the same problems that created the problem? because otherwise your statement doesn't make sense. you can do this to treat the symptom while also stopping giving special treatment to banks. those two actions have very little to do with each other.

8/12/2013 4:45:22 PM

^this. I'll add that until our nation makes significant moves to limit or end the moral hazard around bailouts (no, Dodd-Frank doesn't count), then each one of us should be demanding the exact same treatment banks got, even if just as a form of protest.

Quote :

"I wonder what the costs are associated with banks deciding not to lend in a given area are. And the costs associated with continuing the violation of the concept of eminent domain as taking property for public use and turning it into "any taking which can be justified by saying 'general welfare'". "

Yea, there are a lot of unknowns in the accounting. One that I'll add is what could happen to municipal bond markets and how it could harm those investors. I'm all for a strict interpretation of eminent domain laws, but unfortunately that ship has sailed. You can cling to what your ideology tells you is moral in regards to eminent domain, or you can step back and see reality for what is: America is not a country with strong eminent domain laws and there is no significant movement to recover them. If you are the mayor of Richmond, and trying to hold your community together, why wouldn't you use every legal avenue available? You know if the situation were turned around banks would do the exact same thing. Don't blame activist attempting to save their city, blame the shitbags on the supreme court.

Quote :

"Hopefully, but that assumes that politicians are working for the good of the people, not for their own careers and short term gain. That's a bad bet to make."

Admittedly my eyebrows were raised when I read that both the city and Mortgage Resolution Partners expect to turn a small profit from this deal, (although they may be naive about the outcome). If this were up for a referendum in my city I'm really not sure which way I would vote. All of that being said, I really just playing devils advocate because I understand where the city is coming from, they're fucking desperate. The human cost of the financial collapse is right there in their face and (right or wrong) they are choosing to act, I can't fault them for that.

8/12/2013 6:10:59 PM

Quote :

""And I'm still unclear as to why we need the government to save people from their own bad choices.""

This article covers the concept of "suburban slums" fairly well, which are becoming reality in many areas unfortunately: http://knowledge.wharton.upenn.edu/article.cfm?articleid=3320

It is absolutely in the best interests of the local government to address this through any means possible...

8/12/2013 9:05:52 PM

Quote :

"Richmond is offering to buy both current and delinquent loans."

I don't understand how buying a current loan stops a foreclosure. If the loan is current, then no shit the banks won't sell it at a discount.

8/12/2013 9:41:21 PM

^ That's what I'm curious about. If the city simply takes actually distressed loans from the bank and the bank takes a haircut, then that's not really any different than what would have happened anyway, except for the fact that the original owner stays in the house. If, as I suspect will happen, the city instead takes mortgages from the banks that are current and in no danger of default, then that's a totally different story.

8/12/2013 10:33:30 PM