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US Cities And Towns Threatening To Seize Homes If Payments Not Made

eminent domain mortgagesLas Vegas government officials may be expanding their leadership roles to include the real estate business.

The city of North Las Vegas is among several cities who are debating the idea of using eminent domain to seize foreclosed homes – a controversial move that has opposition from many circles, including those opposed to government growth and waste, and firm believers in private property rights. Five towns in California already approved the much-criticized program. San Bernardino and Chicago lawmakers considered and then rejected the property seizures initiative. Cities are saying they’ll seize the homes if banks don’t agree to work with the owners.

If North Las Vegas goes forward with the eminent domain project, it will be the largest city to do so to date, according to KVVU-TV in Las Vegas. Supporters of the idea say a multitude of residents are underwater on their mortgages and in desperate need of a solution to their home ownership problems. Taking over bad mortgages, supporters say, will ultimately keep the city form losing out even more on potential property taxes. Opponents note that eminent domain is designed to take private property for public use, and not to seize private property just to turn around and keep it private.

Several thousand North Las Vegas homeowners would qualify for the municipal program. Even with bargain basement real estate prices, the taxpayers would be forking over a hefty sum to buy the foreclosed properties. Using eminent domain laws to acquire land or structures not destined for public use has also caused significant ire among area voters. The Greater Las Vegas Association of Realtors (GLVAR) opposes the eminent domain plan so strongly the organization launched a statewide commercial campaign against it.

“The last thing the community of North Las Vegas needs is a reckless program like this that jeopardizes private property rights and hurts the entire community with the mere possibility of helping a small segment of it,” the organization told KVVU.

Nevada voters have taken a stand against eminent domain, and in 2008 passed the People’s Initiative to Stop the Taking of Our Land, or PISTOL, which established a stringent set of guidelines that would govern the use of eminent domain in the state. One of the dictates in the law requires that the governmental entity pay the legal fees for both sides of the property purchase. The vast amount of money involved in legal fees along has at least one North Las Vegas Council member extremely concerned.

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Councilman Wade Wagner told KVVU:

We have a lot on our plate to deal with still, and taking on something like this at this time, I’m not sure is a very good idea. The only sure thing that will come out of this is it will end up in litigation.

Meanwhile, Irvington, New Jersey, Mayor Wayne Smith recently announced the launching of a study to determine if what he called “friendly condemnations” are right for his town. The mayor reportedly wants offer struggling homeowners “incentives” in order to thwart any objections to the acquisition.

Cornell University Law Professor Robert Hockett told The New York Times that the idea to use eminent domain to seize foreclosed houses has been “picking up steam” in Minnesota and Pennsylvania, as well. Hockett is one of the designers of the strategy.

The American Civil Liberties Union (ACLU) has spoken up in support of cities attempting to use what the organization has deemed their “legal right” to exercise eminent domain powers.

But the Federal Housing Finance Agency, which is tasked with overseeing most of the mortgages issued in the United States, including those signed via Freddie Mac and Fannie Mae, do not support what North Las Vegas and a growing number of other cities are attempting, The Times said. The federal department called the use of eminent domain in this manner a “clear threat to the safe and sound operations” of Freddie Mac, Fannie Mae and Federal Home Loan Banks. The agency is considering taking legal action against cities to stop the process.

Texas Republican Jeb Hensarling recently introduced a bill which could essentially end the ability of municipalities to use eminent domain laws to purchase mortgages. But on the other side of the aisle, 10 Congressional Democrats signed a letter to Federal Housing Finance Agency Acting Director Edward J. DeMarco expressing concern to the agency’s position. The same letter was also sent to Housing and Urban Development Secretary Shaun Donovan.

An excerpt from the letter reads:

We write to express our disappointment that the Federal Housing Finance Agency is actively supporting and threatening legal action against communities which consider exercising their legal rights to use eminent domain to help struggling homeowners.

Tim Cameron, managing director of SIFMA, an asset management group, said the idea is a bad one that penalizes homeowners who lived up to their commitments.

“Where do you stop?” he asked in an NPR story. “If we do it with homes, why couldn’t we do it with credit cards?”

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