The Berkeley City Council has expressed interest in assisting local homeowners facing foreclosure by using a historically unpopular tactic.
At last Tuesday’s meeting, the council approved sending a letter to Alameda County authorities requesting a meeting to discuss the possibility of using eminent domain — a practice used by government entities to seize private property for public use in return for compensation — in order to help people refinance their homes.
The letter, originally drafted by City Councilmember Kriss Worthington, suggests that the practice could be used by the county to take over a home loan if the bank holding it cannot prove ownership.
“We think the county can take the mortgage by eminent domain for free without paying the bank for them,” said Susan Harman, the national volunteer manager for the Public Banking Institute who is working with Worthington on the plan. “In at least half the cases, banks can’t prove they own them.”
The reason, Harman said, is because in collateralizing and securitizing mortgages — otherwise known as bundling — banks sometimes lose track of which mortgages they actually hold. According to Harman, while banks have been willing to modify mortgages, they will not budge when it comes to adjusting how much a property is currently worth — known as the principal — forcing homeowners to continue paying the mortgage for a home worth less than what they purchased it for.
According to Worthington, the county would intervene at a homeowner’s request and only serve as an intermediary in order to help them refinance with a different entity.
After taking possession of a mortgage, the county would assign a broker to try to renegotiate the loan and, in most cases, adjust the principle. According to Harman, the county is capable of taking on the role of landlord and could cover any losses using the interest from mortgage payments.
Worthington also suggested the possibility of creating a joint powers agency similar to the one formed in San Bernardino County, which is also experiencing a high number of foreclosures and is currently exploring the possibility of using eminent domain to fight foreclosures. Several members of the Oakland City Council have also expressed interest in joining Berkeley, according to Worthington.
Worthington and Harman, who are working closely together on the plan, are optimistic but said there are still quite a few hurdles to clear.
“I’m not even sure that this is going to be legal for us to do,” Worthington said. “This is a really creative idea, and it’s pretty exciting.”
Notably less excited is the Securities Industry and Financial Markets Association, an industry trade group representing securities firms, banks and asset management companies. A recent statement on the association’s website states that using eminent domain to stop foreclosures is “unconstitutional, among numerous other legal disabilities.”
The Berkeley Association of Realtors and Chase Bank declined to comment on the subject, saying they are still reviewing the possible implications.