Eminent Domain

A number of municipalities have begun exploring the use of eminent domain to seize mortgage loans from their holders and refinance them with reduced principal balances.

Under the proposed plans, a city or county would condemn and seize certain mortgages held in private-label securitizations under the power of eminent domain and refinance the seized mortgage through a government lending program. The idea has reportedly been considered in several cities; it was considered and rejected in San Bernardino County.

The plans being considered generally target mortgages with balances higher than the current value of the home and have been championed by a firm known as Mortgage Resolution Partners (MRP), which would benefit from fees charged to municipalities if they were to engage MRP for their assistance in carrying out such a plan.

ABA Position

ABA strongly opposes the use of eminent domain to seize and refinance mortgages. This use of eminent domain would destabilize mortgage markets. If the government can randomly seize mortgages that it decides are unfair or otherwise disadvantageous to one party or another, there will be no confidence in any mortgage contract made in that jurisdiction. Lenders and investors will refuse to lend, and has been made clear by the FHFA, it is likely that the federal government would refuse to back mortgages made in such jurisdictions.

 

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 ABA Staff Contact

 
  • Joe Pigg, Sr. Vice President/ 
    Sr. Counsel, ABA Mortgage Finance