Historically, eminent domain has been used to force people out of their homes, but what if we could use eminent domain to keep families in their homes?
The foreclosure crisis that badly damaged our economy and forced many families to lose their homes is not yet over. Incredibly, one in every three mortgages in Los Angeles County is "underwater" (when the mortgage exceeds the value of the home). Each of these underwater loans not only weigh heavily on the household in debt, they also stand directly in the way of an economic recovery for all. Most economists believe that without a wide-scale program to reduce the monthly principle payments in a way that prevents people from losing their homes to foreclosure, home values across America will continue to be depressed and meaningful economic recovery will remain out of reach.
As odd as it may seem, the solution to this problem may be in an archaic process dating back to colonial "common law" that allows a government to take property from private citizens if it is in the general public's best interests. By using this process, called "eminent domain" creatively, we can actually help keep people in their houses.
While there are some policies and programs seeking to rewrite Wall Street's rules in an effort to prevent this crisis from happening again, we are still in need of creative solutions for stopping the ongoing crisis as soon as possible. That's why I recently proposed that the City of Los Angeles take a look at the idea to use eminent domain to prevent foreclosures, which is already being considered in San Bernardino and other cities across California.
The program would work like this: First, the city would identify which mortgages are most likely to default or which have defaulted, and then "seize" the mortgages using eminent domain. A private company would provide the funds for the city to purchase the mortgages at their fair market value. The city, once securing the loans, would allow owners to stay in their home and to refinance at current market value. The refinanced mortgage would allow homeowners to both reduce their principal balance and reduce their monthly mortgage payments, while also providing equity. The refinance proceeds are then used to pay off the private company who funded the eminent domain process. In the end, it would all come with no financial risk to taxpayers, and homeowners would be able to keep their homes by paying a fair, affordable rate on their mortgage.
This is an intriguing idea because it could address the larger problems caused by the foreclosure crisis in places like the Northeast Valley, which has had the highest number of single-family foreclosures in Los Angeles since the crisis began. When people lose their homes, it adds blight to our communities, depresses housing prices across the board and increases public safety concerns such as squatters, vandalism and even health issues related to stagnant pool water.
Working with a nationwide-network of people and groups who want to fix the economy by correcting the issues that caused the foreclosure crisis, we have made progress in recent years. For example, earlier this year, I was proud to successfully pass my Responsible Banking Ordinance, which will hold banks accountable for the number of people they foreclose on in our neighborhoods (among other things).
I authored the Los Angeles Responsible Banking Ordinance in order to guarantee that people will have a better understanding of each bank's role in the foreclosure crisis (as well as how much they give to charity and how much they loan to small businesses in communities in Los Angeles), which will create incentives for banks to help prevent foreclosures in the future. Creating this incentive is an important step, but it is only part of the solution to the ongoing problem. We also need to keep people in their homes if we want to "stop the bleeding" caused by the foreclosure crisis and this innovative use of eminent domain could be a way to do just that.
Unless we can find a way to empower homeowners who have underwater mortgages, the devastation that the foreclosure crisis has wreaked on our communities -- from blighted properties to public safety concerns -- will continue. Keeping people in their homes must be a top priority for our city, and the idea of using eminent domain to keep people in their homes instead of using it to force people out -- is worth exploring. After all, this is not your grandmother's idea of eminent domain. This time, it could be used to keep Grandma in her home.