Even though, according to a recent evaluation report by Barclays Bank, the California Homeowner Bill of Rights—which became official on Jan. 1, 2013—is having a definite impact on slowing bank foreclosures in the state, some municipalities still end up with far too many blighted areas within their borders, as underwater homes get seized by banks or simply abandoned by distraught homeowners unable to make their mortgage payments.
The buildings then tend to sit unattended and become ramshackle eyesores that attract vermin and other such things, because the banks typically do not maintain the structures.
Well, apparently there is a new consumer-advocate strategy being added to the mix, articulated by Professor Robert Hockett, of Cornell University law school. The idea is for cities in partnership with a private financing firm to use the threat of eminent domain to force the banks to sell to cities batches of properties that are so deeply underwater that foreclosure is imminent, then the city-private firm partners will re-negotiate lower loan principles with the homeowners.
This, in effect, provides reasonable revised mortgage financing at the current value of the homes that the homeowners actually have an opportunity to pay. In other words, seize underwater properties through eminent domain, or at least threaten to, and save the homes of thousands of municipal citizens who are property owners.
This bold maneuver would be a game changer for consumers, and is already being planned for several cities, including Richmond, Calif., and Newark, N.J. Both municipalities have very high concentrations of Black and Latino homeowners. Richmond is a Bay-area city with 105,000 residents and more than 4,600 homeowners underwater currently, in a city which is 40 percent Latino and 25 percent Black. That 4,600 figure is approximately half of Richmond’s homeowners.
Nationally, there are still close to 14 million homeowners who have not been helped by the current state and federal processes available, and for them, the housing crisis is far from over no matter what the media says.
Enter this new initiative, which the banks literally hate and are threatened by to such an extent that even before the city has eminent-domained one foreclosed home, Wells Fargo and the Bank of New York have already sued Richmond in federal court to prevent the strategy from gaining any ground.
San Bernardino County had developed a plan to try the tactic earlier this year, but got bullied out of the project by banks.
Well, other cities still being devastated by the continuation of massive numbers of foreclosures and cascading home market values have taken up the cudgel anew, including Richmond, North Las Vegas, Seattle, and Newark.
The first court date for injunctive relief was Sept. 13, and the federal judge dismissed the banks’ suit as premature. The banks argued, to no avail, that the Richmond strategy, if implemented, will severely damage the entire home mortgage business nationwide. The banks call the eminent domain parlay a “misuse of public power for private benefit.”
Actually, one fact that has been revealed lately is that banks can make more profit by foreclosing than they can by reducing the principals on underwater mortgages. That means banks are disincentivized to actually try and help end this mortgage crisis. The information came from sworn legal depositions from six former Bank of America employees who were assigned to work on home mortgages for the bank.
Once implemented, what the eminent domain strategy at least promises is a singular consumer-first option to help struggling homeowners get out of mortgage trouble. It fits Fredrick Douglass’ call to action: “Power concedes nothing without a demand; it never did and it never will.”
The banking and finance industry thinks profits first, not what’s the best option to help consumers, and this new use of eminent domain may be just what the consumer doctors have ordered to stabilize neighborhoods and to give homeowners some real hope of overcoming their underwater status.
Several consumer advocacy groups have also gotten heavily into pushing for this new tactic, including the very effective ACCE organization (Alliance of Californians for Community Empowerment), and the Home Defenders organization. In California, ACCE has already saved hundreds of homeowners from being evicted, including more than one military veteran and it is fully supporting the Richmond effort.
The use of eminent domain by municipal and state governments has usually hurt consumers and private citizens, since the latter can be forced to sell their properties for municipal projects planned that may not ever be built. This time, however, the bold use of eminent domain may be an imperfect, but highly effective and progressive strategy to break the impasse on mortgage reform.
We’ll stay tuned.
Professor David L. Horne is founder and executive director of PAPPEI, the Pan African Public Policy and Ethical Institute, which is a new 501(c)(3) pending community-based organization or non-governmental organization (NGO). It is the stepparent organization for the California Black Think Tank which still operates and which meets every fourth Friday.
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