A plan was introduced to North Las Vegas city council members to use eminent domain to seize underwater mortgages and foreclosures. This was an attempt to boost the city’s housing market. This proposal had never been tried in the U.S. so council members were skeptical but agreed to learn more about it. Continue reading to review the full story.
North Las Vegas City Council members will take a closer look at a controversial and complex proposal to use eminent domain to seize underwater mortgages and foreclosures in an attempt to boost the city’s sagging housing market.
Council members and the public were first introduced to the plan to use private dollars to help underwater homeowners refinance their mortgages during a presentation by representatives from Mortgage Resolution Partners at a March 6 city council meeting.
Council members were skeptical of the proposal, which has not been tried anywhere in the country, but agreed to meet with Mortgage Resolution Partners representatives at a later date to get more information and have their questions answered.
Mortgage Resolution Partners’ plan calls for the company’s private investors to purchase a specific subset of underwater home mortgages that are held in mortgage-backed securities. The mortgages would be bought at market value significantly below their initial value and then refinanced back to the original homeowner with a lower principle.
North Las Vegas would serve as the middleman in the process, using its power of eminent domain to seize the mortgages from trusts that own the mortgage-backed securities. Once the mortgage is refinanced and the home is sold again, the city would receive a small fee for its troubles.
Investors would see a return on their investment whenever a home is refinanced and the company itself would receive a flat $4,500 per transaction fee.
Nevada representatives for the company — which include prominent Las Vegas attorney Byron Georgiou, developer Michael Saltman and Daniel Greenspun, a member of the family that owns the Las Vegas Sun — argue the program will help homeowners facing foreclosures in Vegas and to prevent blight in North Las Vegas neighborhoods still reeling from the recession.
But the plan has drawn fierce opposition from bankers and real estate agents who question whether the untested plan is even legal. Detractors warn of unintended consequences from using eminent domain to seize mortgages, with some bankers warning they would stop lending for home mortgages in cities that adopted the program.
As of March, four cities in California — La Puente, El Monte, San Joaquin and Orange Cove — have made similar agreements with Mortgage Resolution Partners, although the company has not yet purchased any mortgages, its representatives said.
The company estimates 4,700 homes in North Las Vegas could qualify for the program if it is approved by the North Las Vegas City Council.
Some council members in the city of North Las Vegas questioned if this plan was even legal. Although this particular plan has never been used similar plans have been approved by 4 cities in California, but it is too soon to tell if it has succeeded. About 4,700 homes could qualify for this program if it was approved.