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Posted on 07/16/2012 5:45:07 AM PDT by magellan
In the foreclosure-battered inland stretches of California, local government officials desperate for change are weighing a controversial but inventive way to fix troubled mortgages: Condemn them.
Typically, eminent domain has been used to clear property for infrastructure projects like highways, schools and sewage plants. But supporters say that giving help to struggling borrowers is also a legitimate use of eminent domain, because it's in the public interest.
Under the proposal, a city or county would sign on as a client of Mortgage Resolution Partners, then condemn certain mortgages. The mortgages are typically owned by private investors like hedge funds and pension funds.
Mortgage Resolution Partners will focus on mortgages where the borrowers are current on their payments but are "under water," meaning their mortgage costs more than the home is worth. After being condemned and seized, the mortgages would be rewritten based on the homes' current values. The borrowers would get to stay, but with cheaper monthly payments. The city or county would resell the loans to other private investors, so it could pay back the investors who funded the seizure and pay a flat fee to Mortgage Resolution Partners.
Rick Rayl, an eminent domain lawyer in Irvine, Calif., who is not connected to the company, isn't so sure.
"The lenders are going to be livid," he said. He thinks the plan could have unintended consequences, like discouraging banks and other lenders from making new mortgage loans in an area.
(Excerpt) Read more at hosted.ap.org ...
This reads like something out of Atlas Shrugged.
This would not even warrant consideration if not for Kelo v. City of New London, and Justice Anthony Kennedy's decision with the majority.
Of course, their is a corporatist intermediary, Mortgage Resolution Partners, who will get a cut.
I honestly hope they try to do this, because this seems beyond the Kelo decision, which was based on property tax revenues. It seems this could open up another legal battle which could offer the chance to limit the impact of Kelo.
Government Ponzi Scheme.
robbing one set of investors to raise cash to pay off a second set of investors is a job best left to the pros
Maybe these Cali municipal govts can get Jon Corzine or Bernie Madoff to advise them, or perhaps “Mortgage Resolution Partners” already has its own Ponzi pros on staff
Just another scheme for Government to get its snout into controlling all aspects of the market.
The banks would be crazy not to redline every city that passes such a law. Property values would decline to the price of a quart of milk.
ya think?
No worries, the feds will just order them to do it.
how do I get some of that free money from Obama's stash?
This is nothing more than HARP 2.
The only problem is that SOMEONE has to suffer the loss. In HARP 2, it is the taxpayer. In this scheme, it will be the lenders. The lenders will be paid “fair market value” per the eminent domain condemnation - which we all know will not be fair market value.
The result will be that credit will become tighter in any market where the risk of falling housing rices is real. Who wants to invest in an instrument that is likely to be taken by eminent domain at a below market price?
Idiots - just plain dumb.
imo
The lenders would essentially red-line California, and move their lending operations out of California. This would force California to start its own state-wide lending operations, with no capital to support the lending operations. Given its political bent, they would make loans to everyone, regardless of ability to pay. Thus, within 5 years, a new wave of defaults would further bankrupt California.
Someone in a California city hall will figure out that this plan will result in a major drop in assessed valuations and thus in property taxes. So it will fail to be enacted. They may be corrupt but they’re not stupid.
Mortgage Resolution Partners will focus on mortgages where the borrowers are current on their payments...
...After being condemned and seized...
...The city or county would resell the loans to other private investors, so it could pay back the investors who funded the seizure...
So it sounds like if you're a lender in that area, you're screwed. Also, try re-selling any of those properties later, with a "condemned" bogie in the record. Heck, try selling any property in the area run by such an out of control and intrusive government.
Can’t even manage their own affairs yet they come up with a grand scheme to bail out homeowners.
If these homeowners are current on their payments, what's the problem? So their property is worth less than it was when they bought it. So is some stock I purchased last year. Big deal.
From the same Obama who’ll pay your utility bill...
In my mind this is just another step and possibly a logical one if you look at it from a skewed perspective. The minute we the citizenry gave the Government, “any Government, local, state, Fed or School district”, the right and ability to charge PROPERTY TAXES of any kind, we gave them the property. They can and will take, steal or appropriate your personal property if they can come up with a good rationalization.
“They may be corrupt but they’re not stupid.”
As Earl Stanley Gardner’s most famous fictional lawyer, Perry Mason”, said: “You have assumed a fact not in evidence.”
Cogent, to the point, brutally true
Some might argue that lenders in those cities passing such laws can compensate for the lending disadvantage by affixing higher interest rates in such cities to overcome the prospect of the city condemning the mortgage in the public interest. But then again no sooner would the mortgage issue that the city would reduce the interest rate “in the public interest” as being outside the range of interest rates compared to cities without such an inane law. I guess we can put that argument in the circular reasoning file.
First, the Fifth Amendment does not state "fair market value", it states "just compensation". Just compensation is subjective.
Assume a major road is being built, and it causes the city to condemn some houses under eminent domain for right of way.
What would happen if the city declares just compensation to be some value, say, current market value, and the owner of the property is underwater on their mortgage?
Since the mortgage owner owns title to the property, I assume the eminent domain discussions are solely with the mortgage holder, and the mortgage signee is released from any obligation.
I am curious if there is any case law on this.
Unbelievable....now cities are proposing property theft.
Thus, the mortgage holder would get all the funds for the ceased property, and those who signed the contract would still owe any balance due on the original contract.
If you have a car repossessed and the value is less than the owed contract, you will still owe the the full balance, even though you no longer own the car.
I think similar rules would apply in this case.
Hugo Chavez would approve.
Except even under Kelo the government must pay fair market price for any asset it takes, including a mortgage.
I’ll bet, even with the falling home values and Prop 13 in place, that the property taxes on those structures are staying up there.
Guess this is a variation of that corruption...
Way to go Californian - you're becoming the 'Detroit' of States.
Uh... these people DO NOT need any help. They are current on their mortgages.
Don't distort the market! It was a risk; if they want to recover on their "investment" just stay in the home longer. Get over your self-entitlement and accept responsibility for the decisions and gamble you took.
This get rich quick scheme of house swapping every few years needs to stop.
Let's be honest, that's what will happen. These people will turn around and sell out as soon as equity starts to build which will be far faster than it otherwise would've if gov't didn't try to change the rules and steal money from the lenders or taxpayers.
This scheme can start a new bubble while undermining basic freedoms.
Great point. And this will make it easier for those who are current but underwater on their mortgages to get into a position to sell their houses and move the heck out of California.
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