A Misuse of Eminent Domain "The road to hell is paved in good intentions" and using eminent domain to "fix" underwater mortgages, in my opinion, is a Sunday stroll with rose colored glasses right down cinder city lane. On the surface using the power of the government to seize private property for the greater good, may sound like a reasonable idea, but is this really what the framers of the 5thth amendment had in mind? Does seizing real property (real estate) from a homeowner, for the purpose of removing a mortgage lien, which in turn deprives the investors who owned that lien of their property (the money either loaned directly to the home owner or money used to buy the original mortgage note on the secondary market) really serve the interest of the public? Or, is this a short sighted, quick fix that makes politicians look good in the short term, without having to pay the consequences in the long term? The argument is being made that so many of these underwater homes have mortgage liens owned on the secondary market, by vast groups of investors that can’t be wrangled together in order to negotiate loan modifications or short sales and eminent domain would be a great way to cut the investors out of the loop, foreclose on the home and give the homeowner a new mortgage, basically a government forced cram down. If this were allowed to happen, all of the investors would still get today’s fair market value for the lien they hold, the homeowner would get to keep their house and poof no more shadow inventory or underwater houses. My understanding of the use of eminent domain, with regards to real estate seizure, is that it was for purposes of buying up a block of land to build a park for the community, put a new road in, build a railway or possibly an airport that is utilized by the populace of that community, state or the country as a whole. This on the other hand is the seizure of real property, for the benefit of the individual homeowner, to the detriment of the lien holders and the profit of companies like Mortgage Resolution Partners who will be supplying new mortgage liens with Federal backing to the homeowners. Dropping eminent domain like a boulder into the pool of underwater mortgages is going to create ripples that will grow to monstrous proportions over time. If the government can simply negate a contract and force investors to “take what they get”, the affects on investment in the secondary mortgage market by private investors will be quite telling. Investors will take their money to safer havens, loan originators will be forced to carry the loans on their books instead of selling them off and originating more loans and fewer people will have the ability to purchase a home. If this eminent domain service is provided to one homeowner it is only fair that it be provided to all homeowners. The onrush of delinquent mortgages for this “service” will be staggering, and as home values drop because of the interference, more homes will become underwater. The program will actually be creating more applicants over time and the question has to be asked, “When will the program end?” Another thing that should be considered is, how much will this type of program cost the American taxpayer? Many of the properties being seized have mortgage liens that are guaranteed by federal programs. The rate of recidivism on defaulting mortgagors is between 38% and 42%. These new loans will also have federal guarantees and when the 38% to 42% default, the federal guarantees will be tacked right on top of our already out of control deficit. Another element of this program that has not been thought through is the cost of defending the number of lawsuits that absolutely will be coming from the investors. The 14th amendment to the constitution clearly states that no citizen shall be deprived of property without due process. The homeowner whose property (home) is taken surely won’t object, but the lien holder, whose property (money) is being taken will definitely want their day in court to ensure that what the government felt was fair market value is in line with the investor’s interpretation of fair market value. The constitutionality of a program like this will also surely be challenged, and I can’t imagine this not being taken to the very top of the court system. As much as I hate to admit it, the drip, drip, drip system the lien holders are currently using to release REO properties is having the intended affect of slowly increasing home values through lack of inventory. In addition new regulations requiring lien holders to respond in a timely manner to short sale requests are also having positive affects. In Nevada, the easing of some of AB284’s restrictions through AB300 will allow lien holders to move the shadow inventory at a faster pace through REO sales. Traditional sellers are reentering the market to find starving buyers waiting to snap up their homes. In other words, the market’s heart is finally beating again; let’s hope some well intentioned politician doesn’t apply defibrillator paddles and send it back into arrest. dsnews/articles/fed-report-proposes-eminent-domain-solution-to-address-mortgage-debt-overhang-2013-06-11
Posted on: Wed, 12 Jun 2013 16:37:21 +0000
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