Newest Plan to Save Underwater Homes:  Use of ‘Eminent Domain'

Eminent Domain traditionally
pertains to public use of land

According to a report in the Los Angeles Times, the cities of Ontario and Fontana, in partnership with the county, are exploring using private funds to acquire mortgages that are underwater. Under the plan, the loans acquired by government authority would be restructured, lowering the amount owed, with the intent of helping the owner keep the home.

Eminent Domain is an action of the state to seize a citizen's private property, expropriate property, or seize a citizen's rights in property with due monetary compensation, but without the owner's consent. The property is taken either for government use or by delegation to third parties who will devote it to public or civic use or, in some cases, economic development. The most common uses of property taken by eminent domain are for public utilities, highways, and railroads; however, it may also be taken for reasons of public safety.  The use of ‘eminent domain’ to affect the economics of homeownership would be groundbreaking and would constitute an expanded definition of the term.

Leland Chan, General Counsel for the California Bankers Association notes in the LA Times article that “this raises an important legal question: Does this eminent domain scheme even advance a public purpose?  The main effect seems to be to transfer ownership of performing loans from one private party to another."

The concept was the recent topic of a story on National Public Radio as well.  Half of San Bernardino’s 300,000 mortgages are underwater.

Read Los Angeles Times article on San Bernardino County’s Eminent Domain Plan

Read and listen ‘Eminent Domain as Foreclosure Fix’ on National Public Radio