Eminent domain to seize zombie homes – Councilman’s joke could be real?
Richmond City Councilman Tom Butt posted a great press release on March 31st, regarding supposed mayoral action to occur on April 1: “Breaking News – Mayor Announces Eminent Domain Mortgage Seizures to Begin Tomorrow Morning in Richmond”
The last sentence of the article wishes a happy April Fools but the rest of the article is dead serious. It refers to the zombie foreclosure problem and presents a wonderful idea that the mayor could use eminent domain powers to claim the mortgages of any bank that has refused to negotiate a principal reduction for homes that are financially underwater (where the debt exceeds the current value of the property).
On the one hand, eminent domain always sounds a bit like Castro Communism. But on the other hand, it makes perfect sense. These banks acted in bad faith and the world economy crashed, they got bailed out by tax dollars, and then they have the nerve to refuse to negotiate with the homeowners who might be able to pay if it were at current market rates. The banks seems to prefer that the home itself collapse rather than short-sell to the current owner.
My guess is that it’s because the mortgage notes are collateralized and the servicers contractually can’t make that kind of modification. So ok, if they can’t (or at least won’t), then let the mayors do it.
Zombie debts are a blight on the whole neighborhood. And I use that word “blight” knowing it is a term of art for eminent domain. These homes may not have all fallen into disrepair (yet), at least not in the physical sense, but in the meta-world of economics, there are disgusting and impossible debt obligations that blight these properties. Councilman Butt may have couched this as a joke but it’s a real possibility that real mayors should consider as a way to put real pressure on the banks to negotiate with the homeowners for fair terms at today’s value. Lots of people were hurt by the 2008 crisis, but there is no reason to let banks hold properties hostage when government has the power to clean the blight.
From the Councilman Butt satire:
The city didn’t want to have to use eminent domain, says [the Mayor], who last year marched with community organizations to the city’s head branch of Wells Fargo to ask if the bank would voluntarily renegotiate underwater loans at fair market value, known as principal reduction. But bank officials refused to meet with them; Wells Fargo and other financial institutions continue to play what [he] calls an obstructionist role, standing in the way of vital reforms. “We asked them, ‘What is your solution to fix the problem?’ and they had none,”
I learned about this article from Contra Costa Times: “East Bay pet businesses get waiver to ‘no washing’ rule“. And note here again we see zombies sharing story space with dogs, because of course even in a drought you have to wash the dog’s poop.
Meanwhile for more realistic information on Richmond’s mayor and eminent domain for zombie foreclosures, see NyTimes from January: “Eminent Domain: A Long Shot Against Blight” by Shaila Dewan:
Using eminent domain to heal the wounds of the mortgage crisis has been called crazy, unconstitutional and even “one of the worst ideas ever.” But it is not so far removed from mainstream thinking.