Home > #OWS, finance, musing > Could we use eminent domain to help suffering homeowners? (#OWS)

Could we use eminent domain to help suffering homeowners? (#OWS)

March 10, 2014

Here are two things you might have some trouble believing if you read the papers regularly and find yourself convinced we are in a housing recovery. First, there are still huge numbers of homeowners on the brink of, or just starting to enter, foreclosure. Second, many of the banks foreclosing on those properties do not have clear legal ownership over the mortgages in question.

Obama should have addressed the first problem through TARP way back in 2008. In fact mortgage modification was an intention of TARP that was promised Congress when it passed the second half of the money but it never happened. Instead Obama came up with the garbage called HAMP, which has been dreadfully implemented and possibly a net harmful program.

Even without Obama, we should have seen a willingness to renegotiate debt. After all, we can negotiate credit card debt, and businesses routinely renegotiate their mortgages. Why are private home mortgages kept airtight? I guess the banks see it as in their interest not to allow negotiations, and whatever the banks want, the banks seem to get.

The second problem, which is essentially one of botched paperwork (explained here), is probably technically the job of some regulator to deal with, but nobody wants to “blow up the system” so nobody is dealing with it. This is especially ironic considering how often we hear about the so-called sanctity of the contract.

The result of these huge looming problems is that banks got bailed out and the system never got cleared of its actual debt and paperwork problems,.

Enter the concept of using eminent domain to force these two issues. Strike Debt, an offshoot of Occupy Wall Street, is pushing this in a few nationwide court cases, for example in Richmond, California.

More recently, and what inspired this post this morning, is a plan cooked up by Strike Debt using eminent domain to force courts to clear up broken chains of title, written by Hannah Appel and JP Massar.

This idea is on its face unappealing, given the history of that crude tool eminent domain. Everyone I meet has their own stories, but start here for a short list of eminent domain abuses.

And it might not work, either. A district judge might not want to deal with the complexity of the issue and might just let the bad paperwork through.

For that matter, many concerns have been voiced about the practicality of this approach, and one that deeply resonates with me is the idea of using it against current mortgages – i.e. mortgages where the homeowner is up-to-date with payment. Using eminent domain in such a case could set a precedent whereby, even though someone has been taking care of their property, the city uses eminent domain to condemn it based on historical data which implies the owner is likely to neglect their property. That would not be good enough. As far as I know the current plan only uses mortgages where there have been missed payments, though.

The bottomline is this: we’re in a situation where all these homeowners are being crushed with unreasonable monthly payments, and hugely inflated principals, where the legal ownership of the mortgage itself is under question, and nobody seems to want to do squat about it. Maybe it’s time a crude tool is used against a cruel enemy.

Categories: #OWS, finance, musing
  1. March 10, 2014 at 11:52 am

    I agree, the whole “housing recovery” theme has been waaay overplayed in economic circles, but even if somehow remedied, what worries me more is the looming student debt crisis (even harder to remedy) of an entire generation of 20-and-30-somethings, including many unemployed or under-employed… (I already had some savings and an IRA by age 30; I only know a few today who do).

  2. Josh
    March 10, 2014 at 1:09 pm

    @mathbabe: I am pretty sure (from Tom Adams’ presentation to Alternative Banking) that Richmond IS trying to condemn mortgages that are current. I wrote up notes from that presentation (which Tom reviewed) posted here:
    http://altbanking.net/tom-adams-resolving-under-water-mortgages-and-eminent-domain/
    I do not think Richmond should be trying to use eminent domain on mortgages which are current. In addition, I don’t think it is practical. Even if judge allows them to be “condemned” the court is likely to give them values that make the plan infeasible.

    @Shecky: I agree about student debt. But it won’t be a “crisis” as housing was because banks will not be on the hook for the losses. The 20-and-30-somethings are bearing the cost and, to the extent they can’t, the government will absorb the costs (of course, the government did for housing, too, but it needed a bailout. With student debt, the government is officially on the hook for most of it.

  3. March 10, 2014 at 1:43 pm

    Hi Josh, yes I realize the Gov’t. is on the hook for the student debt and THAT’s exactly what worries me — short of them giving some sort of general amnesty, it means these young people are likely to suffer wage garnishment, and have little chance of buying a house or saving for retirement on the timetable past generations have done… that sets up national economic woes lo-o-o-ong into the future.

  4. Josh
    March 10, 2014 at 3:40 pm

    Shecky,

    Yes, I agree there are large problems now and in the future from student debt. I was just saying it wouldn’t show up as a “crisis” because it wouldn’t affect Wall Street, banks, etc.

    I am old enough to remember the days when the University of California was excellent and free (I’m not old enough to remember when the same could be said about CCNY but it once was, too). So, we have gone from thinking college education was something society provided as a benefit (that help us all) to one where it is a huge private burden.

  5. March 10, 2014 at 4:52 pm

    Cathy, did anyone force anyone to buy a home? As a renter, I feel no sympathy for speculators and for those who lied on their mortgage applications and got in over their heads.

    • March 10, 2014 at 8:37 pm

      I also rent, but I can muster up some sympathy for homeowners when their lender and/or the estate agent who sold them the home entrapped them with deceitful tactics.
      Speculators are a cause of housing booms (and bubbles!) but owner occupiers suffer when they bank forecloses.

  6. A reader
    March 15, 2014 at 11:28 am

    Obama should have solved this problem in 2008??? He didn’t take office til 2009. You must mean GW Bush. Too many pundits criticize Obama for situations that happened before he took office. This is a disservice to your readers who are misled.

    • March 17, 2014 at 1:56 pm

      Obama created the HAMP program in 2009. He could have done way better.

  1. No trackbacks yet.
Comments are closed.
Follow

Get every new post delivered to your Inbox.

Join 986 other followers

%d bloggers like this: