http://www.motherjones.com/mojo/2013/09/richmond-eminent-domain-wall-street-nightmareKind of interesting. A northern California city of 105,000 has decided to try and stabilize their existing housing market by forming a partnership to refinance homes with vastly underwater mortagages. the twist is that when all 32 of the financial instituitions holding the mortagages on the 625 houses identified by the city declined to consider any discussions on financial restructuring to a level that represents the true current value, the city put forward a plan to proceed using eminent domain. Under that mechanizism, the city can seize the property and compensate the title holders at their assessed market value. The mortagages would then be refinanced through a third party at that market rate with the home owner.
While it's not a political or legal certainity, as it does stretch the scope of eminent domain a bit (although not by much and there's interesting upheld precident to cite supporting its legality), but one presumes that the main thrust will be a modification of Kelo v. City of New London, where 'The court held that if a legislative body has found that an economic project will create new jobs, increase tax and other city revenues, and revitalize a depressed urban area (even if that area is not blighted), then the project serves a public purpose, which qualifies as a public use.'. By seizing the houses in order to refinance, Richmond can strongly argue that it perserves their tax base, stablizes surrounding property values, and helps revitalize a depressed urban area. Considering that most of the home owners would see reduces up to a third of their existing mortagage payments and taxes through refinancing, it will generate a greater level of financial flexibility. While the city would lose marginally in taxes as the move will temporarily depress property value in the area, the overall perservation of the existing tax base is higher and more stable if the houses were to foreclose normally and (likely) remain empty or be bought remotely as investment properties.
It's a very intriguing concept, and in the face of what can only be described as massive, systemic malfeasance on the part of the real estate financial community, seems like the kind of move that communities are being pushed to consider by the realities of today. Too many communities are being broken by predatory financial practices that have demanded an abstract adherence to law in the face of changing circumstances and the unwillingness to provide any kind of support to the social compact is increasingly requiring solutions that leave them out of it. The move to credit unions, more aggressive actions on the part of local communities to perverse overall stability and high levels of public anger are driving interesting innovations that could be the first marks of a sea-change in financial management to smaller community oriented groups and lower touch but robustly remote digital services.