Posted on 07/31/2013 10:58:01 AM PDT by whitedog57
Richmond California is considering invoking eminent domain to condemn and seize hundreds of underwater mortgages to help troubled homeowners. The controversial move would be the first of its kind in the country.
Richmond is not the first to consider it. San Bernardino (also known as San Berdoo) considered … and rejected it.
Richmond is the farthest along in a plan advocated by Steven Gluckstern’s Mortgage Resolution Partners LLC for U.S. cities to confiscate mortgages and write them down in an effort to help homeowners escape oversized debt burdens. The idea has drawn opposition from bondholders such as Pacific Investment Management Co. and DoubleLine Capital LP and at least 18 trade groups representing the finance industry, homebuilders and real estate firms.
And my friend Chris Whalen is opposed to mortgage confiscation as well.
Richmond can make an offer to loan servicers (investors) for the mortgage. That would be the market approach. But threatening servicers/investors with government taking is the antithesis of the market approach. The question is … will servicers/investors decline the offer made from Richmond? In other words, will Richmond making an offer that servicers/investors can’t refuse? Otherwise, they’ll take it.
In addition to seizing assets held by private investors (BAD precedent), it will also create a massive tax liability … for homeowners! Remember, The Mortgage Forgiveness Debt Relief Act of 2007 expired at the end of 2012. Up to $2 million of forgiven debt was eligible for this exclusion ($1 million if married filing separately). However, the exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. But the exclusion has been extended for 2013.
So, if investors (PIMCO, Carrington, etc.) suffer along with homeowners (after 2013), who benefits? Homeowners in 2013 and Richmond in terms of tax receipts.
The assets will be seized under eminent domain power. Eminent domain (confiscation of private property for the public good), have been upheld time and time again, most recently in the infamous US Supreme Court decision Kelo v. City of New London.
Kelo v. City of New London, 545 U.S. 469 (2005) was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible “public use” under the Takings Clause of the Fifth Amendment.
This is all particularly strange coming at a time when house prices are skyrocketing in California.
csmetro073013a
Admittedly, Riverside is still below it’s peak in house prices, but they are rising.
phxvegrivmo
Very bad policy with questionable motives by municipalities.
I don't know why this closing sentence was used, because it's absolute bullshit.
This is a very old idea, not a new one.
It was called fascism.
Banks should just stop mortgage lending
My first thought would be....a lot.
What they don’t say here is that the amount “forgiven” is taxable income for the homeowners. This would really screw them as right now they can walk from their underwater homes and not be liable for anything. If the city does this then the home owners cannot walk away from the tax liability, it will follow them to the grave.
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