ABA Journal


Real Estate & Property Law

Controversial eminent domain approach to restructuring underwater mortgages gathers steam

Jun 17, 2013, 09:45 pm CDT


Why not try the market solution.
Let the new purchaser get the house at market price (less attorney fees and transfer costs).
The old purchaser would walk away with a black-mark on their credit and (hopefully) learned a lesson.
And the mortgage holder and credit swap high finance takes a loss for their having sold a questionable product to buyer and transactions that would not have passed snuff a few years earlier. If only they would learn a lesson and not make the same errors (i.e., greed) in the future.
This would clear the real-estate market and set the stage for a REAL US economic recovery.

By ME on 2013 06 18, 11:42 am CDT

The linked article says the cith would take the loan by eminent domain, not the property. If they take the loan by eminant domain, isn't the fair value of the loan that they should pay the face value? The city may try to say otherwise and get a big surprise in 10 years once it has worked it's way through the courts. If the city are taking the property and the original owner gets it back, it isn't really a taking, is it? - it is a sham transaction - once it works it's way through the courts, they city may find the original loan is still attached to the property.

The city may find that home values drop once lenders aren't willing to lend in their city, based upon this act.

By Dr Phun on 2013 06 18, 7:34 pm CDT

The structure of the transaction seems needlessly complex. The city could purchase similar properties at market value and offer them to homeowners at market rates. Homeowners could then default on their mortgages (which are underwater anyway) and give the properties back to the banks.

The outcome would ultimately be much the same -- banks would still be forced to mark down the properties to market value in order to sell them, and homeowners would receive a property and a mortgage at market value. If banks were rational, they would offer to restructure loans as an alternative to receiving the property back. Such an approach would be a lot simpler and would make use of standard and well-established practices.

By Aaron on 2013 06 21, 1:32 pm CDT

Mortgage Resolution Partners gets a $4,500 fee for each mortgage, and whatever city is participating in theft by eminent domain also collects a fee. Then, there's fees for the homeowner to get a new mortgage, isn't there? Somebody's making some money out of this, but in the process perverting the concept of eminent domain, which was originally intended for govt to take PROPERTY for a PUBLIC use like a road or a school. This perversion takes a MORTGAGE (which is a contract), cancels this contract between (presumably) consenting adults, lowers the value to the "underwater" point and gets some other lender to buy the new mortgage. Unfortunately, the Kelo decision expanded eminent domain to practically anything (horrible decision). But, I think that cities that actually do this will risk lawsuits out to infinity and no lender will actually write a loan in that city (that is, if they have any brains). The city can't steal mortgages without consequences. Maybe they think they're helping somebody, but looks to me like the only somebody they're helping is MRP (and the city gets its cut).

By Dot on 2013 06 22, 7:39 pm CDT

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