California Lieutenant Governor Gavin Newsom is asking the U.S Department of Justice (DOJ) to investigate what he calls "threats" against cities in the state that are considering the use of eminent domain laws to revive their struggling housing markets.
Several Golden State communities have been considering the government takeover of underwater mortgages as a solution to the lingering housing crises, a move many eminent domain attorney experts say could work, but a recent report by Reuters said Wall Street investment firms and federal agencies have been bullying California communities that were considering the plan.
The whole idea was proposed by Mortgage Resolution Partners, a San Francisco-based organization run by Steve Gluckstern. Under the plan, local governments would evoke eminent domain laws to seize performing underwater mortgages, restructure the loans and resell them to investors tied to Mortgage Resolution Partners, which would receive a fee for the transaction.
Apparently, this alternative method of dealing with the housing crisis has upset some big players in the financial world. Newsom sent a letter on Monday to U.S. Attorney General Eric Holder asking federal prosecutors to investigate any attempts by Wall Street investors and government agencies to "boycott" California communities that are considering such moves.
"I am most disturbed by threats leveled by the mortgage industry and some in the federal government who have coercively urged local governments to reject consideration" of eminent domain," he wrote in a letter.
The epicenter of the debate, San Bernardino County, is located east of Los Angeles, has set up a joint authority that is looking into the idea of using eminent domain to forcibly purchase distressed mortgages. Rather than evict homeowners through foreclosure, the public-private entity would offer residents new mortgages with reduced debts.
Newsom said in the letter on Monday that while he is not endorsing the use of eminent domain at this time, he wants communities in California to be able to "explore every option" for solving their mortgage burdens "without fear of illegal reprisal by the mortgage industry or federal government agencies."
According to eminent domain lawyer professionals, Governments typically use eminent domain to seize properties to build highways and other public projects. The proposal to use it to help distressed homeowners has already rankled some on Wall Street who invest in mortgage-backed securities and the real estate market.
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