Though the real estate industry has experienced some notable gains so far this year, certain areas continue to struggle under the pressure of foreclosures and delinquency. To curb this issue, some local lawmakers in these areas are weighing the pros and cons of implementing eminent domain.
However, eminent domain, which gives legislators the authority to purchase distressed homes for public use without a court ruling, has received criticism from a number of mortgage lenders, HousingWire reports.
In fact, some companies have even threatened to withdraw mortgage credit to local areas considering the use of eminent domain, which could have a negative impact on consumers' abilities to purchase homes. These banks claim the process may be against the law, but one industry expert disagrees.
"The legality is not an impediment to this program," said Neal & Leroy managing attorney Richard Friedman, according to the news source. "Eminent domain is never popular. But the Supreme Court has very seldom, if ever, found local governments' use of eminent domain as unconstitutional."
Local areas pushing forward
San Bernardino County in California is one such area that has long-considered the use of eminent domain to stabilize its housing market. During the month of July, an estimated one in every 192 properties in the county were in some stage of the foreclosure process, according to property data from RealtyTrac. This was well above the national rate of one in every 686 homes.
Investors from Mortgage Resolution Partners approached lawmakers in San Bernardino earlier this year with a proposal to implement eminent domain. Under the initiative, the local government would purchase the mortgages of distressed properties with private money from the company. In turn, investors would write down the balance of these loans and issue new ones backed by the Federal Housing Administration. However, not everyone is onboard with the program.
"Nobody can safely quantify the unpredictable and hostile act of taking mortgages through eminent domain," Securities Industry and Financial Markets Association managing director Tim Cameron told HousingWire "If you want to kill an economy, start by aggregating contracts and start by introducing eminent domain."
Meanwhile, according to analytics from Clear Capital, the real estate industry in San Bernardino could turn a corner on its own, and the us