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For the Love of Eminent Domain

September 11, 2013

The City of Richmond, California has been abandoned and cast adrift by all those partners who might logically be expected to support local governments facing severe challenges to the local economy and the real estate market. Into the void stepped the private firm Mortgage Resolution Partners (MRP) peddling a grand solution to solve a prolonged and severe disruption in the housing market – use of eminent domain to acquire mortgages with negative equity.

Millions of homeowners have been foreclosed upon in the last six years. California cities have borne a disproportionate share of foreclosures. City leaders in Richmond naturally want to help their residents either by using their own resources or acting in concert with other partners (federal, state, nonprofit, etc.). But everywhere the city looked for timely, serious, and long-term help, no credible partner could be found.

From the Administration came the priority to bail-out banks under TARP, as well as the minimalist Neighborhood Stabilization Program. NSP was so inadequate to the task that its impact proved to be very small indeed. Congress took its pound of flesh in the form of large budget reductions in the Community Development Block Grant program. This is one of the few remaining sources of flexible spending at the local level – spending designed to serve critical housing needs for low and moderate income families. CDBG has become the whipping boy for Members of Congress more interested in centralized control than they are in innovative problem solving.

At the state level, California eliminated the 400 local redevelopment agencies (RDA’s) in 2012 following a state Supreme Court ruling. For decades, those funds had been used successfully to eliminate urban blight and support affordable housing. When he was mayor of Oakland, Governor Jerry Brown used RDA funds to restore the historic Fox Theater. Now those funds are used to help the state balance their mismanaged budget on the backs of cash-starved localities and their low- and moderate-income residents.

And finally, we come to Mortgage Resolution Partners, the white knight galloping to the city’s rescue with a plan to save homes and secure the future of neighborhoods. MRP’s plan however, takes the much cherished and highly valuable power of eminent domain and contorts its purpose and operation to such a degree as to be unrecognizable. Make no mistake, MRP’s advocacy of this strategy will have consequences for cities generally and for Richmond in particular.

If anything was learned in the 2005 U.S. Supreme Court case of Kelo v. City of New London, it is that state legislatures and Congress will look askance at local efforts to overreach on use of eminent domain. Mortgage Resolution Partners does a disservice to cities in urging them to take this approach to help borrowers at risk of foreclosure.

James Brooks is NLC’s Program Director for Community Development & Infrastructure. Follow him on twitter at @JamesABrooks.

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One Comment leave one →
  1. September 11, 2013 1:29 PM

    From my years in the mortgage industry I’ve learned one thing, don’t trust it. BUT… if you want the town to make money somehow, they’ll weasel dollars from dimes. The bad news is it will create a whole set of new problems. And then the process will be repeated for 2-3 generations.

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