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Eminent Domain Battle Makes Its Way to the East Coast

Robert Ottone
Dec 06, 2013

No longer limited to just the suburbs in California, the battle over eminent domain has begun to heat up on the East Coast in Newark, N.J. Similar to the city of Richmond, Calif.’s plan to utilize eminent domain seizures to lower the monthly costs of individuals suffering from toxic mortgages, Newark, New Jersey’s most populous city, is seeking to make use of the California precedent to do the exact same thing in an effort to slow foreclosures. “It encourages banks and trusts that own some of these toxic mortgages to get them off their books,” said Paul Karr, spokesman for New Jersey Communities United, to Bloomberg. “In one sense, having the actual cash on hand at fair-market value is more valuable than having an underwater mortgage that’s probably going to go into foreclosure.” The American Civil Liberties Union – New Jersey (ACLU-NJ) has even stepped into the fight on behalf of homeowners struggling with potential foreclosure. “I hear from homeowners almost every day of the week about this issue,” said Councilman Ras Baraka, a 2014 mayoral candidate in Newark. “They feel bullied by the banks. They feel threatened by the banks.” There have been upwards of 300,000 foreclosures in the city of Newark since 2006, when the economic downturn really began collecting scalps. Around 45,000 have been foreclosed upon this year alone. The nearby city if Irvington, as well, has reported increases in crime related to foreclosed homes including fires, break-ins and health hazards in abandoned properties. Back in August, the Federal Housing Finance Agency (FHFA) and U.S. Department of Housing & Urban Development (HUD) released a statement regarding potential legal enforcements related to the rising tide of eminent domain seizures. A section of the statement reads: “In response to an eminent domain action to restructure mortgage loans, FHFA may take any of the following steps: initiate legal challenges to any local or state action that sanctions the use of eminent domain to restructure mortgage loan contracts that affect FHFA’s regulated entities; act by order or by regulation to direct the regulated entities to limit, restrict or cease business activities within the jurisdiction of any state or local authority employing eminent domain to restructure mortgage loan contracts; or take such other actions as may be appropriate to respond to market uncertainty or increased costs created by any movement to put in place such programs.” The issues have caused so much difficulty that the City Council in Newark felt almost pressured to begin seeking an alternative measure to counter the rising foreclosure issue. “The fact that we, as a City Council, now have to consider this approach speaks volumes about the uncaring tone-deafness of the banks,” Councilman Darrin Sharif said. The Newark City Council began discussing the eminent domain seizure plan back in July, so the plan isn’t particularly new. “There has been an inequality of bargaining power between the lender and the borrower, which makes it hard to bring all parties to the table. If this can bring everyone together to find a reasonable compromise, that’s optimal,” Cornell University professor Robert Hockett said at the time. “In theory, this benefits the creditor and the lender alike.”
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