Eminent domain refers to the process by which the government may seize private property with proper compensation, but without the owner’s consent. The Fifth Amendment to the Constitution stipulates:
- that the property must be claimed for “a public use;” and,
- that "just compensation" must be provided to the property owner.
In order to claim eminent domain over a property for the purposes of economic development, the government must establish that the property is “blighted."
None at this time.
What is the fundamental issue?
The Constitution provides the federal government eminent domain authority to take private property, as long as the taking is for a "public use' and "just compensation" is given to the property owner.
Currently, there are several proposals circulating in localities across the country to allow local governments to use eminent domain to take residential underwater mortgages from lenders and investors. After the seizure, local governments would reduce the amount owed on the mortgage and resell it to new investors.
I am a real estate professional. What does this mean for my business?
This unprecedented use of eminent domain authority would restrict the availability of mortgage credit, because mortgage investors are reluctant to purchase mortgages in participating communities due to difficult-to-quantify lending losses and collateral risk. As investors withdraw from these markets, fewer credit-worthy borrowers would be able to purchase a home, depressing demand below its current levels. The result could be many more homeowners pushed underwater by further declines in home values. Mortgage rates and/or down payment requirements would rise to compensate for the added eminent domain risk and price many prospective homebuyers out of the market, particularly in distressed communities where economic stability is needed most.
Supports eminent domain authority only for a public use (e.g., ownership by a public entity), as well as a broad interpretation of "just" compensation, to include all reasonable and necessary costs which result from exercise of such authority, not just the value of the property condemned. States, not the federal government, should establish their own rules and laws governing eminent domain.
While San Bernardino County, CA, had gone the furthest along in considering using eminent domain to seize mortgages, local governments in Chicago, Oakland, Sacramento and others have all expressed interest in the concept.
The Federal Housing Finance Agency (FHFA) issued a statement in August, 2012 expressing serious concerns with such mortgage-seizing proposals. NAR echoed those concerns in response to FHFA’s request for comment on its statement; 14 other organizations also wrote a letter opposing the proposal.
Last Congress, Rep. John Campbell (R-CA) introduced the “Defending American Taxpayers from Abusive Government Takings Act." This legislation would have prohibited the origination of taxpayer-guaranteed mortgages in areas where the power of eminent domain is being used to seize mortgages. The bill has not been re-introduced at this time.
NAR is active in an on-going, broad-based coalition of financial, banking and real estate organizations, closely monitoring all developments in this area and will mobilize when circumstances warrant.
Land Use, Property Rights and Environment Committee