Academic journal article ABA Banking Journal

Unlikely Allies: Eminent Domain Fight Brings Banks and Credit Unions onto the Same Side

Academic journal article ABA Banking Journal

Unlikely Allies: Eminent Domain Fight Brings Banks and Credit Unions onto the Same Side

Article excerpt

The old proverb "the enemy of my enemy is my friend" suggests that two parties who don't particularly like each other can still unite to battle a common enemy. Apple and Microsoft teamed up against Google; Yankees and Red Socks fans bonded to boo Alex Rodriguez; and banks and credit unions recently joined to fight the Richmond, Calif., plan to use eminent domain to seize mortgages. Banks and credit unions became "frenemies" on Aug. 30, 2013, when the ABA, California Credit Union League, and several other trade associations, including the California Bankers Association, filed a joint amicus brief criticizing Richmond's plan to use eminent domain to force the refinancing of select "underwater" mortgages.

Eminent domain is the government seizure of private property for a public purpose, and is generally used to confiscate land for projects, such as highways and schools. By allowing homeowners to reduce their underwater mortgage debt to less than the current value of their properties, Richmond claims the program will spur economic development by limiting foreclosures and reducing property abandonment. Courts have held the Takings Clause of the Fifth Amendment permits the government to confiscate private property for "public use" if the owner is paid fair market value.

Richmond offered to purchase the nondelinquent, underwater mortgages owned by private trusts for 80% of current home value. The city will use private investment capital from its partner, Mortgage Resolution Partners (MRP), to finance purchases from approximately 31 trustees. For example, the mortgage of an $800,000 house that Richmond values at $400,000 would be purchased for $320,000. …

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