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Follow Up: Eminent Domain for Condeming Underwater Mortgages, 6/27/12

By A.J. Hazarabedian

In a recent post, we talked about the City of Hesperia voting on whether or not to join a Joint Powers Authority to begin acquiring underwater mortgages by eminent domain in an attempt to help homeowners.

Since our post, more information has been revealed providing the logistics to this interesting proposal.  A recent Reuters article outlined a plan by Mortgage Resolution Partners to find investors who will finance the process and then turn around and restructure the loans.

The idea is that a local government entity would acquire underwater mortgages by eminent domain, using the money funded by investors, and then pay the homeowners the fair market value for the property.  At that point, Mortgage Resolution Partners would work to restructure the loan so homeowners could keep their homes and have smaller mortgage payments.

Per Reuters, Mortgage Resolution Partners is “backed by a number of prominent West Coast financiers,” including Evercore Partners Inc and Westwood Capital, who would be paid back after the restructured loans were sold off to “hedge funds, pension funds and other institutional investors.”  This article, “Investors tout controversial “condemnation” for housing fix,” explains that Mortgage Resolution Partners would receive a fee for every loan condemned and restructured.

This is certainly one to watch in the coming months.  Many people have been looking for solutions to the housing crisis.  Let’s see if this idea gains any more traction.

Restaurant Owner in Riverside Suing the City for Lost Business Revenue, 6/7/12

By A.J. Hazarabedian

A restaurant owner in the City of Riverside is suing the city for lost business revenue after a relocation deal never came to fruition.  In the Press Enterprise article, Restaurant owner sues after relocation deal fizzles,” Lucky Greek restaurant owner Tony Georgopoulos argues that his business has been negatively affected by the City’s Magnolia Avenue underpass project.  The project, he claims, has decreased vehicular traffic by 90%, thereby decreasing his restaurant’s revenue.

Mr. Georgopoulous is seeking $750,000 in damages in a suit filed last month.  He asserts that the City did not follow through with a relocation plan they set out to execute over a year ago.  According to the article, the City had agreed to a land swap; moving his restaurant to the old Marcy branch library.  After some negotiations over the City’s offer, the deal was delayed and then scrapped when Jerry Brown eliminated redevelopment agencies earlier this year.  As noted by Riverside City Attorney, Greg Priamos, the deal was contingent on redevelopment dollars for funding.  Without the redevelopment agency, the deal could not move forward.

Tony Georgopoulos now indicates his business is struggling to keep the doors open, having had to shrink his staff from 17 down to 11.  A court will have to decide whether or not the City must pay damages in this case.

This is just a tiny tip of the iceberg of the carnage that has been left in the wake of the sudden demise of redevelopment in California.  While reasonable persons can differ on the propriety of the use of eminent domain for redevelopment, the manner in which redevelopment agencies were killed almost overnight in California left many victims, such as Mr. Georgopoulos, in its wake.  People were informed their properties and businesses would be acquired.  They made decisions based on that information.  And now, they’ve been left hanging in the wind.

It is questionable whether Mr. Georgopoulos will have a legally viable claim, without any portion of the property he occupies actually being taken.  Generally, Cities and other public agencies are permitted to impact the flow of traffic without liability, provided reasonable access remains to the property.  It will be interesting to see how this one plays out…

City of Hesperia May Use Eminent Domain to Acquire Mortgages, 6/7/12

By A.J. Hazarabedian

The City of Hesperia is considering an interesting use of eminent domain during its upcoming City Council meeting.  The Victorville Daily Press reported this week that the City may decide to use eminent domain to acquire underwater mortgages in an attempt to help homeowners.

As the article describes, the City will discuss whether or not they will join a new joint powers authority (JPA) aimed at helping homeowners whose mortgages are underwater due to declining home values.  The joint powers authority would consist of the City of Hesperia, City of Fontana, City of Ontario and the County of San Bernardino.

What’s interesting is that the JPA would not be acquiring the homes themselves as is common in the use of eminent domain.  Here, they would be acquiring only the mortgages so that the loans could be restructured.  Kelly Malloy, spokeswoman for the City of Hesperia states in the article, “the city is really looking at participating in this in order to be part of the dialogue and to be part of the research project.”

Many cities have been left with blighted neighborhoods after homes have gone into foreclosure and the properties eventually end up in despair.  This JPA sounds like an interesting attempt to avoid such cases in Hesperia.

The council will meet Tuesday, June 12th at 6:30pm to discuss this and other issues.

Whether the JPA can exercise the power of eminent domain for this purpose is questionable.  Eminent domain can only be exercised for a public use.  While there is some ostensible public interest in preventing foreclosure blighted neighborhoods, this seems to be stretching the public use requirement to its limits.  If the City decides to proceed, we doubt the lenders will take it lying down (unless, of course, the JPA intends to purchase the loans for the full loan balance – which is doubtful).

Stay tuned on this one…

COPYRIGHT © 2010 Arthur J. Hazarabedian, Esq.