Eminent domain to rescue mortgages in New Jersey city
IRVINGTON, N.J. — Irvington, N.J., is moving forward with plans to become the second municipality in the nation to use eminent domain to buy mortgages that are in foreclosure.
At a rally on Saturday, Mayor Wayne Smith said the city will perform a legal study of the proposal to use eminent domain, which has drawn forceful opposition from Wall Street, real estate groups and some in Washington, while gaining the support of a civil rights group typically opposed to the practice.
“When you hear those words, it usually has a negative connotation,” Smith said. But when used to take control of underwater mortgages, the city will “recast it so people can stay in their homes.”
The city of 53,000 that neighbors Newark has been hard-hit by foreclosures. Officials said nearly 1,800 homes here have been foreclosed on since 2008.
The city has an unemployment rate of 12.4 percent, according to the federal Bureau of Labor Statistics.
Richmond, Calif., announced plans to use eminent domain to help underwater homeowners this year, and a lawsuit challenging the practice was dismissed by a California district court judge in September. Richmond has not yet used eminent domain.
Smith said Irvington's plan would focus on so-called private label security mortgages, or ones that are not backed by the federal government.
The city will try to avoid being sued through “friendly condemnation,” which offers incentives to the mortgage owners if they agree to avoid litigation, Smith said.
The city needs a third party to come in and actually buy the mortgages, the mayor noted.
According to Cornell University law professor Robert C. Hockett, eminent domain is one of the few tools available to take over and write down an underwater mortgage because it gives municipalities the power to circumvent mortgage contracts, acquire loans from bondholders, write them down and give them back to the bondholders.