Cities Hit Roadblocks in Eminent Domain Plans

Richmond, Calif., is finding that its quest to become the first city to use eminent domain in seizing underwater mortgages is difficult, as city officials go up against big banks, trade groups, and mortgage giants Fannie Mae and Freddie Mac.

Richmond Mayor Gayle McLaughlin has led the fight in trying to use eminent domain to seize underwater mortgages and then forgive the debt. The idea is to modify the loans and help home owners avoid foreclosure. The city would take control of the mortgage, not buy the home. The city has yet to use eminent domain. City officials must vote again before the plan can be put into action.

Many other cities have considered the idea, too, but they’re hitting roadblocks from federal lawsuits that have been filed and financial institutions who have warned that mortgage lending would come to a halt in any city that tried to use eminent domain in this way. It’s caused many cities to back away from the idea.

Richmond, a suburb of San Francisco, was badly hurt in the recession. Homes in the city lost 66 percent of their value on average. They are still worth about 45 percent less than what they were at their 2006 peak.

Source: “Eminent Domain: A Long Shot Against Blight,” The New York Times (Jan. 11, 2014)