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Is eminent domain coming to New York City?

Council members push to aid city’s underwater borrowers

New York City

A group of New York City council members are calling for the use of a controversial plan to prevent foreclosures in the city’s five boroughs.

Council members Jumaane Williams, Daneek Miller, Donovan Richards, and Mark Levine have joined with the New York Communities for Change and the Mutual Housing Association of New York to push for the city to use eminent domain to aid underwater borrowers.

In a study released Wednesday by the four council members, the New York Communities for Change and the Mutual Housing Association of New York, they report that there are more than 60,000 homeowners “in crisis” in the city. Those 60,000 underwater mortgages make up nearly 12% of the total mortgages in NYC.

According to the study, more than 24,000 of the underwater mortgages are private-label securitized mortgages, and are “concentrated disproportionately in lower- and moderate-income African-American and Latino neighborhoods.”

The study notes that the mortgages are “primarily high-interest, subprime mortgages that investment banks bundled and sold on the secondary market to investors, leading to the economic collapse of 2008.”

The report calls for the city government to “step in” and use eminent domain to “seize these toxic mortgages in order to reduce the principal that is owed, protect homeowners, and strengthen communities.”

Eminent domain has been discussed in several other smaller cities previously but nothing on the scale of what is being discussed in NYC. In early 2013, an eminent domain plan was halted in San Bernardino County, California because of a lack of community support and fear of unintended consequences.

Eminent domain plans were also discussed in Richmond, California and North Las Vegas, Nevada. The North Las Vegas plan failed to earn a single vote in the city council. The Richmond plan earned the ire of the Federal Housing Finance Agency, which came out against eminent domain as an avenue for underwater borrower relief.

But the four NYC council members said that the plan for NYC has merit and value for the city’s homeowners. “As the City Council and de Blasio administration begin to combat the affordable housing crisis throughout the five boroughs, one thing is certain: we must act to end the foreclosure crisis, and the use of eminent domain should be explored as a tool to do that, before we run the risk of casting the neediest of New Yorkers into an uncertain future,” Council Member Williams said.

Council Member Miller echoed those sentiments. “The utilization of eminent domain to resuscitate properties burdened by underwater mortgages will have a positive impact on communities devastated by the foreclosure crisis – including my own in Southeast Queens,” he said.

“It will allow entire neighborhoods to move forward and help break the cycle of declining values that stems from foreclosures. Southeast Queens is a community which has some of the highest homeownership rates in our City and we have been disproportionately affected by the foreclosure crisis without any resolution.”

Council Member Richards said that there are still many in NYC that are feeling the effects of the housing crisis. “Those who have not yet lost their home are on the brink of losing it in the near future. If we, as a city, can assist homeowners in anyway then we are obligated to do so,” he said.

“Eminent domain can remedy the failures of mortgage servicers and previous administrations which did not help the many New Yorkers who have faced or are facing the possibility of foreclosure.”

Council Member Levine singled out the “thousands of NYC homeowners” that are embroiled in court cases “with banks unwilling to work out reasonable accommodations” over their underwater mortgages.

“The City should explore every option to provide these homeowners relief including buying the properties for fair market value through eminent domain,” he said.

The move toward eminent domain in NYC could have considerable impact on the usage of eminent domain throughout the United States. “There are two kinds of cities that Wall Street can't frighten - those that have serious underwater loan and foreclosure problems, and those that have dedicated Mayors and City Councils,” said Robert Hockett, professor of law at Cornell University.

“New York City is in both of those categories," he said. "Any serious measures taken in New York City to address underwater loans and foreclosure will be 'game-changing' nationwide.”

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