Eminent domain, a power of local of state governments used to condemn private property so that it can be used for public purposes, regularly involves taking or using slivers of land from property owners to widen roads or lay utility lines. A proposal under consideration in Richmond, California seeks to expand the usual scope beyond the traditional uses of eminent domain to assist homeowners whose mortgages exceed the value of their homes.
The city wants to buy 624 mortgages at present market value and revise the loans so borrowers can afford to make their mortgage payments. The purpose, according to Steven Gluckman of Mortgage Resolution Partners supporting the plan, is to help homeowners avoid foreclosure and to reduce blight in neighborhoods adversely affected by high foreclosure rates. Gluckman also contends it will eventually cause property values in such neighborhoods to rise.
The plan targets homes that have mortgage balances averaging $370,000. The homes themselves would not be targeted but the mortgages would. Critics of the proposal have not been tepid in their responses. Wells Fargo Bank sued in federal court to stop the plan in its tracks but their suit was dismissed for being premature as the City has not yet attempted to exercise its eminent domain power under the plan.. Wall Street investment firms and real estate investors claim it will reduce home sales in Richmond and drive up borrowing costs.
Nevertheless, cities in other parts of the country, such as Irvington, New Jersey have decided to study whether such a plan is legal. The mayor of that town wants to consider if providing incentives to a small group of homeowners to participate could save 500 to 1000 homes in Irvington facing potential foreclosure.
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