Cities hard hit by the housing crash are showing interest in using eminent domain to halt foreclosure activity locally. Yonkers, near New York City, is expected to soon take up a resolution to study the use of eminent domain to reduce debt. Meanwhile, support for the practice is growing in Newark, N.J., and in the California markets of Oakland and Pomona.
Robert Hockett, a Cornell University law professor and one of the architects of the strategy, adds, "Things seem to be picking up steam in Minnesota, and I've just been contacted in the past couple of weeks by two cities in Pennsylvania as well." At the same time, several local governments that have considered such a plan eventually backed away -- most notably California's San Bernardino County and North Las Vegas. But Hockett added, "We're moving into a kind of second generation of municipal interest that is more hard core."
Critics, including institutional investors BlackRock and Pimco as well as the Mortgage Bankers Association, say that taking mortgages by eminent domain represents a breach of individual rights and that investors will not receive fair market value for the loans. The Federal Housing Finance Agency states that the eminent domain strategy is "a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks." The agency may take legal action against cities that use it or limit mortgage activity locally.