A large part of the country’s mortgages are underwater, meaning more is owed on the loan than the house is really worth. However, a California company has a novel repair in mind, which requires local government authorities using the power of eminent domain to force a refinance.
Is it safe to use eminent domain?
Among the powers of the federal, state and local governments in the U.S., and certainly one of the single most debatable, is the power of “eminent domain.” Eminent domain is the right of a government to seize land from its owner for the “public good,” as not doing this would be considered detrimental to public welfare. Home or land owners whose property is thus seized must be compensated for the loss of their property.
Eminent domain seizures are generally for things like highway extensions and so forth. For instance, according to NJ.com, the city of Hoboken recently used eminent domain to appropriate a 1-acre parcel of land from a landowner for use as a park, offering the owner $2.3 million in spite of the land being valued at $10 million. It is highly questionable, as many civil libertarians consider it among the worst abuses of government power.
An excellent way
A property is considered “condemned” when eminent domain is used, but Mortgage Resolution Partners, a California-based real estate company, wants to condemn the loans associated with the property. This is the idea MRP has brought up, according to Reuters.
One concept that MRP brought up would be to get private investors with a ton of cash to purchase the loans from consumers, according to Reuters. Then, the house would be seized from banks meaning less would be paid for the house than it is really worth. Then, MRP would sell the loans to brand new investors and lower payments to help the mortgage borrower. This would be a good plan considering 22 percent of the mortgages in the country are underwater according to CoreLogic estimates and Zillow estimates that number to be higher at 31.4 percent, according to CNN. These customers might really appreciate the help.
Since investors would fund the entire action, no taxpayer money would be spent; all any government authorities in California would be doing is turn in the paperwork for eminent domain actions.
Still not in place
Even though the bill has been well-received in some areas, it has already been turned down by the Hesperia city council, according to the Hesperia Star. This is regardless of the truth that 50 percent of homeowners in the city have underwater mortgages. Since California has been hurt a lot by the decreased home values, lots of people in California are really looking forward to the plan. MRP has talked to a lot of local governments about it already. Remember, it is just a proposal at this time.
Despite the fact that a ton of people are underwater, a ton of them are still paying on their payments, according to CNN. The Zillow survey showed that 90 percent of underwater home proprietors are still making payments regularly. It is extremely dangerous for a homeowner to own more than the home is worth because they could end up in foreclosure.
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