Friday, June 14, 2013 | 2 a.m.
The North Las Vegas City Council is considering a novel and innovative proposal to use eminent domain to help underwater homeowners.
Opponents claim that homeowners will be forced to leave their homes. They also warned of lawsuits and said lenders may shy away from making loans in the area.
However, the type of eminent domain in question would lift many homeowners out of their underwater loans, allowing them to stay in their homes with more affordable payments.
When the term “eminent domain” is used, most everyone thinks of the taking of private real estate by government for a public purpose in exchange for just compensation. This definition is not the type of eminent domain transaction being considered by North Las Vegas. In this case, the property to be taken is private-label securitized loans.
The idea is the brainchild of Cornell University Law Professor Robert Hockett, who sees it as a way to assist homeowners with troubled loans. It could be a real breakthrough and a major plus for the community in terms of improved neighborhoods and general community amenities. Hockett has even taken his plan before Congress. It is an idea that should be considered.
Under this nontraditional eminent domain concept, the city, with full approval from the existing homeowner, would act as an intermediary, forcing the buyout from the current loan holder for fair value. A new stakeholder investor would step up to provide the funds for the buyout and the pre-existing loan holder would be out of the picture. This would leave the existing homeowner with a reduced principal balance and a more affordable loan payment, thus reducing the chances of a default.
Until loan values in the area better reflect home values, defaults will continue on too large a scale, harming bondholders, homeowners and their communities.