Backlash bill would block eminent domain for underwater mortgages

Sept. 14, 2012

By Wayne Lusvardi

Will Americans be protected from eminent domain abuses? Eminent domain is where the government takes someone’s property, usually for a government purpose, such as building a school or road. But sometimes eminent domain is abused to take private property and give it to a private company, such as a big-box store or housing development.

Last week, California Lt. Gov. Gavin Newsom’s told mortgage banks and agencies of the federal government to “back off” from their opposition to the use of eminent domain in California to take “underwater mortgages.”

In response, on Sept. 13 Rep. John Campbell, R-Irvine, introduced the “Defending American Taxpayers from Abusive Government Takings Act” (H.R. 6397).  It would block local governments from pursuing the condemnation of so-called “underwater mortgages,” as is being proposed in San Bernardino County and elsewhere in California.

Campbell’s bill would work with secondary mortgage market lenders Fannie Mae and Freddie Mac, the Federal Housing Administration and the Veteran’s Administration to bring about mortgage reductions. The Federal Housing Finance Agency, overseer of both Fannie Mae and Freddie Mac, had threatened to take action against the use of what might be called “submerged eminent domain” before Rep. Campbell proposed his bill.

Underwater mortgages are really “over-mortgaged” loans where the amount of loan owed on a property is much higher than the current market value of a home.

For example, Campbell points out that San Bernardino County’s proposal would provide an incentive to appraise properties with underlying seized mortgages as low as possible to increase their potential profit to mortgage re-financiers. Stated differently: profiteering would be submerged out of the scrutiny of the public in rigged real estate appraisals.  What might be called “submergible eminent domain” would be used for underwater mortgages.

Campbell called such schemes “atrocious, corruptive, irresponsible and unconstitutional.”

Another Difficulty — A Tax Bill for Mortgage Reduction

The civil war over the use of eminent domain to acquire underwater mortgages has gotten almost all the media attention.  What has received less attention is the pending expiration of temporary federal legislation passed in 2007 that suspended the tax liability of homeowners who receive mortgage reductions of up to $2 million.

In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act, which expires at the end of 2012.  There is discussion to extend it, but Congress only has three months to act.  Newsom has made no known advocacy to extend the Debt Relief Act.  Instead he is championing the questionable use of eminent domain law to buy out underwater mortgages.

Creative Appraisals Proposed In-Lieu of Eminent Domain

Steven Gluckstern, chairman of Mortgage Resolution Partners, a private hedge fund proposing to condemn underwater mortgages, has proposed another “doozey” of a concept.  It would involve using creative appraisals instead of eminent domain to reduce mortgages.  Here is the Sacramento Bee described an example of his:

“A homeowner paid $300,000 for a house during the boom. That house is now worth $200,000, with a mortgage balance much higher than that. A city would seize the mortgage and pay the note holder $160,000. Gluckstern contends that would be fair-market value, after the potential costs of foreclosing on the mortgage are deducted.”

“The idea is not for the city to become a lender. Instead, he said, the homeowner would refinance his mortgage at $190,000, with help from Mortgage Resolution Partners. The extra $30,000 would be split between investors, local government and MRP, which would make a flat fee of $4,500 per transaction.”

A representative of the Securities Industry and Financial Markets Association called the above-described proposal a scheme for “short-term opportunistic investors to make a 20-to-30 percent profit” by “cherry pick(ing) the best loans out of a securitized poor and buying at a substantial discount.”

Prominent eminent domain attorney Gideon Kanner on his blog on Aug. 17 said, in reaction to the creative appraisal concept:

“Nobody seems to be asking why the awesome sovereign government power of eminent domain should be enlisted in quest of quick private profit…the public interest must predominate and the private benefit is limited to being incidental to it, as the court explained in [the case] County of Los Angeles vs. Anthony.” 

Kanner also asked what public interest is served in the above refinancing example when the loan in question is that of a performing mortgage where payments are being made.

Kanner also noted that, once the Pandora’s Box of eminent domain is opened up for underwater mortgages, the property owners could not be denied hiring their own attorney and appraiser and contesting any mortgage buyout or reduction offer.  If they won in front of a jury, the local government agency would be on the hook to pay court costs and the property owner’s litigation and appraisal fees.  This is minimally about $50,000 per case.

There is No Underwater Mortgage Free Lunch

The use of so-called “submerged eminent domain” has become a trendy cause by media elites Arianna Huffington and actor John Cusack.  However, no mention has been made that, in San Bernardino County, the proposal to use eminent domain would call for about 80 percent of all property owners to vote for higher property taxes to pay off the underwater mortgages of the other 20 percent of homeowners.

How long the concept of using eminent domain to reduce “underwater mortgages” would remain popular when all homeowners in a designated area would have to vote for higher property taxes remains to be seen.

37 comments

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  1. David in Irvine
    David in Irvine 14 September, 2012, 10:38

    A better example of the Bootleggers and Baptists coalition could not be imagined!!

    Reply this comment
  2. Dyspeptic
    Dyspeptic 14 September, 2012, 11:31

    I wouldn’t be surprised if a little research showed that Steven Gluckstern and that sleazy slicked up phony Gavin Newsome were very chummy. I bet Gluckstern has made direct or indirect campaign contributions to the usual Demogoguecrat Party suspects including Pretty Boy. This whole thing has the stink of crony capitalism, political corruption and eminent domain abuse all over it.

    I like Congressman Campbell’s assessment of the scheme (even if he is a car salesman:-)
    “atrocious, corruptive, irresponsible and unconstitutional. ”

    That quote describes the entire Demogoguecrat Party hierarchy in Kalifornia and quite a few big shot Republicans also (see Arnold Schwarzenegger et. al.)

    If Obama gets re-elected, which is likely, then Congressman Campbell’s bill will never become law. I hope he has a plan B because the loony-sleazy left would love to see this scheme work nationally.

    Reply this comment
  3. SeeSaw
    SeeSaw 14 September, 2012, 11:37

    The mortgages should be modified, using the mortgage balance, so the borrowers can afford the payments. If it takes 50 years to pay off the house, that’s what it takes. Eminent Domain should not be used by the Government to seize mortgages.

    When land is taken by Eminent Domain for a big box store, it is in the public interest. A Costco sits one block from my house, in place of an old rundown strip mall. That was a benefit of proper eminent domain combined with Redevelopment. Eminent Domain used properly, should not fail to pay those who are being displaced, fair payment for their property.

    Reply this comment
  4. Wayne Lusvardi
    Wayne Lusvardi 14 September, 2012, 11:38

    RECEIVED BY EMAIL FROM ANONYMOUS

    MAN! I love (not) how the architect of this absurdity has somehow managed to recruit an ignorant and arrogant Hollywood movie star as a sort of “spokesman” for this racket, which disguises an underhanded profit-making scheme as something designed to “rescue struggling homeowners.” The NERVE of these people!

    Seems to me that even if Campbell’s bill fails he will at least have been able to use a national stage to spell out for the public what this scheme is really all about since our own corrupt public officials in California won’t do it but are only interested in PROMOTING such swindles for their own self-serving reasons.

    Reply this comment
  5. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 14 September, 2012, 11:38

    Oh good lord Dyskleptic, Newsome is a great guy.

    On another note, since you broought up President Obama, why is it do you think that the Republican party can’t overcome the President’s reelection? What are the Repubs doing that seems to be turning off so many Americans?

    Reply this comment
  6. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 14 September, 2012, 11:40

    …and when you call the Lt. Gov. “pretty boy”, I have to ask, are you attracted to him or something? What exactly do you mean by that?

    Reply this comment
  7. SeeSaw
    SeeSaw 14 September, 2012, 11:44

    So now we are going to trash a politician and give him petty, nick names because he happens to be handsome? GN might be handsome–but, there is solid matter between his ears. Vet him for his smarts, not his looks. And, keep his and every other politician’s personal life out of it!

    Reply this comment
  8. SeeSaw
    SeeSaw 14 September, 2012, 11:51

    John Cusack is anything but arrogant and ignorant! He is a humanitarian, and a great actor! A good person can sometimes be misled on any subject, one way or another.

    Reply this comment
  9. Karen Myers-Vance
    Karen Myers-Vance 14 September, 2012, 12:06

    You have got to be flipping kidding me!!! This is one of the poorest excuses I have ever heard for a government of any kind in this country. Jerry Brown must be teaching “How to be the Worst Sleaze Bag” classes in his spare time.

    Reply this comment
  10. Dyspeptic
    Dyspeptic 14 September, 2012, 14:19

    “Oh good lord Dyskleptic, Newsome is a great guy.”

    Spoken like a true partisan zombie Edward Spiel. He looks like a carnival barker or a professional gigolo and he deserves unending opprobrium. He’s just another punk politician who can’t be trusted as this rotten mortgage swindle proves. As to his attractiveness, you must be homophobic for thinking that one mans recognizing the physical appeal of another is homoerotic. Maybe it’s just a plain fact. We know how you don’t like those. Besides, his good friends wife found him attractive enough to commit adultery with. That makes him an automatic candidate for president in your party 🙂

    @ See Saw,

    The horrific Kelo decision notwithstanding, the U.S Constitution states plainly that eminent domain shall only be used to obtain land/real property for public USE, not merely assumed/partial public benefit, which is a much lower standard invented by corrupt jurists. I bet your attitude about eminent domain abuse would change drastically if your property were condemned and given to some billionaire for a sports stadium.

    Giving public officials the ability to low ball compensation for seized property made less valuable by condemnation is inviting corruption, theft and injustice which often victimizes poor homeowners and minority small businesses. If you think thats socially desirable then you are just plain obtuse or morally confused.

    No way do property owners get fair value after their neighborhood has been officially declared blighted! I TRULY HOPE THAT YOUR LOCAL GOVERNMENT ACTS ON YOUR BELIEFS AND THEN CONDEMNS/SEIZES YOUR PROPERTY, PAYING YOU SOME LOWBALL AMOUNT OF COMPENSATION. THAT WOULD REALLY BE IRONIC JUSTICE! MAYBE THEY WILL GIVE IT TO SOME POLITICALLY CONNECTED SPORTS MOGUL IN RETURN FOR CAMPAIGN DONATIONS!

    Reply this comment
  11. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 14 September, 2012, 14:32

    Oh my gosh Dys kleptic—

    1. Adultary only in our party? LOL -you can do better than that, can’t you?

    2. A “punk politician”? Sounds like you anger is boiling over a bit? I understand that you find him attractive, and of course, no judgement here, I just wanted to confirm that. Maybe your rage is more about unrequited love?

    God Bless and have a super weekend!

    Reply this comment
  12. Queeg
    Queeg 14 September, 2012, 15:22

    Teddy go lite-

    The shot their wad with Meg and Carly and Arnold!

    Nough said-

    Reply this comment
  13. SeeSaw
    SeeSaw 14 September, 2012, 16:08

    @ Dispeptic: There is no law in existence that pleases all the people in every aspect. Without Eminent Domain, nothing could ever be improved for the betterment of all the citizens. The only way you will be happy is to own and live on your own island.

    GN’s personal life is none of your business. I have seen him speak in person. He is a savy, smart politician. He will be the next Governor of CA, so get used to it.

    Reply this comment
  14. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 16:35

    SeeSaw says:
    The mortgages should be modified, using the mortgage balance, so the borrowers can afford the payments. If it takes 50 years to pay off the house, that’s what it takes. Eminent Domain should not be used by the Government to seize mortgages.
    When land is taken by Eminent Domain for a big box store, it is in the public interest. A Costco sits one block from my house, in place of an old rundown strip mall. That was a benefit of proper eminent domain combined with Redevelopment. Eminent Domain used properly, should not fail to pay those who are being displaced, fair payment for their property.

    Hhahahah……seesaw you kill me, you really do.

    Eminent domain should NEVER be used to take PRIVATE PROPERTY by the gov, so gov can GIVE that property to another PRIVATE PARTY. Eminent domain should ONLY be used for parks, roadways, bridges and other PUBLIC USES.

    I guess you were one of the 6% that agreed with Kelo v New London…….thank god the other 94% of us do not trough feed at the gov pie hole.

    BTW- for the record, Costco is not a public use, it is a PRIVATE BUSINESS. And what I have see numerous times since Kelo is the gov taking private property thru eminent domain by LOW BALLING people on behalf of their developer buddies…………….

    BTW#2, taking under water trust deeds thru eminent domain like Newsome suggests is NO DIFFERENT than that Costco example you used.

    Reply this comment
  15. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 16:37

    GN’s personal life is none of your business. I have seen him speak in person. He is a savy, smart politician. He will be the next Governor of CA, so get used to it.
    seesaw is getting rid of all her jokes since it is friday 🙂

    yeah you said the exact same thing last year when he ran fo gov…….how did that work out for the “cheating with his best friends wife Newsome”????

    Reply this comment
  16. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 16:39

    SeeSaw says:
    So now we are going to trash a politician and give him petty, nick names because he happens to be handsome? GN might be handsome–but, there is solid matter between his ears.

    I challenge you to prove Jello is a “solid matter” seesaw 😉

    Reply this comment
  17. SeeSaw
    SeeSaw 14 September, 2012, 16:40

    Here’s another one of my jokes for you, Rex. Wisconsin’s anti-collective bargaining law was just struck down today.

    Reply this comment
  18. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 16:41

    Edward Steele, Chief Investigator says:
    …and when you call the Lt. Gov. “pretty boy”, I have to ask, are you attracted to him or something? What exactly do you mean by that?

    After his wife dumped pretty boi for cheating on her, GN went gay-known fact? I approve of gay mariage and hope NNwsome finds the right guy 😉

    Reply this comment
  19. SeeSaw
    SeeSaw 14 September, 2012, 16:42

    No Rex, I did not say the same thing last year. Last year, Brown was already Governor. I supported Jerry Brown for Governor–never supported Newsome.

    Reply this comment
  20. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 16:43

    The horrific Kelo decision notwithstanding, the U.S Constitution states plainly that eminent domain shall only be used to obtain land/real property for public USE, not merely assumed/partial public benefit, which is a much lower standard invented by corrupt jurists. I bet your attitude about eminent domain abuse would change drastically if your property were condemned and given to some billionaire for a sports stadium.
    Giving public officials the ability to low ball compensation for seized property made less valuable by condemnation is inviting corruption, theft and injustice which often victimizes poor homeowners and minority small businesses. If you think thats socially desirable then you are just plain obtuse or morally confused.

    See seesaw, most people get and uderstand Kelo and why it is a horrific ruling, one of the TWO worst rulings in the last 50 years.

    Reply this comment
  21. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 16:44

    No Rex, I did not say the same thing last year. Last year, Brown was already Governor. so sorry, my bad-it was 2years ago.

    Reply this comment
  22. SeeSaw
    SeeSaw 14 September, 2012, 16:45

    You are really behind in your gossip, Rex. Newsome is married to an actress and has a child. You have no first-hand knowledge about what went on in his first marriage. His sexual orientation is nobody’s business either.

    Reply this comment
  23. SeeSaw
    SeeSaw 14 September, 2012, 16:50

    Rex, I understand that Costco is a private business. Its existence in my City was the result of a partnership between Costco and the City through Redevelopment. And, the result was for the public good.

    Reply this comment
  24. SeeSaw
    SeeSaw 14 September, 2012, 16:55

    Yes Rex, I was unhappy to lose my ’76’ gas station. I am currently very unhappy about a 24-hour Wal*Mart coming in at the opposite end of my steet. I blogged in protest about it–the American Way. Nobody is ever completely happy, so get used to that too.

    Reply this comment
  25. Ted Steele, The Decider
    Ted Steele, The Decider 14 September, 2012, 19:57

    Seesaw– thanks for the headsup! Looks like a very bright judge in Wisc. knows the Constitution! Victory for the middle class!

    Reply this comment
  26. Ted Steele, The Decider
    Ted Steele, The Decider 14 September, 2012, 20:09

    LOL— I guess they have aConstitutional right of free association up there in Wisc. That pesky Constitution is a left wing conspiracy. Darn it all anyway. Poor Scott Walker, he was just going somewhere in the teabag crew too! Darn!

    Reply this comment
  27. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 20:27

    Actually seesaw it is a proven fact NewDork cheated WITH HIS BEST FRIENDS WIFE!!!!…..the WIFE of his BEST FRIEND!!!! Yes, that is someone we can all trust and put our faith in 🙂

    Reply this comment
  28. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 20:31

    SeeSaw says:
    Rex, I understand that Costco is a private business. Its existence in my City was the result of a partnership between Costco and the City through Redevelopment. And, the result was for the public good.

    LOL “public good”, yeah and paying GED edcuated gov trough feeders $300K per year pensions is for the “public good” too!!!!

    Hmmmm public good……Says WHO?? You, seesaw??? And I hate to break the news to you seesaw but this aint Russia or China and forcing people to sell private proerty to ANOTHER private owner is a scam, but you just don’t have the brain power to figure that out b/c you live in the Fantasyland of gov employment!

    Reply this comment
  29. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 September, 2012, 20:39

    Seesaw– thanks for the headsup! Looks like a very bright judge in Wisc. knows the Constitution! Victory for the middle class!

    Hey Beavis and Butthead, the judge at the TRIAL court, struck the law down for LOCAL employees only, it still spplies to ALL state employees and will stay in effect against ALL public employees while the appeals process goes on….. LOCAL ONLY!

    I predict Walker prevails on appeal, and am almost always correct 😉

    Reply this comment
  30. Queeg
    Queeg 14 September, 2012, 23:24

    What boring, stale, asroturf drivel!

    Reply this comment
  31. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 September, 2012, 00:43

    what is “as-ro-turf” teddy 🙂

    Reply this comment
  32. Ted Steele, The Decider
    Ted Steele, The Decider 15 September, 2012, 12:53

    I don’t know simpleton, I’m not Queeg, you may ask him though if you wish.

    0 for 10 ™

    Reply this comment
  33. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 September, 2012, 14:11

    Hi Teddy….err… I mean Queeg!
    🙂
    11-0, 12-0 Nov 6 ™

    Reply this comment
  34. Queeg
    Queeg 15 September, 2012, 14:27

    Shun him!

    Reply this comment
  35. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 September, 2012, 14:59

    Ok Mr. “as-ro-turf” 🙂

    Reply this comment
  36. Ted Steele, The Decider
    Ted Steele, The Decider 16 September, 2012, 20:03

    roger that Queeg

    Reply this comment
  37. Rex the Wonder Dog!
    Rex the Wonder Dog! 16 September, 2012, 20:32

    Did you mean Mr. “as-ro-turf” 😉

    Reply this comment

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