Eminent domain: will local governments attempt to use this extraordinary power to purchase troubled residential mortgages?

Eminent domain is a powerful tool, available to government entities under the Takings Clause of the United States Constitution. Under eminent domain, governments are permitted to seize private property for compensation, but without the owner's consent. Ever since the controversial 2005 Supreme Court decision in Kelo v. City of New London, there has been a great deal of media scrutiny concerning eminent domain powers, and much of the reporting has been negative. Despite this negative press, governments are considering yet another controversial use of eminent domain, but this time to assist local residents caught up in troubled mortgages. As falling real estate prices drove entire neighborhoods into crisis, some local governments, spurred on by private interests, have explored whether to acquire so-called "underwater" mortgages, i.e., a mortgage loan where the unpaid balance is greater than the current value of the home, through use of their eminent domain powers. Wall Street has staunchly opposed the proposal, but so have consumer groups and politicians. Further, some members of Congress even introduced legislation to prohibit the practice. Further, some members of Congress even introduced legislation to prohibit the practice. This article: 1. discusses the proposal as originally presented to the San Bernardino County, California, Board of Supervisors - one entity at the forefront of the debate, 2. analyzes the challenges facing implementation of the proposal, including a discussion of California's "quick take" eminent domain procedure on which the MRP proposal is based, 3. discusses the proposed Congressional action to prevent implementation of such measures, and 4. discusses whether an "eminent domain solution" is even warranted.