Dan Peterson, Executive Director info@proprights.com 407-481-2289

Copyright © 2012 Coalition for Property Rights


The Coming Eminent Domain “Heist”

The Constitution of the United States gives government the “Power” to take private property “for public use” provided there is “due process of law” and “just compensation.” The most notorious misuse of this power to date is the U.S. Supreme Court decision in Kelo v. City of New London.  But now, certain US cities are promoting a new use of eminent domain that will spell disaster for the housing and financial industries. San Bernardino County and the City of Stockton, California have already crossed over the line of bankruptcy and are in desperate need of revenue. Here’s their plan:

Use eminent-domain powers to buy mortgages where homes are underwater.

Impose losses on lenders.

Write down the principal amounts owed by the borrower.

The results are great for the borrower who gets his loan modified.

The results are great for the financial/investment management company to be selected to operate this scheme because of the fees to be received for each loan modified and their share of the profits realized on behalf of their investors.

The results are great for the municipalities which get a financial piece of the deal.

But, what about the lender of the original loan?

Consider the following scenario as laid out by Jann Swanson in an article entitled, “SIFMA Slams Eminent Domain “Scheme” in Letter to FHFA”:
Let’s suppose – for example’s sake – an owner has a home with a $150,000 mortgage. The home is now valued at $100,000. Government (San Bernardino County) takes the mortgage through eminent domain. A financial management company (in this instance an investor backed entity called Mortgage Resolution Partners – MRP) buys that loan for 80% of current value or $80,000.

It then refinances the home into an FHA loan at a 97.75% loan-to-value ratio producing a new principal of $97,750.

Factoring in securitization, the refinanced loan amounts to $104,592.

The management fee for each such transaction: $4,500.00.

Good for the owner – he’s been refinanced and his home is no longer underwater.

Good for MRP investors holding the new mortgage – they bought a $100,000 mortgage for

$80,000, a handsome, imbedded, and immediate 25% profit.

Good for MRP – it made $4,500.00

Good for the city which gets a cut of the net profit realized through the deal.

But, what about the original lender?

And, what about those who invested their retirement funds or savings in mortgages with the realistic expectation of return on investment? They are stuck with the losses.
What about our Constitution designed to uphold the sanctity of contracts and protect citizens from illegal takings? Are these foundational pillars of society and business to be simply ignored or swept away?

CPR sees the concept of mortgage seizure through eminent domain as a violation of the U.S. Constitution. At best, it is an inappropriate use of eminent domain and a violation of contract law. At worst, it is theft and a government-enforced redistribution of wealth. How will entities be able to lend confidently in the future with a risk of arbitrary and discounted seizure lurking? And, to whom would home buyers go for financing?

Kenneth E. Bentsen, Jr., executive vice president for The Securities Industry and Financial Markets Association (SIFMA), has said, “The use of eminent domain to seize mortgages not only lacks legal and constitutional validity; it has the potential to scuttle a housing market that is working towards recovery and does so at the expense of pension funds and mutual fund investors.

SIFMA and 25 other trade associations have sent out a joint letter to the Federal Housing Finance Agency strongly opposing the eminent domain proposals.

CPR has been in touch with the office of U.S. Representative John Campbell, R-Irvine, CA, who has filed a bill (H.R. 6397) to end this nefarious scheme. His legislation would prohibit Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs from making, insuring or guaranteeing mortgages in areas where municipalities are seizing loans under the power of eminent domain.

CPR has been asked by the Congressman’s office to invite you to contact your U.S. Representative and ask them to sign on as co-sponsors.

Finally, Florida readers should note, our state has an anti-Kelo statute, F. S. 73.014, prohibiting the use of eminent domain for this purpose. CPR is proud to have participated in the passing of this legislation.

CPR encourages you to stay tuned and alert. Click on the link below to further your education and continue your vigilance regarding this emerging issue:


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Coalition for Property Rights

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