The country is affected by mortgages that are underwater, where the owners owe more than the house is worth. It's estimated that up to one-third of homes are. However, a California mortgage business has the novel idea of using eminent domain to "condemn" the home loans and force a refinance. Source for this article: Eminent domain proposed for underwater mortgages fix


Questionable power of government

There is one power that has been debated a lot by the federal, state and local governments called "eminent domain." This is the right for the government to compensate any homeowner for loss of property and seize the house as long as it is for "public good," or if it would be detrimental to public welfare to not take the land. This is just one of the many debated government powers.


Eminent domain seizures are generally for things like highway extensions and so forth. For instance, according to New Jersey.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 despite the land being valued at $10 million. It is highly controversial, as many civil libertarians consider it among the worst abuses of government power.


Novel use


Reuters explained that one good concept came from California-based company Mortgage Resolution Partners. The idea would help get rid of the mortgage loans individuals have by using eminent domain. Normally, the property is recognized as "condemned" when this occurs, but MRP wants it to happen with the loans instead.


Millions of homeowners are underwater. CoreLogic estimates 22 percent of the nation's home loans are underwater; Zillow, according to CNN, estimates 31.4 percent of the nation's houses are in negative equity. MRP's idea, according to Reuters, is to get private investors to invest the funds needed to seize the loan and pay the bank that owns seized properties a fair market price, which would be lower than the purchase price, for the deeds to said properties. The loans would then be restructured by MRP for a fee and sold to new investors, lowering payments for the mortgage borrower.


The action would be financed by investors, which means the only government involvement in California would be to turn in the eminent domain paperwork. There would be no taxpayer dollars used.


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 belief that 50 percent of homeowners in the city have underwater home loans. 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 government authorities about it already. Remember, it is just a proposal at this time.


Homeowners are at higher risk for foreclosure when they owe more than a home is worth in a loan, which is called negative equity. The same Zillow survey from before found that 90 percent of underwater homeowners are current on their payments as of right now, which shows many people are paying the payments diligently anyway, according to CNN.


Sources

Reuters

CNN

Hesperia Star