News-Alerts Special Edition: Eminent Domain, Aug. 20, 2013: Real Estate

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  1. Richmond, Calif., runs amok with eminent domain: Column

    The City of Richmond, California is threatening to use eminent domain to condemn over 600 mortgages on homes that are now worth less than the outstanding debt on the mortgages themselves. The city plans to write down the value of the mortgages and transfer most of the value to the current owners of the homes. That's a move that could have nationwide implications for homeowners and those who aspire to join them if the idea spreads.

    Other cities have considered similar measures, but backed away from using the legal innovation.

    Various banks and investors have filed lawsuits arguing that the Richmond policy is unconstitutional. Some of their arguments have merit, but regardless of the legal problems, condemning mortgages is misguided.

    Ilya Somin, Professor of constitutional law and property law at George Mason University, goes on to give the basic arguments against the Richmond plan, not the least of which is moral hazard: Richmond, Calif., runs amok with eminent domain: Column


  2. California Eminent Domain Isn't Government Run Amok – Bloomberg

    Stephen Mihm, Professor of history at the University of Georgia, answers Ilya Somin's article linked to above.

    To judge from the disparaging reaction to its plan to use eminent domain to cope with underwater homes, you'd think the city leaders of Richmond, California, had proposed an outrageous and unprecedented distortion of state power.

    Filing suit against Richmond, BlackRock Inc., Pacific Investment Management Co. and other plaintiffs alleged that the city's proposal amounts to an “unconstitutional application of eminent domain” and a “brazen scheme.” The Federal Housing Finance Agency announced that it was considering ceasing to do business in municipalities that pursue this course. Media coverage generally echoed the plaintiffs’ take. USA Today’s headline summed up the conventional wisdom, declaring that Richmond “runs amok with eminent domain.”

    In fact, the city's plan relies not on a novel use of eminent domain but on one endorsed by the conservative Supreme Court of 1935. …

    Nonetheless, the big players in the bond markets are angry that they’re being forced to accede to the demands of a small city in California. Before they fight city hall, the plaintiffs should appreciate that use of eminent domain to seize intangible assets like mortgages has a solid history. Federal courts have long sanctioned the taking of everything from shares of stock to contract rights, insurance policies and even hunting rights.

    But mortgages? Yes. …

    It must be remembered that Kelo v. City New London was a decidedly split decision. Regardless, moral hazard should not be summarily dismissed, not that we are suggesting Stephen Mihm has done that. It must also be remembered that many borrowers who played by the rules nevertheless suffered greatly as a result of the Great Recession brought on by shoddy policies and practices of others. Lastly, even prudent lenders couldn't have been conducting business during the bubble without later seeing even borrower equity in properties of 20 and even in some cases 30+% being wiped out by the real-estate crash. Therefore, let us be fair and reasonable all the way around.


  3. Lawrence J. McQuillan: Why Senator Steinberg’s SB 1 Deserves Defeat – or a Veto | FlashReport

    Here's a different eminent domain issue that also meets with the ire of the Libertarians.

    Senate Bill 1, introduced by State Senator Darrell Steinberg (D – Sacramento), is so dangerous that the Assembly should swiftly kill it.

    The measure will allow any California city or county to create a “Sustainable Communities Investment Authority,” governed by unelected bureaucrats selected by the city or county officials themselves. Each newly created Authority will build development projects in designated geographic areas. These will comply with SB 375, which connects California land use to the state’s climate change law, AB 32, which sets goals for the reduction of greenhouse gas emissions.

    Each Authority will be granted powers to build “sustainable communities.” That means jamming people into dense, urban centers using high-density residential housing and high-intensity retail and commercial buildings near mass transit corridors. To that end, SB 1 will grant each Authority unprecedented powers.

    SB 1 permits unchecked access to the power of eminent domain [emphasis added] in every project area created under the bill without making any determination, or requiring any action, regarding blight. The measure thus threatens the property of every California resident and will lower property values. But there’s more.

    Each Authority will be allowed to issue bonds without voter approval to fund the redevelopment projects. Pension systems such as CalPERS and CalSTRS will be allowed to purchase these bonds, so essentially one government agency will be investing taxpayer dollars into another government agency’s projects that threaten people’s land and force residents continu ally to pay for new projects.

    Lawrence J. McQuillan is senior fellow and director of the Center on Entrepreneurial Innovation at The Independent Institute in Oakland, California.

    So, is this government run amok "jamming people into dense, urban centers using high-density residential housing" and paying "'prevailing-wage' rates"? There's no doubt that government, like private enterprise, can get carried away. However, as also with private enterprise, doesn't it sometimes get things right? Let's look at the next link to see how the proponents of SB 1 present their case.


  4. SB1 Background – A New Economy for All – LAANE

    SB1 emphasizes development around transit, has job and housing protections for the low-income residents, without raising taxes or diverting money from schools or firefighter services. The bill … proposes the creation of Sustainable Communities Investment Authorities (SCIAs) throughout the state to generate more revenue for equitable development and affordable housing while jumpstarting our economy. [the bonds mentioned by Lawrence J. McQuillan above]

    We must put Californians back to work after a devastating recession that halted job creation and economic development. There are also complex state environmental mandates requiring the reduction of heavy pollution and congestion faced in our communities. Local cities need reliable funding to build more environmentally and economically sustainable communities through thoughtful planning, job creation, and economic and housing development. …

    With more construction of needed retail, housing, and other projects in our communities comes more jobs. SB1 would require that the SCIAs create individual “Jobs Plans” to address how to help the most disadvantaged in our communities have access to high quality, union construction and permanent jobs resulting from its subsequent developments. …

    …designed with housing opportunities for even our poorest residents. Local authorities will need to make sure that new development does not displace existing communities or result in a loss of housing.

    It is likely that Lawrence J. McQuillan, being the Libertarian that he is, takes great exception to the emphasis LAANE places upon union jobs. Leaving that aside, it must be admitted that this economy does need more full-time, high-paying jobs. It must also be admitted that top executives at most fairly substantial corporations are now making many, many more fold the base wage-rate than in prior decades. We can't go on creating only part-time, low-paying service and other jobs and expect our economy to become healthy. What do you think?

    Do we completely deregulate and let the chips fall where they may? Didn't we do too much of that in the run-up to the Great Recession? Don't we have an obligation to see to it that the law requires decent standards of risk management? After all, we can't completely insulate ourselves from the reckless, unregulated actions of others. Lehman Brothers proved that didn't it?


  5. Bill Text – SB-1 Sustainable Communities Investment Authority.

  6. legtrack.com: SB 1 (Steinberg): Sustainable Communities Investment Authority.

  7. CA 2013 SB1. Sustainable Communities Investment Authority. – GovTrack.us

  8. "eminent domain" – Google Search

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