{"id":1564,"date":"2014-02-20T09:44:04","date_gmt":"2014-02-20T13:44:04","guid":{"rendered":"http:\/\/dankrell.com\/blog\/?p=1564"},"modified":"2021-11-23T17:11:00","modified_gmt":"2021-11-23T22:11:00","slug":"growing-interest-in-the-use-of-eminent-domain-to-assist-underwater-homeowners","status":"publish","type":"post","link":"https:\/\/dankrell.com\/blog\/2014\/02\/20\/growing-interest-in-the-use-of-eminent-domain-to-assist-underwater-homeowners\/","title":{"rendered":"Growing interest in the use of eminent domain to assist underwater homeowners"},"content":{"rendered":"\n

\"Underwater\"<\/a>As interest increases to use eminent domain to assist underwater homeowners, there is opposition in Maryland.<\/figure><\/h3>\n\n\n\n

Eminent domain has not received as much attention since the controversial decision in the 2005 case Kelo v<\/em>. <\/i>City of New London<\/em>.<\/i>\u00a0 However, the issue could become a hotly debated topic in the current session of the Maryland General Assembly, since the introduction of HB1365\/SB850 Real Property – Prohibition on Acquiring Mortgages or Deeds of Trust by Condemnation<\/em> on February 7th<\/sup>; the bills propose the prohibition of acquiring mortgages through eminent domain, stating, \u201cThe use of eminent domain to acquire mortgages undermines the sanctity of the contractual relationship between a borrower and a creditor.\u201d<\/i><\/p>\n\n\n\n

The issue of using eminent domain<\/a> as a vehicle to restructure underwater mortgages became a national conversation in 2012, when a few municipalities began the discussion as a means to assist underwater homeowners.  The plan caught the attention of Baltimore officials, who began a discussion last year of doing something similar.<\/p>\n\n\n\n

As the housing market slowly recovers, many homeowners are emerging from a negative equity position on their homes.\u00a0 According to the Zillow Negative Equity Report<\/a> (zillow.com), the national negative equity rate for homeowners with a mortgage dropped to 21% during Q3 2013 (from a peak of 31.4% during Q1 2012); while 14.7% of homeowners who own their home free and clear are underwater.\u00a0 Regional statistics vary depending on the strength of the local markets compared to peak home values.<\/p>\n\n\n\n

The Baltimore Sun reports that about 13% of mortgages in the Baltimore-Towson area are underwater; neighborhood percentages vary, and there some with significantly more underwater homeowners (Some call on city to explore eminent domain to combat blight; Program targets underwater mortgages<\/em>, By Natalie Sherman; The Baltimore Sun; November 25, 2013).<\/p>\n\n\n\n

A recent industry article looks at the back story and status such plans, as well as discussing some practical considerations.\u00a0 The article asserts that the concept is \u201cfar from dead,\u201d stating that \u201c\u2026Local government and community leaders have legitimate concerns about their constituents, many of whom are struggling with mortgage payments on inflated loans that have made their homes unaffordable, and nearly impossible for them to sell without sufficient equity to pay off the loans\u2026<\/i>\u201d\u00a0 However, the conclusion states that such a plan at present \u201c\u2026appears wrought with complications and does not appear likely to lead to any significant chance of furthering its stated “public” purpose-economic development\u2026<\/i>\u201d \u00a0\u00a0The result may be \u201clengthy and expensive legal battles; and possible disruptions or changes to the credit industry, which decrease access to mortgages and\/or increase interest rates (Dellapelle & Kestner (2013). <\/a>Underwater mortgages: Can eminent domain bail them out?<\/a><\/i> Real Estate Issues, 38(2), 42-47)<\/a>.<\/p>\n\n\n\n

In response to the effort to implement eminent domain in such a way, the Federal Housing Finance Agency (FHFA.gov), the regulator and conservator of\u00a0Fannie Mae and Freddie Mac as well as the regulator of the Federal Home Loan Banks asked for public input; and subsequently issued a General Counsel Memorandum<\/a> on August 7th<\/sup> 2013:<\/p>\n\n\n\n

The General Counsel Memorandum was a summary and analysis of the public comments and input regarding the use of eminent domain to restructure mortgages.  The memo discussed a number of legal issues as well as issues that relate to the FHFA.  The memo stated the pros and cons of such a plan too: Proponents claimed \u201c\u2026if securities have lost value, then the proper and fair valuation of mortgages backing the securities through eminent domain results in no loss to a securities investor, but permits a restructuring of a loan that would benefit homeowners and stabilize housing values\u2026<\/i>\u201d while opponents point to \u201c\u2026numerous legal problems with the proposed use of eminent domain; some centered on the proper use of eminent domain itself and others on attendant constitutional issues related to taking of property or sanctity of contract. Opponents noted strong reaction of financial markets that support home financing in terms of upsetting existing contracts but as well creating an unworkable situation for providing and pricing capital based on the uncertainty of such a use of eminent domain\u2026<\/i>\u201d  However, the conclusion states, \u201c\u2026there is a rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are “underwater” on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks as provided in federal law\u2026\u201d   <\/i><\/p>\n\n\n\n

by Dan Krell
\u00a9 2014<\/p>\n\n\n\n

\"Protected<\/a><\/figure>\n\n\n\n

Disclaimer<\/a>. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws. <\/p>\n","protected":false},"excerpt":{"rendered":"

As interest increases to use eminent domain to assist underwater homeowners, there is opposition in Maryland. Eminent domain has not received as much attention since the controversial decision in the 2005 case Kelo v. City of New London.\u00a0 However, the issue could become a hotly debated topic in the current session of the Maryland General … <\/p>\n

Continue reading “Growing interest in the use of eminent domain to assist underwater homeowners”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[321,372,346,13,550],"tags":[723,899,721,466,911,890,908,797,720,552,722],"class_list":["post-1564","post","type-post","status-publish","format-standard","hentry","category-eminent-domain","category-maryland-general-assembly","category-negative-equity","category-real-estate","category-underwater","tag-condemnation","tag-eminent-domain","tag-hb-1365","tag-housing-market-2","tag-maryland-general-assembly","tag-mortgage-modification","tag-negative-equity","tag-real-estate","tag-sb-850","tag-underwater-home-owner","tag-underwater-mortgage"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p1VZLf-pe","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts\/1564","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/comments?post=1564"}],"version-history":[{"count":7,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts\/1564\/revisions"}],"predecessor-version":[{"id":6240,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts\/1564\/revisions\/6240"}],"wp:attachment":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/media?parent=1564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/categories?post=1564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/tags?post=1564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}