RE/MAX Fine Homes - Orange County Real Estate Blog: Eminent Domain Could Help Underwater Homeowners

Eminent Domain Could Help Underwater Homeowners

Article provided by Brenda Mayer of Cozy Cabins Realty.


San Bernardino county has formed the Joint Powers Authority (JPA) to research the idea to use eminent domain to help underwater homeowners.  The proposal was formed during talks with private investment firm,  Mortgage Resolution Partners (MRP), earlier this year.  The fact that SB County officials and MRP held several meetings prior to formal public meetings is in question of possible violations of the Brown Act.


The proposed plan would have SB County become a client of MRP and with the county's use of eminent domain, underwater properties would have their mortgages condemned and a new mortgage issued to the homeowner.  The mortgage company would be given "fair market value" for the condemned mortgage.  Government secured mortgages would not qualify for the program, only mortgages that are held by private investors would be considered.  The largest group of privately held mortgages are higher end loans where in many cases, the investor has been unwilling to assist a underwater homeowner with a principal reduction.  Only homeowners that are current on their loan payments would be considered.


On Friday, July 13th, the JPA was officially formed to research the viability of the project and has been given the power to act on this project by the County Board of Supervisors.  County chief executive Greg Devereaux was appointed as Chairperson of the JPA with directors Fontana City Manager Ken Hunt, Ontario City Manager Chris Hughes, county Redevelopment Director Dena Fuentes and Ontario's housing and neighborhood development director, Brent Schultz.  


The meeting at the San Bernardino County Government Center was filled with concerned community members including many real estate professionals.  Timothy Cameron, managing director of the Securities Industry and Financial Markets Association's asset manager's group, told the committee that the residents of the region would find it harder to get loans and investors would suffer losses.  He also said such a move would invite costly litigation.  


Our own association voiced concern to the committee questioning the use of eminent domain action for a private purpose when the description of eminent domain in the California code specifically states this action is to be used for projects to benefit the public.  We also addressed the concern that if eminent domain is abused in this way that lenders would be less willing to invest in property in the San Bernardino county out of fear that their investment would be condemned.  Also, with the use of this process, the homeowner's binding contract with their lender will have been violated.  There is nothing to stop the lender from issuing a 1099 to the homeowner for the financial difference that is given to the lender through the eminent domain process and the balance of the note.  The homeowner could be responsible for thousands in federal and state taxes as the 1099 translates to earned income.


Privately, many in our industry are worried that if this proposal is passed, then the boundary lines surrounding the use of eminent domain would continue to blur.  The next meeting of the SB County Joint Powers Authority is scheduled for August 16th. 

Comment balloon 0 commentsLee Ann Canaday • July 30 2012 02:28PM