We have previously posted about the use of eminent domain as a tool for saving the homes of people whose mortages remain underwater as a result of the mortgage meltdown and the effects of the economic depression (go, for instance, here and here).
Now, read this article by Ben Hallman about the political (and possibly legal) battle brewing on that subject in San Bernadino, California. A couple excerpts give you a flavor:
Governments usually use this power, known as eminent domain, to acquire
private land for public purposes, such as roads or utility lines. But
th[e San Bernadino] plan, proposed by a San Francisco-based venture fund Mortgage
Resolution Partners, calls for government authorities to seize the
mortgages of underwater borrowers, paying the investors that own them a
fraction of what they are owed, using money borrowed from the fund.
Homeowners could then refinance with a federal loan at a much lower
rate, based on what their home is actually worth instead of what they
owe. * * * "It is a disaster of epic proportions," said John Vlahoplus, chief
strategy officer at Mortgage Resolution Partners, of the dramatic
decline in home prices that in many areas has left homes worth less than
half what the borrowers paid. "The crash has devastated the family
wealth of these communities." [A] group from the East Coast, representatives of the mortgage
finance industry, don't like this idea much at all. They have worn a
path to Devereaux's office in recent months to tell him, and anyone else
who would listen, that the proposal amounts to nothing less than a
threat to the entire mortgage finance system, and an assault on free
enterprise and the U.S. Constitution.
Hat tip to Bradley Girard.