Notwithstanding public opposition, San Bernardino recently decided to move forward (paid subscription required) with exploring a plan concocted by Wall Street wizards (previously discussed here) to use public funds to line their own pockets through the condemnation of mortgages on underwater homes.
During an hour-long meeting, the county's board of supervisors listened as 18 citizens, local activists and mortgage lenders all objected to a plan initially proposed by a San Francisco venture capital firm Mortgage Resolution Partners to use eminent domain to purchase and refinance loans.
Some homeowners voiced their mistrust of the venture capital firm and questioned its relationship with county officials. A few Realtors and lenders who also are homeowners in the county are also concerned that if the county uses eminent domain to seize loans, lenders would pull out of the market, reducing accessing to credit for future borrowers and potentially dragging down home prices.
The County Board of Supervisors then gave those testifying the finger and "unanimously passed a resolution authorizing its staff to create a request for proposal, a formal mechanism for considering plans to address the glut of underwater borrowers." The supervisors are apparently tone deaf when it comes to listening to their constituents sing a song of warning. According to the linked article in the American Banker, some of the testifying residents excoriated certain county officials. Still, those complaints didn't deter the County from proceeding to see what they could do to strong-arm lenders into coughing up mortgage loans at bargain prices.
There's a slight problem with this approach, according to one layer who specializes in eminent domain law. It runs afoul of the California constitution.
In California, any party to an eminent domain case can request a jury trial to determine the value of the property or loan being condemned, says Rick Rayl, an eminent domain attorney and partner at the Irvine law firm Nossaman LLP.
"I think the concept is an interesting one but it just doesn't work financially," Rayl says. "The entire plan depends on the initial loans being acquired at well below their face value and well below the value of the underlying property."
Where there's an ideology, there's a way, Rick. No little piece of aged parchment is going to stop these folks from doing what they know is best for all concerned. Constitutional roadblocks are for pansies, not for Panzers. They'll roll right over those minor speed bumps like they weren't even there.
On the other hand, sending out an RFP is a long way from actually doing anything substantive. There's still plenty of time for the supervisors to claw their way back to reality. Let's hope they stop munching poppies and clear their heads before they cause even more damage to a county that can ill afford it.