Recent weeks have seen several developments with the condemnation of underwater mortgages. As reported by the New Jersey Spotlight, two new New Jersey mayors are moving in different directions on the underwater mortgage issue. In Newark, Mayor Ras Baraka plans “to employ eminent domain to take mortgages from the banks if necessary,” according to the New Jersey Spotlight. Meanwhile, Irvington Mayor Tony Vauss opposes the use of eminent domain to acquire underwater mortgages. Mayor Vauss’ stance contradicts Irvington’s previous position. In March 2014, the Irvington Township Council had approved a resolution calling for the Township’s Planning Board to prepare a plan to acquire underwater mortgages.
Meanwhile, on the west coast, on October 1, the Budget Committee of the San Francisco Board of Supervisors approved a proposal introduced by Supervisor John Avalos to authorize the City of San Francisco to begin negotiations to form a joint powers agreement with the City of Richmond in order to undertake the condemnation of underwater mortgages, as reported by the San Francisco Examiner.
Also of interest, Albany Law School Professor Raymond H. Brescia has published an article entitled “The Price of Crisis: Eminent Domain, Local Governments, and the Value of Underwater Mortgages.” Professor Brescia’s article takes an in-depth look at the proposal to condemn underwater mortgages. Significantly, he suggests that local governments condemning underwater mortgages “should likely have to pay” 60 percent of the outstanding principal balance of any particular mortgage in order to acquire the mortgage, citing U.S. Department of Housing and Urban Development statistics showing that the U.S. government is receiving 60 cents on the dollar for the sale of distressed mortgages. It is not clear from Professor Brescia’s article whether his valuation concept takes into account that at least one plan — proposed by the City of Richmond in conjunction with Mortgage Resolution Partners — involves the condemnation of performing loans. As indicated in our September 12, 2013 blog post on this topic, some commentators have suggested “the relevant value inquiry is . . . the value of the income stream.”
As events develop, we will keep you informed. Stay tuned to our blog for further updates!