Is Eminent Domain the Right Foreclosure Fight?

August 15, 2012

A proposal that would allow the city to seize Chicago real estate in danger of falling into foreclosure was presented to the Chicago City Council on Tuesday.

It’s called eminent domain, and it’s a controversial plan that has received a lot of attention from those who believe this could help lower foreclosures to others who say it’s unconstitutional.

eminent domain foreclosures Representatives from San Francisco-based Mortgage Resolution Partners explained it Tuesday. Under the plan, the city of Chicago could use its power of eminent domain to seize mortgages from homeowners who are current but underwater, which means they have been making on-time payments but owe more on their loans than their homes are worth.

The city would acquire the properties at appraised market values, refinance the mortgages with new rates and principals, and the underwater homeowners could get equity back in their homes along with reduced mortgage payments. Mortgage Resolution Partners would help in the process and earn interest off each new mortgage.

Timothy Cameron, managing director for the Securities Industry and Financial Markets Association, also addressed the Chicago City Council Tuesday about eminent domain.

“We need mortgage investors and lenders to come back to these fragile markets — but this plan will force both groups to avoid them,” he said.

“If the city of Chicago were to adopt MRP’s plan or another like it, it would position itself as a facilitator of a group of opportunistic investors’ unjust, and likely unconstitutional, efforts to extract profits from a different group of investors. This would put the city at risk of being drawn in to expensive legal disputes.”

Mayor Rahm Emanuel also is not in favor of the plan, telling reporters Tuesday, “I don’t think it’s the right way to address the problem.”

And, last week, the Federal Housing Finance Agency (FHFA) voiced “significant concerns,” sending a notice to the Federal Register saying it might need to take action “to avoid a risk to safe and sound operations and to avoid taxpayer expense.

“FHFA has significant concerns about the use of eminent domain to revise existing financial contracts.

“Additionally, FHFA has concerns that such programs could negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.”

About a fourth of all Chicago homeowners were underwater during the first quarter of this year, and that number seems to be on the rise. But is a plan that involves the seizing of mortgages the right answer? The FHFA wants to know what you think and is taking public comments on the eminent domain plan through September 7.

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