Banks fight back against eminent domain

The use of eminent domain to effectively nullify mortgages has begun to be debated with greater fervor in town halls across the United States, as communities struggle under the weight of excessive household debt. One community in California has started to move in this direction, as local officials are nearing a decision that would allow it to condemn mortgages and repurpose them for the good of the community.

Eminent domain is a controversial administrative tactic, and the policy has a colored history associated with oppressive governments. Because it involves seizing private property – in this case, a home loan liability – for public use, there is often pushback from all affected parties.

And this case in no exception. According to Bloomberg, two holders of municipal debt are spearheading an effort to prevent Richmond, California, from utilizing eminent domain to stop people from losing their homes. Mortgage-bond trustees argue that the move is illegal and threatens the financial stability of American debt markets.

"Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit," John Ertman, an investment partner from New York who is involved with the litigation, wrote in an email published by Bloomberg News.

No doubt the effort by these banks to stop the process is a bid to prevent this tactic from spreading further. Condemning mortgages is certainly bad for business and threatens to underpin an already fragile revenue stream. Investors can learn more about other troubling economic developments, as well as methods for avoiding financial harm like cash flow real estate, by exploring today.