Eminent Domain to Fight Foreclosure

Eminent Domain to Fight Foreclosure

Using eminent domain to fight foreclosure seems to be an idea gaining momentum in areas with high densities of foreclosed and underwater homes. The idea arose in Richmond, California, where Mayor Gayle McLaughlin positioned eminent domain to help distressed homeowners instead of helping corporations “move people out of their homes for big stores.” Irvington, N.J., Brockton, Mass., Yonkers, NY and Chicago are all taking a serious look at the idea.

What is Eminent Domain?

Eminent domain is essentially the right to take private property for public use by a state, municipality or other authorized government entity. Just compensation is paid to the owner of the private property to be taken according to the Fifth Amendment to the U.S. Constitution. Additionally, the private property owner must have the right to due process.

Eminent domain may be commonly used to enhance public transportation, improve access to utilities, build pipelines and more. The idea to use eminent domain to help distressed homeowners avoid foreclosure is a fairly recent development that has not been utilized on a widespread scale before.

How does Eminent Domain Help with Foreclosures?

Eminent domain may help distressed homeowners facing foreclosure and/or homeowners with underwater mortgages by helping to keep residents in their homes. Government municipalities and cities may be able to help homeowners by using eminent domain to acquire loans from bond-holders at a fair price. After that, the loans may be restructured to allow for more affordable mortgage payments to homeowners.

This may help individuals avoid the severely negative effects associated with foreclosure. Additionally, by keeping more residents in their homes, home values may avoid a sudden drop due to widespread foreclosures.

The banks unsurprisingly do not seem to be in favor of the plan. Some have argued the banks will receive less money on the mortgage loans if the government entities take the properties through eminent domain.

It is unclear how successful the plan will be, but could be a step in the right direction for areas with high densities of foreclosures and underwater mortgages.