Monday, August 26, 2013
Government officials from several municipalities across the country are attempting to use their
constitutional power of eminent domain to force banks to sell loans for less
than they are worth. (It was tempting to say "misuse", but I think the founders were wrong to include this power in the first place.)
Richmond[, California], working with San Francisco-based Mortgage Resolution Partners, offers $150,000 to buy a $300,000 bank loan on a house that is now worth $200,000 and is in danger of foreclosure.Wow. But for the fact that government officials are involved, this is no different than the following scenario: I go into a store, decide that some big-ticket item I want costs too much and then "offer" to buy it, gun in hand, for some made-up, lower price. If the merchant balks, anyway, I then take it and leave whatever made-up price I deem "fair" on the counter. Oh, and maybe I leave a note to the effect that my "purchase" is okay because it will somehow prevent urban blight.
If the bank agrees, the city and the company then obtain the loan at $150,000. Richmond and the company then offer the homeowner a new loan of $190,000, which, if accepted, lowers the monthly payments and improves the owners' chances of staying.
If the bank refuses to sell the loan to Richmond, then the city invokes its power of imminent domain and seizes the mortgage. It would then offer the bank a fair market value for the home.
These officials may think they are on firm legal ground. Maybe they are: Slavery was once enshrined in the Constitution, after all. But if they are, that is law that ought to be repealed as it clearly is at odds with protecting individual rights. (Yes. Even people in the banking business are individuals and have rights.)
The article correctly notes the danger to the banking system that the successful use of such a tactic would represent. That this is even being considered seriously is cause for concern.