Why the eminent-domain plan doesn’t hurt second liens

By Felix Salmon
July 11, 2012
an op-ed in American Banker today about the eminent-domain plan being mooted in San Bernadino (which just voted to file for bankruptcy, by the way). Miller's excited about the plan, because he thinks that it will force banks to take losses on all-but-worthless second liens. But, sadly, he's wrong about that.

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Brad Miller, arguably the most sophisticated and well-informed member of the House when it comes to housing finance issues, has an op-ed in American Banker today about the eminent-domain plan being mooted in San Bernadino (which just voted to file for bankruptcy, by the way). Miller’s excited about the plan, because he thinks that it will force banks to take losses on all-but-worthless second liens. But, sadly, he’s wrong about that.

Miller actually makes two mistakes in his piece. The first comes when he explains how the price of the mortgages would be determined:

Deciding a fair price would not be hard. There are frequent auctions of mortgages with a sufficient number of informed, sophisticated buyers. The auctions are an almost perfect pricing mechanism. There would be comparable sales to determine almost any mortgage’s fair market value.

Miller’s right that mortgages do get auctioned relatively frequently, if not frequently enough that the market can even be considered highly liquid, let alone “an almost perfect pricing mechanism”. But here’s the thing: the private-label mortgages which tend to get sold off are precisely the mortgages that Mortgage Resolution Partners does not want to buy — the ones in default. Banks which own performing mortgages have almost no incentive to ever auction them off. And MRP has said that performing mortgages are the only mortgages it’s interested in.

What’s more, when performing underwater mortgages are traded, they’re often sold above par, since the homeowner is locked in to higher-than-prevailing mortgage rates. MRP, by contrast, is determined that it will only buy mortgages well below par: indeed, they’re saying that they’ll demand a discount not only to the face value of the mortgage, but even to the market value of the property. As a result, deciding a fair price might well be completely impossible: the owners of the mortgage would value it as a performing loan at a high rate of interest, while MRP would essentially ignore the fact that it’s performing, and value it on the basis that it cannot be worth more than the value of the collateral.

A free market copes quite easily with huge valuation discrepancies like that: there’s simply no trade, and the owner of the mortgage holds onto it, while companies like MRP find themselves unable to offer a price at which anybody is willing to sell. That’s why MRP’s whole idea is contingent on doing an end-run around the free market, and forcing the owners of the mortgage to sell. The point here is that if there really was a low market-determined fair price for the mortgages, then MRP wouldn’t need eminent domain at all: it could simply buy up those mortgages on the free market, directly from banks. Maybe, eventually, once it ran out of free-market mortgages to buy, MRP could try to use the eminent-domain method to buy mortgages from CDOs and MBSs. But at that point they’d have real-world market-based proof of how much such mortgages were worth.

MRP isn’t going down that road, however, because it knows that no one will voluntarily sell them mortgages at the kind of discounts it’s looking for. Which is prima facie evidence that the amount it’s willing to pay is not a fair price after all.

Miller then moves on to the thorny issue of second liens. While first liens are often owned by special-purpose investment vehicles, second liens are generally owned by banks. Miller writes:

So the real losers from the program would be the biggest banks, the holders of second liens, not investors in first mortgages. And even for the biggest banks, eminent domain would not cause losses but reveal losses.

But this isn’t true. If anything, the holders of the second liens would make money from this scheme, rather than losing money. Remember that MRP is not planning to buy houses using eminent domain, which would make much more sense. Instead, it’s only planning to buy mortgages — and it’s refusing to buy any mortgages held directly by banks. Instead, it’s only buying mortgages held by special-purpose investment vehicles, which tend not to have expensive lawyers willing and able to contest any and every valuation.

“Involuntary sales of seconds at fair market value would end fictitious valuations and require an immediate accounting loss,” writes Miller — and he’s right about that. Sadly, there’s nothing in the MRP plan which suggests that MRP has any interest at all in buying up second liens from banks. If MRP were buying houses rather than mortgages, then the banks holding the second liens would be forced to take an immediate loss. But it’s not. Instead, it’s just buying up performing first liens, and leaving everything else intact, including all second liens. At the margin, then, by reducing the amount of money that homeowners owe on their first liens, the MRP plan will increase, rather than decrease, the value of the second liens.

Why won’t MRP buy up second liens at what it considers to be a fair market value? For the same reason that it won’t buy up first liens directly from banks, either — the two sides will never be able to agree on a price. By MRP’s calculation, if the first lien is worth much less than par, then the second lien has to be worth something very close to zero. By the bank’s calculation, on the other hand, a performing second lien is a valuable revenue stream, worth a significant amount of money. And because MRP will be willing to pay very, very little for that second lien, it will not be willing to spend a substantial amount of money defending that near-zero valuation in court: its legal fees would almost certainly be greater than the amount it was willing to pay for the second lien in the first place.

If Brad Miller can point me to a plan where eminent domain is used to buy underwater houses rather than underwater mortgages, or if he can point me to a plan where eminent domain is used to by delinquent mortgages rather than performing ones, including seconds — then he’ll have me persuaded. But sadly the plan on the table is not the plan that Miller thinks it is. Which is why it’s a bad plan.

31 comments

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If cities use eminent domain only to get rid of empty houses that were foreclosed, it will put pressure on banks to keep houses from being foreclosed, unless they have a buyer. We don’t need to get involved in deciding which mortgages to acquire, just condemning a house because it’s empty will be enough of a threat to the banks’ practice of evicting people who can otherwise make some kind pf payment. If they don’t sell it to someone who will rent or reside there, it gets condemned.

Posted by KenG_CA | Report as abusive

Intriguing idea, KenG, though many of these houses are in pretty good condition. Not sure we really ought to condemn/raze them.

Posted by TFF | Report as abusive

TFF, just because the city condemns the property, I don’t think it actually has to tear them down. It just wants to re-purpose (how’s that for corporate speak?) the property, which in this case would be to find an occupant so that the neighborhood and the associated property values, along with property tax revenues, don’t decline.

Posted by KenG_CA | Report as abusive

That works, then, KenG.

Still not sure how much of a game-changer this is? Banks may carry performing mortgages on their books at a value greater than the underlying property, but by the loan necessarily becomes “non-performing” long before it reaches foreclosure. At that point, they ought to be motivated to sell the properties quickly.

Is there reason to believe that local government can get these properties sold/occupied any faster than the banks? Or that they can appropriately value the properties? It would seem to me that adding ANOTHER level of legal proceedings would drag the process out even further. Moreover, the banks may feel that arguing for a higher price in court on the “taking” is cheaper or more profitable than selling it themselves.

Part of the delay in processing foreclosures stems from the robosigning mess. There is at least half a year of inventory that has been held back by that.

Posted by TFF | Report as abusive

@Felix – great job on your explanation of this issue.

You’ve clearly stated the heart of the problem: MRP wants to use eminent domain to buy mortgages for an amount that is not really FMV, and a big part of MRP’s argument is capitalizing on people confusing the FMV of a mortgage and the FMV of the property securing it. The former can of course be greater than the latter for various reasons discussed in this post and previously.

Posted by realist50 | Report as abusive

Yeah when your city is bankrupt because you don’t tax your citizens enough and give them way too many services stealing a bunch of assets from corporations with very little influence or stake in your town must seem very attractive.

Doesn’t mean it is right. If the government of the US had any brains they wouldn’t be stomping all over this type of thinking like it was the outbreak of a Cholera epidemic.

Posted by QCIC | Report as abusive

TFF, I would think that if a house is condemned, the city can buy it at market value. Which the banks don’t want to sell it for. If banks were willing to sell houses that they foreclose on at true market values, there wouldn’t be so many vacant ones. You are right that they should be motivated to sell when a loan becomes non-performing, but they don’t often do that. That would force a write down, and they rather carry it on the books at a higher value and pray for a recovery than realize a loss.

Once a local government buys a house at true market value (the bank can always sell it for a higher amount, if someone is willing to pay more, but the new buyer would be subject to the same requirements – it can’t be vacant, which would eliminate buy-and-hoard investors), they can re-sell it at a lower price than the bank wanted, possibly even to the former owners.

The process would only be dragged out if the banks aren’t selling it – if they find a buyer, then the condemnation process stops. It’s basically another use it or lose it policy. Banks should not be hoarding homes, it’s a waste of an asset, and it brings the value of other homes down.

Can they appropriately value the house? They can do a pre-auction before they condemn it, and get a commitment from buyers who agree to rent or live in it. The process can be:

1) After a house has been foreclosed and vacant for 30-60 days with no sale pending, the condemnation process begins.

2) the local government accepts bids with 10% deposits for the home, and winners who don’t buy forfeit their deposit, with the house going to the next highest bidder, less the deposit forfeited by the first bidder. Fines are levied if the new owners do not move in or rent within 45 days. (all the numbers can be massaged).

The bank would have a fixed amount of time to respond to the condemnation proceedings; if they sell the house at any time, then the process ends and any deposits received are returned.

I guess since the eminent domain process can be challenged in court, it could make this difficult to implement, but the program would require a dedicated administrator and arbitrator. I didn’t say it would be easy, but it would be less complicated than condemning mortgages.

As for delays in processing foreclosures, don’t the homeowners get to stay in the homes until the process is complete?

Posted by KenG_CA | Report as abusive

I’ll come back to read through everybody’s excellent comments but a quick one (and apologies if others have brought it up above), but really, the whole point of this post isn’t that using eminent-domain to buy up mortgages don’t work but that MRP’s bald face greedy plan won’t work. MRP wants to buy up performing property at well below any semblance of a market and to do so they would hoodwink the government into using eminent domain.

MRP’s plan is yet another example of the hubris of bankers.

Posted by GregHao | Report as abusive

@KenG, I can’t speak to the legalities of your proposal, but it does seem a workable solution. The banks are either forced to accept a fire-sale price (as established in the pre-auction) or sell it themselves promptly. Either way, the property gets occupied.

It isn’t terribly bank-friendly, but would force the “shadow inventory” to clear quickly. And that is in the broader societal interest.

Posted by TFF | Report as abusive

TFF, I think we’ve been bank-friendly enough. Time for banks to get society-friendly.

I’m not an attorney, but I think the only legal issue would be the recourse that banks would have to contest a condemnation. There is certainly a strong case to be made that preventing wholesale vacancies is in the best interest of the public, so I think a local government would have the right to do it, but in the absence of legislation that creates a mechanism for quick resolution, the banks lawyers might really gum it up.

Posted by KenG_CA | Report as abusive

San Bernardino. With two ‘r’s.

Posted by fuzzworthy | Report as abusive

“I think we’ve been bank-friendly enough. Time for banks to get society-friendly.”

Agreed, KenG, I was simply observing fact. :)

“I think the only legal issue would be the recourse that banks would have to contest a condemnation.”

…or to demand a higher price than what would likely be established via your proposal. These auctions would clear at a fraction of the present “market value”, likely well below what banks are currently receiving on foreclosed properties. (If that weren’t the case, then banks would happily sell their REO inventory this way themselves, without prodding.)

It would be a coercive system. Like I said, I don’t have a problem with that. But without specific authorizing legislation, it could and would be challenged in the courts.

Also worth noting that these procedures would blow a hole in property values in many neighborhoods by flooding the market with forced sales. This might not be popular with current homeowners? (Though it might be healthier for the economy to force real estate values down to their natural bottom.)

Posted by TFF | Report as abusive

@KenG and TFF – the idea of using the government’s eminent domain power to transfer property from 1 private party to another – which is what you’re proposing – was upheld 5-4 by the Supreme Court in the Kelo decision in 2005, which you may recall was very controversial.

My view is that what you’ve proposed probably passes legal muster (at least at the federal level; IIRC, some states enacted greater protections for property owners post-Kelo) if the plan follows a concept of “buy vacant homes at FMV to improve the community by putting them in the hands of owner-occupants or landlords who plan to rent them out.” If a government entity makes the decision on what houses to buy based on who owns them rather than if they are vacant – i.e., if the explicit (or implicit) plan is only buying foreclosed houses owned by banks and GSE’s – I’m dubious a court would uphold it. At that point, the decision being made is “we are buying properties based on who owns them” rather than “we are buying properties based on the nature of the properties themselves”, and I expect courts would not look favorably on the former.

Posted by realist50 | Report as abusive

TFF, when a property is condemned using eminent domain powers, I think they pay market rates, so an auction would quickly establish market rates. If the Mortgage holder feels the value is too low, they are free to find another buyer, within the specified time frame. Effectively, what I am proposing is a law that says a mortgage owner cannot foreclose on a property and keep it vacant. You know from my previous posts how much I detest hoarding, and this is just another manifestation of assets being hoarded and unused.

As for this plan lowering property values, I think having vacant foreclosed homes in the neighborhood already does that. It would force the home to get used, which would ultimately bring the prices to a sustainable level.

realist, I get your point, and I would say that it wouldn’t matter who is the owner. I think it would be easy to distinguish between a vacation home for an individual and a business entity that buys it for speculative purposes, but the goal is to not have unoccupied housing. I’m not targeting banks (although they would be most affected by it), just unused homes owned by lenders. If they don’t want to sell right away, they can always rent it out. The goal is to not waste housing.

I do remember that decision, and in general, I’m not a big fan of eminent domain, as it’s often abused by politicians. But in many communities, vacant foreclosed homes are a big problem that the lenders aren’t sufficiently addressing.

Posted by KenG_CA | Report as abusive

@Ken, I think the point realist is making is that it’s location that makes eminent domain work under current rulings, not ownership. I can condemn your property under eminent domain because it’s in the way of a proposed commercial development that will benefit the city. That’s what the Supremes (barely) passed muster on. But it’s a completely different matter, for the courts to decide, whether I can condemn it because it’s underwater, irrespective of location.

Of course, what MRP proposes will almost certainly not fly in the courts, for at least the reasons Felix states.

Posted by Curmudgeon | Report as abusive

Curmudgeon, I hear what you are saying, but I think a local government can say “we don’t want an unused house in the middle of a residential neighborhood. The neighborhood wasn’t zoned for vacant buildings.” Transforming an unused house into one that is utilized is a commercial development that will benefit the city.

Well, at least that’s how I would interpret it.

Posted by KenG_CA | Report as abusive

KenG, I respectfully disagree.

Real estate is illiquid and not even remotely fungible. The process of matching properties to buyers is a little like the “perfect marriage” problem. Each buyer ranks the properties. Each seller ranks the offers. The property goes to the buyer who values it most highly.

In an auction arrangement, the buyers will rarely be the end-users of the property. They will be professional investors who will turn around and market the property to the end-users. The sale price will reflect that discount.

The typical “eminent domain” proceedings involves comparing the property to recent open-market valuations to estimate a “fair market value”. That is quite different from what you propose.

Have you ever sold a house? Suppose when you listed the property, you knew that you *had* to find a buyer within 30 days or your property would be sold at auction? Would you have been comfortable with that arrangement?

As for empty homes lowering property values, you are missing the point entirely. If you have $2B of cash ready to buy in a market, and $4B of properties listed, then either some of the properties fail to sell or the sale price falls precipitously. When the bank holds a property off the market, they are supplying equity to that market and thus propping up values. If the bank withdraws that equity, by selling the property, then somebody needs to step forward or prices will fall.

There simply aren’t enough people interested in buying at the present prices to absorb the entire “shadow inventory”. It has very little to do with whether the neighborhoods are “desirable”. It has to do with wealth distribution, lending standards, and risk tolerance.

As prices fall, you begin to see professional investors enter the market. In some cities, they are already active in the SFH market. Other cities have a long way to fall before the pros will jump in.

That can be healthy. When the market finds a level at which it can attract new capital, small-time buyers can begin to be confident that it has found a floor. But we aren’t there yet. I’m reasonably certain that this proposal would knock prices back by 20% or more nationally.

Posted by TFF | Report as abusive

“In an auction arrangement, the buyers will rarely be the end-users of the property. They will be professional investors who will turn around and market the property to the end-users. The sale price will reflect that discount.”

If they rent it out, that’s o.k. If they don’t use it, or they wait too long to re-sell, they pay a fine for not complying with the re-development goal of the eminent domain utilization.

“The typical “eminent domain” proceedings involves comparing the property to recent open-market valuations to estimate a “fair market value”.”

Often, the properties that are condemned have no comparable recent sales to use as a reference, so they are even more arbitrary. This process would at least discover the price (a lot of readers on this site love that term) people are willing to pay (less than the value of the mortgage, which is the point).

I have sold a house, and yes, if I had to find a buyer quickly, I would not be able to make a good deal. But then again, I didn’t evict anyone and help lower the value of the neighboring homes, and certainly not on a broad scale. And people are regularly forced to sell homes in short time frames (the first house I bought was sold under those circumstances). Nobody said life was fair, but the purpose of this program is to ensure domestic tranquility and provide for the common welfare. not be fair to lenders who shouldn’t have made loans.

If there is only $2B of capital available to buy $4B worth of homes (who says they are worth $4B? You wouldn’t. They only attained that value through artificial means, by making debt financing too cheap and easy to secure), then I guess they will lose half of their market value. And when they all sell, prices will stabilize. Maybe not at those levels, because that negative spike was a transient, in response to the relatively sudden influx of capital a few years earlier. It has to happen, but the undershoot will decay with time, and the prices will reach a stable point, until the next big distortion of the market.

When banks hold vacant homes off the market because they ask too much, they are keeping the professional investors (vultures) from doing their job of cleaning up the remains of the crash. This proposal will force the process. And if the professional investors who buy foreclosed, vacant homes don’t make them un-vacant, they will pay the price, so they will have incentives to fill those homes that make their near zero cost of capital meaningless.

I could see this proposal cutting into prices of homes, but only regionally, not nationally. There are areas that are healthy, and won’t be impacted by this. Also, it would have to be implemented on a state or local basis, not nationally. And besides, I thought you were in favor of lowering the prices of homes???

Posted by KenG_CA | Report as abusive

@KenG, have you ever known me to talk about “price discovery”? That language belongs to the efficient market theorists! I agree that auction proceedings aren’t arbitrary (as long as the auction is well attended). I’m simply asserting that they will typically clear at prices well below what is normally viewed as “market value” by homeowners.

“I guess they will lose half of their market value. And when they all sell, prices will stabilize.”

Yes, that is what I expect would happen. Prices would rapidly fall to a level at which they are clearly profitable for private investors (which in my area, at least, implies a decline of 20% or more) and might slowly recover from there.

You will note that I carefully refrained from using the term “vultures”. But yes, that is the ecological niche that they fill. Your proposal would force pricing down to the level where the vultures dive in — because the conventional buyers for these homes cannot presently come up with enough capital.

“There are areas that are healthy, and won’t be impacted by this.”

The Boston market might be considered one of those “healthy” areas, with prices stabilizing and activity picking up YOY. Yet I’ve read that there is locally six months or more of “shadow” inventory (at current sales volume), unoccupied but not presently on the market. I don’t believe you can dump that quantity of houses on the market without consequence.

“I thought you were in favor of lowering the prices of homes???”

I am, though I’m not certain (and have never been certain) that a sudden shock is the best way to go.

Posted by TFF | Report as abusive

TFF, that discovery comment was for those efficient market fantasists, not you.

Yes, the houses may clear at prices below market value, or the ebay effect may net a higher price. The lenders will lose a little, but they brought this on with their irresponsible lending practices. Let them pay some of the price.

I actually didn’t use the word “vultures” derisively. OK, maybe a little, but vultures do perform a service, and that function has to be performed by somebody in this situation, so those who profit from that activity can easily handle the comparison.

I don’t think all of the vacant homes will be dumped on the market all at once. I’m not for big step functions either, but if the entity that is created to oversee such a program is understaffed as expected, it won’t all happen at once.

It’s not a perfect system, but it’s better than vacant homes and a tentative market.

Posted by KenG_CA | Report as abusive

@Ken_G and @curmudgeon – I’m not an attorney, but I suspect that targeting all homes that have been vacant for some period of time would pass muster. My point is that I believe that the city would be in a tough spot with the judiciary if it ignored all vacant homes owned by individuals, for example, and only targeted ones that have been foreclosed on by lenders.

The two pre-Kelo Supreme Court decisions that I’ve seen prominently mentioned on eminent domain are Berman v Parker ( http://en.wikipedia.org/wiki/Berman_v._P arker) and Hawaii Housing Authority v Midkiff ( http://en.wikipedia.org/wiki/Hawaii_Hous ing_Authority_v._Midkiff ). I think that a program targeting vacant homes could fly based on these precedents plus Kelo, because preventing vacant homes serves a public purpose.

I do see a complication in the calculation of fair market value such that the government could have to spend some money to do this, as the concept used is the price that would be reached by willing but unpressured buyers and sellers. If I was the seller, I’d argue that value is higher than the price received when flipping a big percent of an area’s homes to private buyers over a couple month period.

Posted by realist50 | Report as abusive

realist, what if you pass a law that implements a new rule for foreclosing on homes? – they can’t be foreclosed unless there is a plan for getting them occupied within a specified time-frame. If they fail to meet the deadline, the home is subject to condemnation, and acquisition by the state. I mean, some towns will fine homeowners for not keeping up appearances, this goes a step further (o.k. maybe more than a step).

There is no fair or right way to set the market value, only one that attempts to eliminate politics from the calculation on a home-by-home basis.

I realize this isn’t the biggest problem facing society, but if we’re talking about using eminent domain to deal with problem mortgages, it focuses more directly on the problem that trying to trade mortgages.

Posted by KenG_CA | Report as abusive

Good discussion – entertaining too, particularly the parts where non-lawyers debate the fine points of the law.

IMO there’s nothing about the SanBerdo (2-r’s) plan that can’t be made Constitutionally OK. The problem is in valuation of the asset taken. That pesky 5th Amendment requires that FMV be paid for the asset.

As noted – high-rate, performing, underwater loans have a trading value greater than the FMV of the securing property. In effect, they are unsecured loans to the extent of that value over the property’s FMV. So what? – unsecured loans have trading value too – think, securitized credit card receivables.

The complication – and the opportunity (non-recourse states only) – arises from the fact that the borrower can erase (at will and at any time) any excess trading value of the loan over the FMV-prop by simply ceasing payments on the loan, forcing foreclosure and sale/recovery at no more than FMV-prop. That has the nice feature of erasing any Seconds too.

Could this whole process be expedited by eminent domain, avoiding destruction of the borrower’s credit and all the other ills of foreclosure? I don’t see why not. I also don’t see how there’s any money to be made here – except maybe by shorting stocks of Seconds-heavy banks.

I can think of a lot of reasons not to do this deal with MRP, but none of them are legal issues; they all have to do with the unsavory matter of getting involved in anything that involves one Mr. Phil Angelides.

Posted by MrRFox | Report as abusive

“The problem is in valuation of the asset taken. That pesky 5th Amendment requires that FMV be paid for the asset.”

Yes — and I imagine it would take the SCOTUS to determine whether or not an auction process can be used to determine FMV. At least I’ve never heard of that being used in the past.

“So what? – unsecured loans have trading value too – think, securitized credit card receivables.”

Weren’t you arguing a while back that banks should be forced to write down their loans to the value of the underlying principal? This was essentially my objection at the time. :)

Posted by TFF | Report as abusive

“Weren’t you arguing a while back that banks should be forced to write down their loans to the value of the underlying principal? This was essentially my objection at the time. :)” (TFF)

No, I wasn’t – and wipe that silly smile off your mugg. What I have always pointed out is that banks don’t have the equity to write-down all their underwater loans to FMV. That hasn’t changed – though nobody but me seems to care that the whole idea is a non-starter for that very reason.

Posted by MrRFox | Report as abusive

@TFF – I wonder if the new Reuters’ website is going to have emoticons for us to play with. What do you think?

Posted by MrRFox | Report as abusive

MrFox, I don’t care if they have emoticons or not, as long as they don’t require a facebook account to post comments. That would suck. But on the bright side, I would spend less time posting comments. as in none.

Posted by KenG_CA | Report as abusive

But Ken – you wouldn’t get to see my new Brony-Pony Av then!

Posted by MrRFox | Report as abusive

Apologies, MrRFox, I had thought you were arguing that we SHOULD force the banks to write down their mortgages, then use that as a justification to forcibly recapitalize them on terms favorable to the Treasury.

And I do agree that most banks couldn’t withstand that treatment, even if we disagree on a couple of the better-capitalized ones.

I will strive to keep my comments STRICTLY serious, eschewing emoticons (which happily don’t translate into little yellow faces in this forum).

Posted by TFF | Report as abusive

Yes, TFF, we should keep thing formal until the new site is in place, at which time my pink unicorn Brony Av and smileys in every variety will usher in a new era on the Felix blog.

Posted by MrRFox | Report as abusive

For a congressperson who is “arguably the most sophisticated and well-informed member of the House when it comes to housing finance issues”, Brad Miller seems more of an illiterate, based on the points raised in Felix’s article just for starters.

The obvious problem with the eminent domain approach for acquiring mortgages is that a mortgage is in no way “property”. Eminent Domain doesn’t even apply.

Miller’s article draws a ludicrous comparison between mortgages and intangible/intellectual property. The word “use” in the Fifth Amendment applies rationally to the latter, but not the former:

A mortgage is not “used” in any reasonable sense of that word. The government may acquire real property and build a bridge on it – that is “use”. The government can’t “use” a mortgage in anything approaching the same sense as the word applies to tangible property. Even in routine financial dealings, one company doesn’t “buy” a mortgage in the same sense that one “buys” a banana – buying a mortgage is merely a reassignment of the right to collect on the loan and to foreclose on the underlying backing property.

2) Intangible property such as a patent does fit the “use” notion, but the US government doesn’t buy patents. Miller states “Existing law allows the use of eminent domain to buy any kind of property, however, including even intangible property like trade secrets”, a reference to “Ruckelshaus v. Monsanto”. Again, even in this grayest of gray areas, those trade secrets (data about pesticides) were intended to be “used”, unlike the mortgages.

The city of San Bernardino’s problems can only be solved by:

1) Reversing the last 50 years of housing madness.
2) First mortgage holders reneging on their loans – aka, “jingle mail”.
3) Not paying their employees so damn much. Unionized government employees in California make twice the comparable wages in flyover island.

Posted by Eugene5000 | Report as abusive