The debate over eminent domain rages on, this time in North Las Vegas, one distressed city that voted to move forward with the controversial plan in late June.
Mortgage Resolutions Partners (MRP) is working with the city of North Las Vegas on a possible eminent domain plan to save underwater homeowners. But politicians back in Washington D.C. are as opposed as ever, and already drafting legislation to put a stop to future eminent domain proposals.
“I thought we slayed the dragon back in January,” said Hawaii-based eminent domain and property rights lawyer Robert Thomas of MRP’s proposal earlier this year to San Bernardino, Calif., which passed on the plan.
MRP, a financier-backed advisory firm, presents the use of eminent domain as a way to prevent foreclosures and save distressed borrowers, of which there are plenty in North Las Vegas. From January 2007 to January 2012, the median home price in the area fell from $260,000 to $84,000, according to data from SalesTraq.
MRP is offering what sounds like an easy way to cut through that frustration, resentment and helplessness without the added trauma of foreclosure, bankruptcy and home loss.
Under the proposal, city officials could negotiate to buy notes on targeted, underwater homes at what they believe to be fair value, using the governmental power of eminent domain to acquire the loan from a holder who doesn’t want to sell. The city would then agree to accept lower-than-face value repayment from the current residents, assuming they could qualify for a new loan. The company would make $4,500 per successful transaction and investors who front the money for the city to pay the original noteholder would be repaid at a profit.
But the scheme doesn’t sit well with everyone.
Gregory D. Smith, a North Las Vegas resident, is suing the city, its City Council and City Attorney Jeffrey Barr, in Federal Court for its plan to seize up to 5,000 homes through eminent domain, buy them with public money and flip them for a profit. Smith claims the plan violates due process and equal protection guarantees in the Constitution.
“They’re all performing mortgages, they may be underwater but they’re performing, so there’s a reason the noteholders aren’t getting rid of them,” Thomas said. “And who’s going to be the white knight to step into the void to pick up newly refinanced mortgage? MRP or some related entity.”
Rep. Jeb Hensarling, R-Texas, is also taking a stand against the proposal. The House Financial Services Committee Chairman inserted a provision in a draft of his proposed mortgage finance legislation to stop eminent domain. The proposal, if passed, would block federally backed loans in any county that allows eminent domain to be enacted.