Las Vegas Sun

September 19, 2014

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Letter to the editor:

Eminent domain is a breakthrough idea

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.

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  1. Hey Bradley, the City pays nada. Private investors pony up the money and take out the recalcitrant existing private label secutitized lenders who are holding the existing homeowners hostage to an underwater mortgage. This allows the existing home owner to stay in his house,rather than being ejected and replaced by some investor who takes over the house and rents it out. By the way, your perception of North Las Vegas being some yuppie community is hog wash. North Las Vegas is one of the lowest per capita income City's in the state. These are just the types of folks that a hard core champion of the poor like yourself love to help. By the way in case you are wondering, I personally have no dog in this race. My loan is not a private label securitized mortgage. Therefore it would not qualify for eminent domain treatment. Our City has been ravaged by the great recession. Neighborhoods have been upended and in many cases hit by blight, and been destabilized as victims of the housing meltdown have lost their houses and been forced to live in greater poverty. You may want to google "North Las Vegas" and compare the average income per capita with Henderson and Las Vegas.I think it will be an eye opener for you.

  2. Bradley-- to save you the trouble, read the NLV per capita income figures here.http://en.wikipedia.org/wiki/North_Las_Vegas,_Nevada

  3. Bradley,et all--here is the ranking of per capita incomes by City in Nevada. North Las Vegas ranks in the bottom part at # 59 at just above $16,000.
    http://en.wikipedia.org/wiki/Nevada_loca...

  4. I thought and predicted that the U.S. would by now grant a principal reduction to struggling homeowners to stay in their homes and keep current on their mortgages. Hasn't happened [yet]. The concept copies the I.R.S. debt forgiveness on short sales which have been the primary driver of home sales and buys in Nevada and other states with home owners under water. I'm still optimistic BUT the current Administration is underwater in controversies.

    Carmine D

  5. Future--the home is not taken, The existing underwater private label securitized loan is replaced by another private investor's loan at near market price of the home. The effect is to keep the existing homeowner in the house at a reduced principal thereby rationalizing the loan value to home market value. By the way, homes are not cars obviously. Buyers expect cars to depreciate immediately,not homes. And I'd say that this comparison is out of the ball park. Whether new lenders would shy away from lending in an eminent domain City is a good question. That is one of the arguments by the bankers and other opponents who are vehemently against this idea. What was obvious from listening to finance and banker representives at the City Council's panel discussion last week was that the bankers are worried --they never once mentioned any concern for the residents of North Las Vegas or the condition of the City--but then you wouldn't expect them to either,would you. The Greater Las Vegas Association of Realtors is in the same boat. One of the attorneys representing the GLVAR made the statement that as long as the homeowner was continuing to make his payments at the inflated mortgage value that a case could be made that the underwater mortgage could be valued at the face value of the loan, even though the value of the underlying security(the house) was worth much less. This is lameheaded thinking that existed by the opponents. Imagine the fear that banks and investor groups in these underwater loans have that they might be forced to write down their assets to relect the true market value of their loans.

  6. More explanation and insight into the use of eminent domain is rescuing underwater loans can be read here.http://www.lawschool.cornell.edu/spotlights/NY-Fed-Report-by-Hockett-Revives-Discussion-of-His-Municipal-Plan.cfm

  7. Wow! Joe Stalin & Mao must be smiling in their respective graves. Maybe we should dig them up and put them in charge doing what they used to do: confiscate private property. I don't know why the usual suspects are up in arms about the loony idea to "force the buyout from the current loan holder for fair value(?)." (BTW, exactly what is "fair value" when one is forced to sell?) The leftists loons are always pissing & moaning about anyone else who has earned more than they. This ludicrous idea is a play straight from the little "Red Book" and Karl Marx's insane agenda of "from those that have it to those that don't." If this misbegotten idea were to come to fruition, what financial organization in its right mind would lend money to anyone applying for a mortgage knowing that at any time it could be "forced" to take a loss by fiat? Let's deep six this nutty idea that more than likely sends a "thrill" down the legs of the Commie-lites!

  8. If this company can offer this service to the homeowner, then why not do it without involving the city?

    Sounds ripe to me.

  9. Anyone else think the person who wrote this has a connection to the company trying to get local government to take hold of homes through wrongful use of eminent domain??

    'Houstonjac (Bob Jack)' - Please take of your false veil, let us know who you work for.

  10. I have noted in the Sun letter writing forum and generally in America today, if one dares to be something other than ideologically 'pure', one is sure to be attacked for it.

    HoustonJac, a seemingly Conservative leaning letter writer, suggests that using eminent domain in some way might help people with underwater mortgages in North Las Vegas and maybe other places. He is immediately attacked by seemingly Progressive leaning letter writer BChap for 'daring' to suggest that government, in some way, involve itself in the housing market. 'That' apparently makes HoustonJac a hypocrite, and also invalidates any ideas he may put forth according to Bchap. I have suffered these attacks and this also happens to Progressives who don't stay ideologically 'pure'.

    Our problems are so severe that in my opinion we badly need people who think 'out of the box' and do not stay ideologically 'pure'. I don't know enough about this proposed eminent domain program to know if it is good, bad or somewhere in between. I do believe however that we need to stop throwing people off the cliff and dismissing their input because something they favor falls outside the 'box' that others have shoehorned them into.

    Michael

  11. The other problem with this idea is the root behind why some banks have been slow to foreclose or move against delinquent loans. As long as they do not do that, they can still hold the asset (loan) on the books at full value. If you suddenly force banks to sell loans that they hold at a price much less than their stated/face value, that could lead to some banks having issues with their balance sheet. (It can be assumed that they would be forced to sell or else we would probably be seeing a good deal of this happening on its own.) It has been said that one reason that banks have not moved more homes is that they need to move slowly to clear the loans because of the hit to their books.

    The government still has several programs running to help homeowners with their loans, including principal reduction. They have talked about extending them because they have so far helped only a fraction of the people that they were intended to help. At least people need to be looking at their options before opening up a can of worms like this.

  12. Hi Ashley, You got to be kidding.
    I dont want to imply that you halluncinate.
    Do you live in NLV? There are infulential financial interests(banks)who really hate this idea, because it forces them to deal with their overvalued loans. These tranactions would force them to write down their loan assets to reflect actual market values. Also, there are those who hate the thought of any kind of government intervention at all in private matters. Normally count me in that group. In the present case, however,after reading over the idea carefully,and living in NLV(at ground zero in the housing crisis),I concluded that this use of eminent domain might have merit. It is novel I will admit. It covers about 4,000 mortgages that are called Private Label Securitized loans. Because of the structure of many trusts who hold these mortgages(a multiplicity of investors have bought in),it is usually impossible for these trusts to ever obtain approval from these investors to negotiate loan modifications(even if in their best intersts).
    To address your comment,I have no financial business interest in this matter. I am interested however in being opened minded to anything that might improve NLV and homeowners who are suffering.
    For your information,not even my loan would qualify for this program.

  13. Bradley

    Where in heaven's name did you get your off the wall ideas on this one. You are usually rationale. In this case you must have been drinking the Koolaid. You have somehow bought into the notion that North Las Vegas is this very wealthy community of the rich who are now trying to take advantage of its municipal government. Did you bother to note that NLV is No. 59 in Nevada cities with a per capita income of about $16,000. We are your kind of folks. You are right however about the police in NLV having large pay packages--a political gift from Mayor Buck,a Republican no less( recently voted out of office)for their support. We are still struggling with the effects of that burden. That will take time to resolve.

  14. Bob Jack, in response to do I hallucinate, do you get paid to respond to ever comment ?

    If you want to back the publics best interest try to endorse what we already have going on in public programs that help the people of NLV. Help spread word of programs out there that are legal and in place so that distressed home owners can know their resources, if they haven't already invested the time in doing so themselves.

    I have to say, if this were such a great program it would be widespread across the country. But, it's not. Let's see how it fares in California before we even consider bringing this mess here.

    NLV can't afford lawsuits over this. They cant even make their budget. What a joke!

  15. Bradley:

    I looked over the list of homes you provided. If I am not mistaken these are not NLV homes. They indicate they are Las Vegas homes. Further, the values in Henderson generally run about 25-30% or so more than the same home in NLV.

  16. Michael:

    Thanks for being balanced and reasonable in your thinking. You are sure correct. This an out of the box idea. Many times the "devil is in the details" as you are aware. Nevertheless,this idea is certainly worth considering. NLV would be the first city to go there,although it is being looked at in Calif also.

    Bob

  17. Who gets the profit when these homes are sold a few years later? The bank that took the hair cut, the seller or the new buyer? ( government )

    It seems this is the same result as a loan modification except it takes all responsibility from the homeowner, does it really sound like a good thing to do?

  18. Ashley,

    I will respond to when you address comments that I made.

    One of the complaints that was made in last weeks panel discussion at City Hall on the eminent domain concept was that current programs in place are woefully inadequate. There were a number resident stories where the banks and agencies they called gave them the runaround,even advising owners who had diligently kept their payments current,that to qualify for help they would need to default on their payments to prove they were in need. How rediculous is that anyway? Others complained that they were informed there were no programs to address their situations. If these "available" programs were working, the eminent domain concept would have never emerged. While the banks and agencies swear in open forum that they have all kinds of programs to aid underwater homeowners,a much different story is given over the phone when people call.

  19. Peter

    My understanding is that the homeowner would get the benefit of any appreciation. Remember,however, that most of these same owners made downpayments that they will probably never recover. It is doubtful that the market will ever regain the levels that would be necessary for the owners to recoup what they had paid in. Also speaking here from personal experience in this NLV market where I bought in 2005.

  20. Bob,

    You are welcome. I suspect that like me, you are not generally a big fan of government involvement in the private sector. I don't know if this program would be beneficial and I can certainly understand those disagreeing with you. Bradley however, seems only interested in pointing out another conservative that is a liar, unprincipled, out for himself, not pure, etc, etc. Then he makes statements about North Las Vegas that are factually incorrect.

    He and others are part of why I write so many responses. This 'me' and the 'enemy' mentality is very harmful and I respond to it every time I see it. Like I said, we need 'out of the box' thinking. Not all of it will be good but some of it will. The world is NOT black and white, as much as some would like to think it is. To recover what we once had here (the good and bad of it) we'll need Progressives, Conservatives and everybody in between and we need people to be at least willing to listen to ideas other than theirs without attacking and immediately dismissing what is proposed due to who said it.

    If I sound a little frustrated, it is because I am.

    Michael

  21. Ashley:

    This eminent domain idea is an unknown venture and in fact would no doubt be met with legal actions. No one is trying to say that there would not be hurdles to mount. Nevertheless,contempt for a new idea prior to investigation is closed minded in my opinion. Getting aquainted with the concept is a good place to begin.

  22. Michael:

    Certainly agree wholeheartedy with your last post.
    I know what you mean by the frustration. LOL
    Have a nice Father's Day!.

    Bob

  23. Bradley,

    You are so wrong in so many areas. One... both Republicans and Democrats buy real estate both to live in and for investments and often both. Republicans and Democrats have both been hit by foreclosures and declining property values and you can rest assured that many, many of them do have a 'problem' with both. The housing crash has hit both affluent and not so affluent areas. I have prepared many bankruptcies for both well off and the poor who have been badly damaged by the housing crash.

    And Bradley, pull your head out of the sand and see the whole picture. Government and private industry created the housing crash. Government decided that it had to address red-lining, and it was right to do so. However, in its often heavy handed way it went too far and forced banks to lend to unqualified buyers. Government also, through Freddie and Fanny guaranteed these loans, knowing many of them were poor risks. Banks and the mortgage industry saw this and said, we can make a lot of money. Government regulators, employed and paid by us, stood by and watched all this instead of doing their job. Then wall street got involved and securitized these bad loans and sold them to investors. The rating agencies also looked the other way and so did the government regulators. Franklin Reins and many other people inside and outside government benefited handsomely from all this.

    Government and the private sector failed and most of us got screwed. That's the truth. The 'fiction' that this was all caused only by greedy Republicans leaves a whole lot of the story out.

    Michael

  24. I recall reading about this scheme a few weeks ago and it struck me as a bad idea then, and it still does now.

    As I understand it, the new private lender that will be funding the buyouts is paying a fee to the city for exercising its right of eminent domain in these cases. That, right off the top, tells me that there is a lot of money to be made by someone. And that tells me that someone else is going to be losing a lot!

    One doesn't even have to dig to see that the city would be using eminent domain to benefit a private company.

    I agree that this has the potential to put a chill on new loans. I do not feel sorry for lenders who lose money on bad investments, but the the government to use eminent domain in this fashion is just plain wrong! Follow the money trail, this is nothing but a scam.

  25. Bradley,

    If we are going to drop names, let's go ahead. Former President Clinton and Congresses of his time in office, who passed and signed the bill that lowered lending standards. Former President George Bush and Congresses of his time in office, who commented that the inflation in housing prices was dangerous but took no action. Franklin Raines and others at the top of Fanny Mae who just kept buying what they knew to be bad loans. Guys like Jaime Diamond and other heads of banks who knowingly participated in this housing fraud and then were bailed out with nothing asked of them by both the GW Bush administration and Congress and the B Obama administration and Congress. And there are so many more I could name, all of whom got away scott free.

    Unlike you Bradley, I'm angry at them all and I dismiss the clarion calls from both of our 'sorry a--ss' parties to try and blame the whole debacle on the 'other' side or on the evil Capitalists or even the favored whipping boys of Conservatives.... the Government. In this mess, there are people and entities to blame 'everywhere' and from every political party and every ideology.

    Michael

  26. Eminent domain is "The power to take private property for public use by a state, municipality, or private person or corporation authorized to exercise functions of public character, following the payment of just compensation to the owner of that property." As such, the concept goes back CENTURIES! For you "people of the book" remember King Ahab of Samaria offering Naboth compensation for Naboth's vineyard.

    The idea that eminent domain allows a government to seize private property and turn it over to another private party is quite new - the brain child of developers who can't find another way to get a piece of property that, if developed, will give them fantastic profits.

    Should NLV go ahead? That's a local question and I'm not a local. UNLESS the idea becomes a Nevada routine!

    For those of you with a few minutes to spare, flip over to

    http://legal-dictionary.thefreedictionar...

    for more information than you ever wanted to know...but that may be useful in further, local, debates.

  27. According to some people, some of the actual note-holders for the homes in question can't even be identified properly or prove they actually hold the note. How is the city going to deal with that mess if true?

    Eminent domain is one of the most powerful tools the government has, possibly the most powerful outside of putting people in prison or taxation, for taking things away by fiat. It is scary enough when used for projects that are truly in the best interest of the public good.

    Do we really want to set this precedent in Nevada? How has it worked out for the places in California that have tried it?

    Again, the city will be paid to do this. What's wrong with this picture?

  28. Once again, the leftists fudge the facts and omit pertinent information when it does not jibe with their Commie-lite agenda. Chapline blames the housing crash on Republicrats. True, they had a hand in it but, in his sly way, he never mentions the true villans in the fiasco - Chris Dodd & Barney Frank - both of whom bear major resposibility for what happened and both of whom now living high off the hog on taxpayer funded pensions that most of us can only dream about. Give Chapline short shrift when it comes to being honest or fair about what really occurred in this instance!

  29. We couldn't get the government to act when real estate dived--due to failure of government to enforce laws re mortgage lending. Now we can't get government out of it. LET THE MARKET level out and rebound already.