Eminent domain, also known as condemnation, is the power of the state to take over private land in the name of public good. Typically, this involves the seizure of land; however, in the wake of the residential real estate crisis, at least one county in the United States is considering using eminent domain to take over residential mortgages.
Reportedly, San Bernardino County was the area in California hit hardest by the housing crisis, which is why it has been targeted as the place to test the controversial proposal. Essentially, this would be the first time a state government has made a widespread attempt at seizing residential mortgages through eminent domain.
Today, leaders from the county and the cities are considering the idea and will take proposals from independent firms that want to manage a program to assist struggling homeowners. At this point, it isn't clear exactly how the program would work, but at least one of the firms in the running has proposed a three-prong approach: seizing mortgages, modifying loans to match home values and refinancing mortgages.
Critics call the idea government overreach that would further harm the area's housing market and say that it could lead to higher mortgage rates and extensive litigation. Even though San Bernardino County is the only area currently grappling with the idea, it has raised concern on behalf of the mortgage and investment industries on a national level.
"It's pretty clear at this point that everybody is waiting to see what happens in San Bernardino first," a spokesman for the California Mortgage Bankers Association said.
What do you think? Is eminent domain a plausible way to help struggling homeowners in the areas hit hardest by the housing crisis?
Source: LA Times, "New look at plan to use eminent domain to seize troubled mortgages," Alejandro Lazo, Jan. 23, 2013
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