Lt. Gov. Newsom threatens mortgage eminent domain threateners

Sept. 10, 2012

By Wayne Lusvardi

You read the headline right.  California Lt. Governor Gavin Newsom is threatening those who “threaten” to “boycott” any entity of government in California that wants to use eminent domain to seize “underwater” mortgages.  Huh?

Newsom is threatening to call in the U.S. Department of Justice against any banks, Wall Street investment firms, bond rating agencies or others who may consider “boycotting” any county or joint powers authority that wants to use eminent domain to acquire mortgages that exceed the market value of homes.

According to Reuters, Newsom sent a letter to U.S. Attorney General Eric Holder seeking the investigation and prosecution of any attempts by Wall Street investors or government agencies to “boycott” local California governments seeking to use eminent domain to seize mortgages.

The Lt. Governor’s website had a summary of the letter as follows:

09-10-2012 

Lt. Gov. Gavin Newsom Calls Upon Attorney General Eric Holder to Review Threats of Retaliatory Actions by Mortgage Industry.

September 10, 2012

Today Lt. Gov. Gavin Newsom called on Attorney General Eric Holder and members of the Antitrust Division of the Attorney General’s Office to review the actions of some members of the mortgage industry, as well as federal agencies, who have coercively urged local governments to reject consideration of any proposal that would exercise the powers constitutionally granted local governments to use eminent domain to help stem the mortgage crisis.

“Communities have been ravaged by the housing crisis and now members financial sector, who has had long enough to fix the problem, are threatening to redline communities in California that are looking for unique solutions that may save thousands of families their homes. I am asking the Attorney General to investigate and protect homeowners and their communities that simply want to find their way out of this mortgage crisis.”

The full letter can be viewed by clicking here.

On its face, this letter seems premature. No court has thus far even validated that seizing mortgages is a legitimate use of the “public purpose” provision of the eminent domain law.  Nor has a court upheld the use of eminent domain by local governments to “cherry pick” only performing loans out of a lender’s loan portfolio and leave those loans that are in arrears or in default to the lender.  Neither has there been any legal ruling on the legitimacy of homeowners “applying” for eminent domain, as recently proposed in San Bernardino County.

And it is totally unclear how any actions that banks, Wall Street investment firms or bond rating agencies take in reaction to any use of eminent domain to seize mortgages is an “antitrust” violation.

“The Washington, DC special interest groups needs to back off,” said Newsom. “We owe it to homeowners everywhere to see if the solutions being discussed in San Bernardino will work.”

Vocal opponents of the proposal include the Association of Mortgage Investors, a lobbying group in Washington, D.C., and the Inland Valley Association of Realtors.

California is now becoming a “bully” state.  Voters should take note before the November elections.