Treading Water: Can Municipal Efforts to Condemn Underwater Mortgages Prevail?

Abstract

Across the nation, economic turmoil and the collapse of the housing market have plunged countless homeowners into financial peril. Communities large and small have watched foreclosure signs spring up and have seen the “American Dream” become increasingly elusive. Homes are now worth only a fraction of what families paid, leaving them with hefty mortgage payments for value that simply is not there. Some residents find that their only option is to walk away, defaulting on their debts and severely damaging both their personal credit and the stability of the local economy. And desperate times can call for desperate measures. It is in this climate of desperation that some political leaders have turned to unorthodox solutions, willing to take bold action to solve the problems plaguing their citizens.

This Comment aims to investigate the legal and practical implications of one of the more radical plans under consideration. Specifically, it will dissect the controversial new eminent domain proposal engineered by the investment firm Mortgage Resolution Partners (MRP). The firm hopes to utilize the eminent domain power of local municipalities as a creative solution to the recent collapse of the U.S. housing market.12 This Comment will study the proposal as applied in the case of San Bernardino County (S.B. County). Although S.B. County is just one of the municipalities that have entertained the eminent domain proposal, this county is “ground zero” for the proposal—until recently, it was “widely considered to be the local government furthest along in considering the proposal.”13 Although the proposal appears to be presently “off the table” in S.B. County,14 the saga surrounding its potential application there is the ideal case study for thoroughly analyzing the factual and legal issues involved.