Scheme to seize underwater mortgages by eminent domain

by Walter Olson on July 9, 2012

Prof. Bainbridge among others is blowing the whistle. For more, see Ira Stoll, Kevin Funnell, Steven Greenhut and related, Felix Salmon (role of Cornell lawprof Robert Hockett).

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1 Jamie R 07.09.12 at 3:34 am

I don’t think Bainbridge’s argument is that persuasive. On the one hand, this does look like rent-seeking. On the other hand, so is what mortgage lenders have been doing. Lenders were soliciting borrowers to take money, issuing loans to people they knew or should have known would never be able to pay, on the basis of a security interest that they knew or should have known was wildly inflated. Mortgage lenders have already benefited from rent-seeking in the form of bailouts and federal guaranties on mortgages. At the worst, this is merely undoing the rent-seeking done by mortgage lenders in favor of rent-seeking by Mortgage Resolution Partners. If there were a measure of aggregate rent-seeking, this plan looks like it would be neutral.

2 Don 07.09.12 at 12:25 pm

I don’t agree with their argument that an upside down mortgage has a value less than the current market value of the home.

The Banks hold a current valid contract. I would argue that the value of the contract is it’s face value. If the City wants to seize the contract, they should pay the balance owed.

The other argument is that Eminent Domain has historically been used to secure property for roads, parks, etc. Even though in the past few years, it has been abused by seizing property to be used for shopping malls and apartment complexes, it has been seized to build something new. This novel use doesn’t even seize the property, it seizes the business contract. It doesn’t rebuild any thing. The same people who live in the houses now will continue to live in the homes. It only benefits them and the financiers who dreamed up this abuse.

The banks won’t sit back and let this happen. This will end up in the Supreme Court. I hope the cities have deep enough pockets to outspend the banks lawyers.

3 mojo 07.09.12 at 1:43 pm

It’s TWO, TWO – Two scams in one!

4 David Schwartz 07.09.12 at 8:07 pm

The value of the mortgage cannot possibly be significantly lower than both the mortgage’s face value and the market value of the property.

5 DensityDuck 07.10.12 at 4:16 pm

“The Banks hold a current valid contract.”

Then I should be able to renegotiate that contract to a lower interest rate and a new amortization term with the property as collateral, right?

Oh wait, no I can’t, because the “market value” of the property is less than the amount owed on the loan? Welp.

6 DensityDuck 07.10.12 at 4:18 pm

God, Bainbridge is being such a tool about this.

“Banks will be less willing to lend to Californians, which will drive down property values.”

Wait. I thought that was what was SUPPOSED TO HAPPEN. I thought that the whole problem was banks being too willing to lend, causing inflation of property values!

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