Local governments from New York to California are considering using their power of eminent domain — condemnation — to seize private property to protect their housing markets from homeowners abandoning properties valued at less than they owe.
The underwater homeowners would presumably benefit because the government would pay off the mortgage company or bank and get them out of debt. And the public is supposed to benefit because the local housing market would be more stable.
This idea is well-intended, but it is nevertheless lousy. It inserts government into an area it has no business treading. It will allow government — and government officials — to manipulate the housing market.
In addition, this use of eminent domain could be abused by private investors or corporations. Insiders could buy property in a depressed area knowing the government was going to rescue it and boost the land values.
The intent of eminent domain was never to manipulate housing markets, it was — and is — to ensure projects for the public good can proceed. Eminent domain allows government to condemn and purchase private property to keep private property owners from gouging the taxpayers or stopping road and vital other projects by refusing to sell.
The Sacramento Bee newspaper reported last week that an investor group, the San Francisco-based Mortgage Resolution Partners, is shopping this concept to cities and counties.
Mortgage Resolution Partners formed at the start of the year to sell its plan to bolster the housing market and turn a profit for its investors, according to the Bee. Its first chairman was California’s former state treasurer, who later resigned. Others involved are financiers and Silicon Valley executives as well as former state Assembly Speaker Willie Brown.
And now the current chairman, a venture capitalist and one-time owner of the New York Islanders hockey team, has been talking to local governments from coast to coast, the Bee reported.
It feels like taxpayers will ultimately get ripped apart by these financial sharks. This deal seems to be only about making money — lots of money — for them.
It’s a place local governments should not tread even if the use of eminent domain was appropriate in this situation. It’s not. Using eminent domain for private financial gain is an abuse of government’s power.