8 ms·

Desperate CA city looks to use 'eminent domain' to seize loans

49 points by bcx 13y ago

hga 13y ago
From A Man For All Seasons: Roper: So now you'd give the Devil benefit of law! More: Yes. What would you do? Cut a great road through the law to get after the Devil? Roper: I'd cut down every law in England to do that! More: Oh? And when the last law was down, and the Devil turned round on you - where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast - man's laws, not God's - and if you cut them down - and you're just the man to do it - d'you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake.
- HarryHirsch 13y ago
  Not sure I understand the quotation. Who is the one driving a cart and horses through the law, is it Wells Fargo or Richmond?
  - hga 13y ago
    Richmond. What they're doing is flatly unconstitutional, as the article mentions. And it's an old American tradition to consider bankers as "the Devil" or strongly in that direction. This has even provided what's very possibly our best bit of political rhetoric, "You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." (http://en.wikipedia.org/wiki/Cross_of_Gold_speech http://en.wikipedia.org/wiki/Cross_of_Gold_speech)
    - HarryHirsch 13y ago
      The constitution explicitly permits eminent domain, provided it's for the benefit of the public. It's also clear that Wells Fargo will argue against it, because it's obviously not in their interest. Not too far from where I live is a house that Deutsche Bank took possession of a year and a half back. They haven't made any moves to sell since. The lot is overgrown, the roof will start leaking soon, it's an eyesore that's getting worse every month. A few years back I had the misfortune to rent from an absentee landlady from one of the poorest ZIP codes in Brooklyn who had bought that property at the height of the boom. The high point of the tenancy was the heating failing in early October. When the code inspector showed up I could show him the garbage that hadn't been collected for three weeks and send him down to the basement where the lady, her husband and her useless cousin had torn the boiler apart, attempting to fix it, and couldn't put it back together again. She had arranged for the plumber to come, cancelled it a day later, and then went out from Brooklyn to do this cock-up of a cowboy job. The backstory was that her bank had asserted rights the day the plumber was cancelled. The garbage was there because the garbage hauler had gone unpaid for that month. I moved out soon after, and the move was a pain. That was in 2008. The state of the house is uncertain. Lis pendens was filed in 2008, as I said, and there has been no court date until now. What I'm saying here is that unmaintained housing stock and housing stock without a clean title has real effects on the people that live in them and nearby, the public that is. You can make a good case that eminent domain is justified here. No one has done it yet, this is uncharted territory as far as the law is concerned, but it's heartening to see Richmond take a shot at it.
      - hga 13y ago
        What the 5th Amendment actually said is "nor shall private property be taken for public use, without just compensation." Kelo notwithstanding, "benefit of the public" is not "public use"; the former can be stretched infinitely, to the ending of the rule of law. You're also ignoring that they admit they're seizing the property for less than it's value: "Richmond, working with San Francisco-based Mortgage Resolution Partners, offers $150,000 to buy a $300,000 bank loan on a house that is now worth $200,000 and is in danger of foreclosure. If the bank agrees, the city and the company then obtain the loan at $150,000. Richmond and the company then offer the homeowner a new loan of $190,000, which, if accepted.... If the bank refuses to sell the loan to Richmond, then the city invokes its power of imminent domain and seizes the mortgage. It would then offer the bank a fair market value for the home." See the Naked Capitalism posting that cynicalkane brought to our attention for more details and a view from a very different angle: http://www.nakedcapitalism.com/2013/08/beware-of-private-equity-guys-bearing-gifts-eminent-domain-mortgage-scam-hit-with-well-deserved-lawsuit.html http://www.nakedcapitalism.com/2013/08/beware-of-private-equ... Also mentions that California has a property owner friendly way of establishing "just compensation".
        HarryHirsch 13y ago
        The offer of kUSD 150 in cash for a title to a house valued at kUSD 200 in Richmond, that the bank needs to realize a steady stream of income from, doesn't seem unfair outright. What I mean is, where are the creditworthy buyers in Richmond? The town is failing and not getting any better. What is always troubling is the interaction between municipal authorities and venture capital; their interests do not intersect, and there is little experience in municipalities with complex financial deals. The showcase piece is the Birmingham, AL sewer disaster. The idea of eminent domain is appealing, and the real-world implementation is another problem.
        bradleyjg 13y ago
        They aren't seizing title to the house, they are seizing a lien and promissory note. Although the lien can't be worth more than the underlying property, the note certainly can.
    - tzs 13y ago
      > Richmond. What they're doing is flatly unconstitutional, as the article mentions. I didn't see that mentioned in the article. Are you sure you are not thinking of that article someone linked to in a comment here on HN rather than the submitted article?
      - hga 13y ago
        "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain, which allows governments to seize private property for public use — like a house in the path of a new highway or a piece of land needed for a new park." That's consonant with the plain language of the 5th Amendment, Kelo notwithstanding: "nor shall private property be taken for public use, without just compensation." I take the article's language as the author knowing this is scamming the Constitution's provision for eminent domain, even if it's pretty clear he doesn't care. Hence the quote starting this thread.
    - mbreese 13y ago
      > What they're doing is flatly unconstitutional Not so sure about that... the Supreme Court has given wide leeway to municipalities in their interpretation of eminent domain. This is just one of the slippery slope side effects of their earlier decisions.
      - hga 13y ago
        I do not for a moment accept the principle that the Supreme Court has the final say in what's Constitutional, especially since the latter makes that crystal clear, explicitly in jurisdiction stripping (http://en.wikipedia.org/wiki/Jurisdiction_stripping http://en.wikipedia.org/wiki/Jurisdiction_stripping) and implicitly in the absence of sanctions on the Executive ("John Marshall has made his decision, now let him enforce it!") But your point about this slippery slope is well taken.
        mbreese 13y ago
        Isn't that kinda their job?
        hga 13y ago
        Prior to Marbury v. Madison (http://en.wikipedia.org/wiki/Marbury_v._Madison http://en.wikipedia.org/wiki/Marbury_v._Madison) in 1803, no, not at all. Thomas Jefferson had this to say about it, per Wikipedia: "You seem to consider the judges as the ultimate arbiters of all constitutional questions; a very dangerous doctrine indeed, and one which would place us under the despotism of an oligarchy. Our judges are as honest as other men, and not more so. They have, with others, the same passions for party, for power, and the privilege of their corps.... Their power [is] the more dangerous as they are in office for life, and not responsible, as the other functionaries are, to the elective control. The Constitution has erected no such single tribunal, knowing that to whatever hands confided, with the corruptions of time and party, its members would become despots. It has more wisely made all the departments co-equal and co-sovereign within themselves." The subsequent history has shown he was spot on. Given that the Switch In Time That Saved Nine waved through FDR's New Deal, and most subsequent gross violations of the Constitution, shows in practice they're really bad at what they arrogated to themselves, and they've far too often given the other branches of government cover. E.g. "sure, this might be unconstitutional, the Supreme Court will decide!" Fairly often the "might" is really "is", and later politicians who depending on a saving throw from the Supremes got disappointed. E.g. McCain-Feingold.
    - dalke 13y ago
      "old American tradition"? Bryan's speech is a continuation of a tradition which is far older than the US. In the Bible, Jesus cast out the moneylenders from the temple, and thus for centuries usury - loaning money at any interest - was prohibited in Christendom, upon torment of one's immortal soul. A similar prohibition exists in many parts of the Islamic world today. Can you point out where the article mentions that it's "flatly unconstitutional?" The only reference I could find to constitutionality (mentioned also in the photo caption) is: "first-in-the-nation plan to use the government's constitutional power of eminent domain to ..." The article does mention that "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain", but every legal opposition to eminent domain seizure makes that claim.
      - hga 13y ago
        Well, yes, but you're very wrong about the example of Jesus, he chased out the moneychangers. Per Wikipedia: "A money changer is a person who exchanges the coins or currency of one country for that of another." I won't get into the much more complicated usury argument, since that's now settled in (post)Christendom, else we wouldn't be having this argument. For "flatly unconstitutional", see https://news.ycombinator.com/item?id=6273984 https://news.ycombinator.com/item?id=6273984
        dalke 13y ago
        Thanks for the correction! For years I've been thinking it was "money lenders" not "money changers." I read the link you pointed to. It affirms that the plantiff's claim is "consonant with the plain language of the 7th Amendment." There must be a typo there, as the 7th is right to a trial by jury, while the given quote about "nor shall private property ..." is from the 5th. I don't see though how this is an effective argument. Every single lawsuit filed in opposition to an eminent domain seizure must claim that the seizure is violation of the 5th amendment. So of course this lawsuit is "consonant with the plain language of the 5th Amendment" as otherwise it would be thrown out as being unjustified. A more effective argument would point to existing legal cases, to show how the courts have previously ruled. But the comment you linked to dismissed Kelo - a case which gives some idea of how much the Supreme Court may defer to local governments - without giving any reference to other more relevant cases.
- zem 13y ago
  nice, that almost sounds like something out of "puck of pook's hill".
btilly 13y ago
The one suggestion that I'd add to this is to play hardball. If you force the city to use eminent domain, the bank can only get paid a fair market price if they can demonstrate a clean chain of title. As a number of scandals have shown, they will be unable to do so for a significant fraction of the mortgages, and they know it. They will scream, but push come to shove negotiation will be in their interest. And they know it.
- hga 13y ago
  You're assuming the Supremes will buy off on such a radical extension of eminent domain. Sure, its possible, but I don't at the moment think that's likely.
  - lisper 13y ago
    They did it before, why not again? http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
  - mbreese 13y ago
    Given their earlier decisions, this isn't so radical of an extension. In fact, it might not be an extension at all... municipalities can use eminent domain to give land to private companies if it is in the economic interest of the city.
    - hga 13y ago
      I should clarify, it's not so radical an extension of current eminent domain law, to wit Kelo as you and lisper note. But I'm judging it's enough of a radical extension from the base Constitution they won't make that leap with their current makeup. Which is an iffy opinion, on, I suppose, Justice Kennedy's opinion, who I don't know that well, and I would not be surprised to be proven wrong. Note this is in part due to the fact that there's a lot more than "public use" at stake, e.g. the whole profitability of the deal depends on there being a difference between the price paid to the bank and a price of the new mortgage. The losers are more sympathetic than small time landowners, and the big winner is another "banker"/eeeevil Wall Street type firm (see the Naked Capitalism posting).
e40 13y ago
Richmond is the most depressed city in the Bay Area. It's a horrible place. I spent time there in the early 80's and it was bad then, but it's a lot worse now. Given the federal government is going to do nothing about the problem, I applaud the mayor for creative thinking. I don't think it'll work, but maybe it will spur someone into a more reasonable action.
- dnautics 13y ago
  creative is not necessarily good. Even if it's "for the better" - there are several questions you have to ask: "whose benefit is it for?" Keep in mind that these sorts of urban renewal efforts (especially those backed by eminent domain) are exactly the efforts that get called "gentrification" by left-leaning individuals. Are we actually helping out the people who live there, or are we lining the pockets of developers and speculators at the expense of a slightly wealthier but less connected entity? Finally - "do the ends justify the means". Maybe you believe that the ends always justify the means. One may wonder though, if the city does this, what will it do next? How could this newfound, "creative" power be used for ill? There is a reason why, fundamentally, we should like for our governments to have defined, proscribed powers, and not "creative" powers.
DanBlake 13y ago
Obviously illegal and will be struck down in court. Heres the issue- Bankers created the housing collapse, as far as the homes value is concerned. By allowing many 'liar loans' that started defaulting, we exploded with foreclosures which flooded supply without demand. As a result, home prices went down. It does not change the fact that a percentage of the people getting hurt by foreclosures are those who lied in the first place. Yes, your home value went down. Provided they were in a 30 year fixed (the vast majority were, since they were being resold to fannie/freddie) your payments did not go down, OR up. If you could afford it on day one, you should still be able to today. Basically, this is comprised of many people who lied to get their mortgage and as a result, their home values went down (but their payment is the same as day one) but since their homes are down in value they stop paying. The bank should have never loaned these people the money in the first place. You should have never been in this house if you are getting foreclosed on now. *this comment is not applicable to all situations, but a common occurrence.
antistate 13y ago
Eminent Domain is a backwards concept born out of a different time, and needs to be removed from the powers of the state. Look at cases of abuse such as: http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London There's nothing stopping the state from using Eminent Domain to overreach and ruin businesses or move people out of their homes for their definition of "public good".
cynicalkane 13y ago
The blog Naked Capitalism--hardly a friend of big finance--points out that this is a scam here: http://www.nakedcapitalism.com/2013/08/beware-of-private-equity-guys-bearing-gifts-eminent-domain-mortgage-scam-hit-with-well-deserved-lawsuit.html http://www.nakedcapitalism.com/2013/08/beware-of-private-equ... Some key points: * The profits are being split among Richmond and a private investment firm named "Mortgage Resolution Partners, LLC". * Seizing a mortgage for less than its fair market value is blatantly unconstitutional. The argument that the value of an underwater mortgage in repayment is worth less than the house is so obviously wrong, I have a hard time believing Richmond officials honestly buy it. A mortgage that is on track to be repaid is undoubtedly worth close to the future value of repayment, even if the house is worth $0. * Big banks do not actually own most mortgages in general. So this is not a scheme to rob big banks, although Mortgage Resolution Partners, LLC certainly wants to spin it that way. * Almost all housing mortgages are merely serviced by banks but owned predominantly by entites such as "state and local governments, hospitals, Fannie, Freddie, and to a lesser degree, foundations and endowments". The banks have a legal obligation to protect these mortgages, of course. * Many of these loans are current--they're not distressed mortgages at all! They also plan to steer clear of houses with liens. Naked Capitalism comments that the plan only works financially if they go after the mortgages of those that need help the least. In short, this is a transfer of wealth from a diverse array of investors to the city of Richmond and a bunch of investment banker types--theft under the cover of populist outrage. It would also severely damage the market for future homeowners in Richmond, anyone who wants to sell their home, anyone who wants to refinance... Oh, it's also a threat to fundemental notions of private property, rule of law, and market capitalism, but distressingly few people still care about that. The bit I want to emphasize is that it's Prince John pretending to be Robin Hood.
- cinquemb 13y ago
  So basically for everyday people it's: Heads (banks keep mortgages): You Lose, because the market value of your home is artificially high, and when the bottom goes out on the market again (unless you happen to be drinking the kool aid and equate a life time of mortgage payments as owning a home), you'll either find yourself on foreclosure or trying to refinance again. Tails (City and PE get mortgages): You Still Lose, but now you have to pay a PE firm those monthly mortgage payments while the above still applies. Am I missing something?
bcoates 13y ago
I assumed this was going to be another case of eminent domain abuse until I found out that the bank's argument seems to be "Writing down our loans to market value would disrupt our entire industry". I don't think "this would interfere with my accounting fraud" is a legally sound reason to block an eminent domain taking.
- dnautics 13y ago
  if there is accounting fraud, the bank should be prosecuted and penalized for that, and the city should not use a back-door mechanism to punish wrongdoing. This is not what eminent domain is supposed to be used for, and so fundamentally it's eminent domain abuse.
  - bcoates 13y ago
    Eminent domain isn't a punishment. The lender's interest is solely financial so they should be theoretically indifferent so long as they are compensated at market value. The reason they care (and the reason the situation doesn't resolve itself without outside intervention) is that they're dependent on reporting improbably high property and loan values in order to not appear insolvent. The city doesn't care about this and is uninterested in punishing it, but they are interested in getting a large chunk of their tax base out of legal limbo and they have the legal right to do so. This article makes a good rundown about how this is an unremarkable taking and likely to succeed in court: http://www.bloomberg.com/news/2013-08-16/eminent-domain-isn-t-government-run-amok.html http://www.bloomberg.com/news/2013-08-16/eminent-domain-isn-...
toddnessa 13y ago
This is a great way of holding the banks accountable and asserting fairness in the citizen's fight against the corprotacracy that has a chokehold on our nation at the moment. If the banks that have received huge amounts of taxpayer money in the form of bailouts refuse to right the abuses that they created then it is incumbent upon a free people to stand up or continue to be run over. It is unfortunate that our federal legislators have allowed things to get to this point. Local governments are going to have to do something as the legislators at the federal level are unwilling to go against or are themselves corrupted by the corporate lobby. This is why we should not allow for career politicians.
- dnautics 13y ago
  How about this. We should let the NSA spy on all domestic corporate transmissions. This would be a great way of holding the banks accountable and asserting fairness in the citizen's fight against the corporatocracy that has a chokehold on our nation. If the banks that have recieved huge amounts of taxpayer money in the form of bailouts refuse to right the abuses that they created then it is incumbent upon a free people to stand up or continue to be run over. Do you not see the problem with inventing a new power out of whole cloth to fight wrongdoing? Surely, the banks have done wrong - and should be prosecuted. But the exact thing that you rail against - "banks recieving huge amounts of taxpayer money" was ITSELF the product of exactly the same thinking that you are engaged in - "let's invent a clever new government power. for the public benefit [to save the economy]". problem is, these "public benefits" are so often really just to help out some private consortium - and you don't have to look too hard to figure out who that is in this case.
tomohawk 13y ago
So, the big fix for lawyers and bankers acting badly is to have more lawyers and bankers acting badly? What could possibly go wrong?
goggles99 13y ago
Where was the opposition to all these houses selling at over-inflated rates 7-8 years ago. Cities weren't complaining then at all of the new tax revenues being brought in by new construction sales. They were rubber stamping new housing developments left and right. Cities have to be accountable for the mess that they share responsibility for letting happen (not just blaming the banks).
moocowduckquack 13y ago
Is fun comparing two of the arguments being put forward by the bank people here - "The banks argue the plan would "severely disrupt the United States mortgage industry" because many other cities would likely adopt the same program to help homeowners who owe more on their mortgages than their houses are worth." and - "Cameron said pension funds, banks and other groups that made loans in Richmond stand to lose millions if the city is allowed to use eminent domain to force lenders into accepting less than the original terms of the loan. He also predicted that cities using eminent domain will make lenders wary of doing business there. "There's a domino effect in play here," he said." If many other cities decide to do this, then the financial services industry is not going to be able to avoid doing business in those cities. One or two cities maybe, but not if many cities do this. The financial services industry is always fond of threatening that it is going to take its ball and go home if it doesn't like the decisions being made, but really it can't actually afford to.
- hga 13y ago
  Why ever would they play a game that's rigged for them to lose? Who can afford to go into deals knowing they'll lose money? How will they explain that to their investors?
  - moocowduckquack 13y ago
    They aren't losing money. The sales price of a home after foreclosure is usually much lower than it's valuation before foreclosure. Over the short term they will make more money. They are losing the option to make even more money in the future however, assuming that over a long enough timeline the price will go back up when the economy recovers. I am not sure that the way that this is being done is sensible, however I do not think that it will drive business from the city, at least not in comparison to a housing crisis.

49 points by bcx 13y ago

hga 13y ago

From A Man For All Seasons: Roper: So now you'd give the Devil benefit of law! More: Yes. What would you do? Cut a great road through the law to get after the Devil? Roper: I'd cut down every law in England to do that! More: Oh? And when the last law was down, and the Devil turned round on you - where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast - man's laws, not God's - and if you cut them down - and you're just the man to do it - d'you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake.

HarryHirsch 13y ago
Not sure I understand the quotation. Who is the one driving a cart and horses through the law, is it Wells Fargo or Richmond?
- hga 13y ago
  Richmond. What they're doing is flatly unconstitutional, as the article mentions. And it's an old American tradition to consider bankers as "the Devil" or strongly in that direction. This has even provided what's very possibly our best bit of political rhetoric, "You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." (http://en.wikipedia.org/wiki/Cross_of_Gold_speech http://en.wikipedia.org/wiki/Cross_of_Gold_speech)
  - HarryHirsch 13y ago
    The constitution explicitly permits eminent domain, provided it's for the benefit of the public. It's also clear that Wells Fargo will argue against it, because it's obviously not in their interest. Not too far from where I live is a house that Deutsche Bank took possession of a year and a half back. They haven't made any moves to sell since. The lot is overgrown, the roof will start leaking soon, it's an eyesore that's getting worse every month. A few years back I had the misfortune to rent from an absentee landlady from one of the poorest ZIP codes in Brooklyn who had bought that property at the height of the boom. The high point of the tenancy was the heating failing in early October. When the code inspector showed up I could show him the garbage that hadn't been collected for three weeks and send him down to the basement where the lady, her husband and her useless cousin had torn the boiler apart, attempting to fix it, and couldn't put it back together again. She had arranged for the plumber to come, cancelled it a day later, and then went out from Brooklyn to do this cock-up of a cowboy job. The backstory was that her bank had asserted rights the day the plumber was cancelled. The garbage was there because the garbage hauler had gone unpaid for that month. I moved out soon after, and the move was a pain. That was in 2008. The state of the house is uncertain. Lis pendens was filed in 2008, as I said, and there has been no court date until now. What I'm saying here is that unmaintained housing stock and housing stock without a clean title has real effects on the people that live in them and nearby, the public that is. You can make a good case that eminent domain is justified here. No one has done it yet, this is uncharted territory as far as the law is concerned, but it's heartening to see Richmond take a shot at it.
    - hga 13y ago
      What the 5th Amendment actually said is "nor shall private property be taken for public use, without just compensation." Kelo notwithstanding, "benefit of the public" is not "public use"; the former can be stretched infinitely, to the ending of the rule of law. You're also ignoring that they admit they're seizing the property for less than it's value: "Richmond, working with San Francisco-based Mortgage Resolution Partners, offers $150,000 to buy a $300,000 bank loan on a house that is now worth $200,000 and is in danger of foreclosure. If the bank agrees, the city and the company then obtain the loan at $150,000. Richmond and the company then offer the homeowner a new loan of $190,000, which, if accepted.... If the bank refuses to sell the loan to Richmond, then the city invokes its power of imminent domain and seizes the mortgage. It would then offer the bank a fair market value for the home." See the Naked Capitalism posting that cynicalkane brought to our attention for more details and a view from a very different angle: http://www.nakedcapitalism.com/2013/08/beware-of-private-equity-guys-bearing-gifts-eminent-domain-mortgage-scam-hit-with-well-deserved-lawsuit.html http://www.nakedcapitalism.com/2013/08/beware-of-private-equ... Also mentions that California has a property owner friendly way of establishing "just compensation".
      - HarryHirsch 13y ago
        The offer of kUSD 150 in cash for a title to a house valued at kUSD 200 in Richmond, that the bank needs to realize a steady stream of income from, doesn't seem unfair outright. What I mean is, where are the creditworthy buyers in Richmond? The town is failing and not getting any better. What is always troubling is the interaction between municipal authorities and venture capital; their interests do not intersect, and there is little experience in municipalities with complex financial deals. The showcase piece is the Birmingham, AL sewer disaster. The idea of eminent domain is appealing, and the real-world implementation is another problem.
        bradleyjg 13y ago
        They aren't seizing title to the house, they are seizing a lien and promissory note. Although the lien can't be worth more than the underlying property, the note certainly can.
  - tzs 13y ago
    > Richmond. What they're doing is flatly unconstitutional, as the article mentions. I didn't see that mentioned in the article. Are you sure you are not thinking of that article someone linked to in a comment here on HN rather than the submitted article?
    - hga 13y ago
      "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain, which allows governments to seize private property for public use — like a house in the path of a new highway or a piece of land needed for a new park." That's consonant with the plain language of the 5th Amendment, Kelo notwithstanding: "nor shall private property be taken for public use, without just compensation." I take the article's language as the author knowing this is scamming the Constitution's provision for eminent domain, even if it's pretty clear he doesn't care. Hence the quote starting this thread.
  - mbreese 13y ago
    > What they're doing is flatly unconstitutional Not so sure about that... the Supreme Court has given wide leeway to municipalities in their interpretation of eminent domain. This is just one of the slippery slope side effects of their earlier decisions.
    - hga 13y ago
      I do not for a moment accept the principle that the Supreme Court has the final say in what's Constitutional, especially since the latter makes that crystal clear, explicitly in jurisdiction stripping (http://en.wikipedia.org/wiki/Jurisdiction_stripping http://en.wikipedia.org/wiki/Jurisdiction_stripping) and implicitly in the absence of sanctions on the Executive ("John Marshall has made his decision, now let him enforce it!") But your point about this slippery slope is well taken.
      - mbreese 13y ago
        Isn't that kinda their job?
        hga 13y ago
        Prior to Marbury v. Madison (http://en.wikipedia.org/wiki/Marbury_v._Madison http://en.wikipedia.org/wiki/Marbury_v._Madison) in 1803, no, not at all. Thomas Jefferson had this to say about it, per Wikipedia: "You seem to consider the judges as the ultimate arbiters of all constitutional questions; a very dangerous doctrine indeed, and one which would place us under the despotism of an oligarchy. Our judges are as honest as other men, and not more so. They have, with others, the same passions for party, for power, and the privilege of their corps.... Their power [is] the more dangerous as they are in office for life, and not responsible, as the other functionaries are, to the elective control. The Constitution has erected no such single tribunal, knowing that to whatever hands confided, with the corruptions of time and party, its members would become despots. It has more wisely made all the departments co-equal and co-sovereign within themselves." The subsequent history has shown he was spot on. Given that the Switch In Time That Saved Nine waved through FDR's New Deal, and most subsequent gross violations of the Constitution, shows in practice they're really bad at what they arrogated to themselves, and they've far too often given the other branches of government cover. E.g. "sure, this might be unconstitutional, the Supreme Court will decide!" Fairly often the "might" is really "is", and later politicians who depending on a saving throw from the Supremes got disappointed. E.g. McCain-Feingold.
  - dalke 13y ago
    "old American tradition"? Bryan's speech is a continuation of a tradition which is far older than the US. In the Bible, Jesus cast out the moneylenders from the temple, and thus for centuries usury - loaning money at any interest - was prohibited in Christendom, upon torment of one's immortal soul. A similar prohibition exists in many parts of the Islamic world today. Can you point out where the article mentions that it's "flatly unconstitutional?" The only reference I could find to constitutionality (mentioned also in the photo caption) is: "first-in-the-nation plan to use the government's constitutional power of eminent domain to ..." The article does mention that "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain", but every legal opposition to eminent domain seizure makes that claim.
    - hga 13y ago
      Well, yes, but you're very wrong about the example of Jesus, he chased out the moneychangers. Per Wikipedia: "A money changer is a person who exchanges the coins or currency of one country for that of another." I won't get into the much more complicated usury argument, since that's now settled in (post)Christendom, else we wouldn't be having this argument. For "flatly unconstitutional", see https://news.ycombinator.com/item?id=6273984 https://news.ycombinator.com/item?id=6273984
      - dalke 13y ago
        Thanks for the correction! For years I've been thinking it was "money lenders" not "money changers." I read the link you pointed to. It affirms that the plantiff's claim is "consonant with the plain language of the 7th Amendment." There must be a typo there, as the 7th is right to a trial by jury, while the given quote about "nor shall private property ..." is from the 5th. I don't see though how this is an effective argument. Every single lawsuit filed in opposition to an eminent domain seizure must claim that the seizure is violation of the 5th amendment. So of course this lawsuit is "consonant with the plain language of the 5th Amendment" as otherwise it would be thrown out as being unjustified. A more effective argument would point to existing legal cases, to show how the courts have previously ruled. But the comment you linked to dismissed Kelo - a case which gives some idea of how much the Supreme Court may defer to local governments - without giving any reference to other more relevant cases.
zem 13y ago
nice, that almost sounds like something out of "puck of pook's hill".

btilly 13y ago

The one suggestion that I'd add to this is to play hardball. If you force the city to use eminent domain, the bank can only get paid a fair market price if they can demonstrate a clean chain of title. As a number of scandals have shown, they will be unable to do so for a significant fraction of the mortgages, and they know it. They will scream, but push come to shove negotiation will be in their interest. And they know it.

hga 13y ago
You're assuming the Supremes will buy off on such a radical extension of eminent domain. Sure, its possible, but I don't at the moment think that's likely.
- lisper 13y ago
  They did it before, why not again? http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
- mbreese 13y ago
  Given their earlier decisions, this isn't so radical of an extension. In fact, it might not be an extension at all... municipalities can use eminent domain to give land to private companies if it is in the economic interest of the city.
  - hga 13y ago
    I should clarify, it's not so radical an extension of current eminent domain law, to wit Kelo as you and lisper note. But I'm judging it's enough of a radical extension from the base Constitution they won't make that leap with their current makeup. Which is an iffy opinion, on, I suppose, Justice Kennedy's opinion, who I don't know that well, and I would not be surprised to be proven wrong. Note this is in part due to the fact that there's a lot more than "public use" at stake, e.g. the whole profitability of the deal depends on there being a difference between the price paid to the bank and a price of the new mortgage. The losers are more sympathetic than small time landowners, and the big winner is another "banker"/eeeevil Wall Street type firm (see the Naked Capitalism posting).

e40 13y ago

Richmond is the most depressed city in the Bay Area. It's a horrible place. I spent time there in the early 80's and it was bad then, but it's a lot worse now. Given the federal government is going to do nothing about the problem, I applaud the mayor for creative thinking. I don't think it'll work, but maybe it will spur someone into a more reasonable action.

dnautics 13y ago
creative is not necessarily good. Even if it's "for the better" - there are several questions you have to ask: "whose benefit is it for?" Keep in mind that these sorts of urban renewal efforts (especially those backed by eminent domain) are exactly the efforts that get called "gentrification" by left-leaning individuals. Are we actually helping out the people who live there, or are we lining the pockets of developers and speculators at the expense of a slightly wealthier but less connected entity? Finally - "do the ends justify the means". Maybe you believe that the ends always justify the means. One may wonder though, if the city does this, what will it do next? How could this newfound, "creative" power be used for ill? There is a reason why, fundamentally, we should like for our governments to have defined, proscribed powers, and not "creative" powers.

DanBlake 13y ago

Obviously illegal and will be struck down in court. Heres the issue- Bankers created the housing collapse, as far as the homes value is concerned. By allowing many 'liar loans' that started defaulting, we exploded with foreclosures which flooded supply without demand. As a result, home prices went down. It does not change the fact that a percentage of the people getting hurt by foreclosures are those who lied in the first place. Yes, your home value went down. Provided they were in a 30 year fixed (the vast majority were, since they were being resold to fannie/freddie) your payments did not go down, OR up. If you could afford it on day one, you should still be able to today. Basically, this is comprised of many people who lied to get their mortgage and as a result, their home values went down (but their payment is the same as day one) but since their homes are down in value they stop paying. The bank should have never loaned these people the money in the first place. You should have never been in this house if you are getting foreclosed on now. *this comment is not applicable to all situations, but a common occurrence.

antistate 13y ago

Eminent Domain is a backwards concept born out of a different time, and needs to be removed from the powers of the state. Look at cases of abuse such as: http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London There's nothing stopping the state from using Eminent Domain to overreach and ruin businesses or move people out of their homes for their definition of "public good".

cynicalkane 13y ago

The blog Naked Capitalism--hardly a friend of big finance--points out that this is a scam here: http://www.nakedcapitalism.com/2013/08/beware-of-private-equity-guys-bearing-gifts-eminent-domain-mortgage-scam-hit-with-well-deserved-lawsuit.html http://www.nakedcapitalism.com/2013/08/beware-of-private-equ... Some key points: * The profits are being split among Richmond and a private investment firm named "Mortgage Resolution Partners, LLC". * Seizing a mortgage for less than its fair market value is blatantly unconstitutional. The argument that the value of an underwater mortgage in repayment is worth less than the house is so obviously wrong, I have a hard time believing Richmond officials honestly buy it. A mortgage that is on track to be repaid is undoubtedly worth close to the future value of repayment, even if the house is worth $0. * Big banks do not actually own most mortgages in general. So this is not a scheme to rob big banks, although Mortgage Resolution Partners, LLC certainly wants to spin it that way. * Almost all housing mortgages are merely serviced by banks but owned predominantly by entites such as "state and local governments, hospitals, Fannie, Freddie, and to a lesser degree, foundations and endowments". The banks have a legal obligation to protect these mortgages, of course. * Many of these loans are current--they're not distressed mortgages at all! They also plan to steer clear of houses with liens. Naked Capitalism comments that the plan only works financially if they go after the mortgages of those that need help the least. In short, this is a transfer of wealth from a diverse array of investors to the city of Richmond and a bunch of investment banker types--theft under the cover of populist outrage. It would also severely damage the market for future homeowners in Richmond, anyone who wants to sell their home, anyone who wants to refinance... Oh, it's also a threat to fundemental notions of private property, rule of law, and market capitalism, but distressingly few people still care about that. The bit I want to emphasize is that it's Prince John pretending to be Robin Hood.

cinquemb 13y ago
So basically for everyday people it's: Heads (banks keep mortgages): You Lose, because the market value of your home is artificially high, and when the bottom goes out on the market again (unless you happen to be drinking the kool aid and equate a life time of mortgage payments as owning a home), you'll either find yourself on foreclosure or trying to refinance again. Tails (City and PE get mortgages): You Still Lose, but now you have to pay a PE firm those monthly mortgage payments while the above still applies. Am I missing something?

bcoates 13y ago

I assumed this was going to be another case of eminent domain abuse until I found out that the bank's argument seems to be "Writing down our loans to market value would disrupt our entire industry". I don't think "this would interfere with my accounting fraud" is a legally sound reason to block an eminent domain taking.

dnautics 13y ago
if there is accounting fraud, the bank should be prosecuted and penalized for that, and the city should not use a back-door mechanism to punish wrongdoing. This is not what eminent domain is supposed to be used for, and so fundamentally it's eminent domain abuse.
- bcoates 13y ago
  Eminent domain isn't a punishment. The lender's interest is solely financial so they should be theoretically indifferent so long as they are compensated at market value. The reason they care (and the reason the situation doesn't resolve itself without outside intervention) is that they're dependent on reporting improbably high property and loan values in order to not appear insolvent. The city doesn't care about this and is uninterested in punishing it, but they are interested in getting a large chunk of their tax base out of legal limbo and they have the legal right to do so. This article makes a good rundown about how this is an unremarkable taking and likely to succeed in court: http://www.bloomberg.com/news/2013-08-16/eminent-domain-isn-t-government-run-amok.html http://www.bloomberg.com/news/2013-08-16/eminent-domain-isn-...

toddnessa 13y ago

This is a great way of holding the banks accountable and asserting fairness in the citizen's fight against the corprotacracy that has a chokehold on our nation at the moment. If the banks that have received huge amounts of taxpayer money in the form of bailouts refuse to right the abuses that they created then it is incumbent upon a free people to stand up or continue to be run over. It is unfortunate that our federal legislators have allowed things to get to this point. Local governments are going to have to do something as the legislators at the federal level are unwilling to go against or are themselves corrupted by the corporate lobby. This is why we should not allow for career politicians.

dnautics 13y ago
How about this. We should let the NSA spy on all domestic corporate transmissions. This would be a great way of holding the banks accountable and asserting fairness in the citizen's fight against the corporatocracy that has a chokehold on our nation. If the banks that have recieved huge amounts of taxpayer money in the form of bailouts refuse to right the abuses that they created then it is incumbent upon a free people to stand up or continue to be run over. Do you not see the problem with inventing a new power out of whole cloth to fight wrongdoing? Surely, the banks have done wrong - and should be prosecuted. But the exact thing that you rail against - "banks recieving huge amounts of taxpayer money" was ITSELF the product of exactly the same thinking that you are engaged in - "let's invent a clever new government power. for the public benefit [to save the economy]". problem is, these "public benefits" are so often really just to help out some private consortium - and you don't have to look too hard to figure out who that is in this case.

tomohawk 13y ago

So, the big fix for lawyers and bankers acting badly is to have more lawyers and bankers acting badly? What could possibly go wrong?

goggles99 13y ago

Where was the opposition to all these houses selling at over-inflated rates 7-8 years ago. Cities weren't complaining then at all of the new tax revenues being brought in by new construction sales. They were rubber stamping new housing developments left and right. Cities have to be accountable for the mess that they share responsibility for letting happen (not just blaming the banks).

moocowduckquack 13y ago

Is fun comparing two of the arguments being put forward by the bank people here - "The banks argue the plan would "severely disrupt the United States mortgage industry" because many other cities would likely adopt the same program to help homeowners who owe more on their mortgages than their houses are worth." and - "Cameron said pension funds, banks and other groups that made loans in Richmond stand to lose millions if the city is allowed to use eminent domain to force lenders into accepting less than the original terms of the loan. He also predicted that cities using eminent domain will make lenders wary of doing business there. "There's a domino effect in play here," he said." If many other cities decide to do this, then the financial services industry is not going to be able to avoid doing business in those cities. One or two cities maybe, but not if many cities do this. The financial services industry is always fond of threatening that it is going to take its ball and go home if it doesn't like the decisions being made, but really it can't actually afford to.

hga 13y ago
Why ever would they play a game that's rigged for them to lose? Who can afford to go into deals knowing they'll lose money? How will they explain that to their investors?
- moocowduckquack 13y ago
  They aren't losing money. The sales price of a home after foreclosure is usually much lower than it's valuation before foreclosure. Over the short term they will make more money. They are losing the option to make even more money in the future however, assuming that over a long enough timeline the price will go back up when the economy recovers. I am not sure that the way that this is being done is sensible, however I do not think that it will drive business from the city, at least not in comparison to a housing crisis.