The doctrine
Bob Zadek describes eminent domain as a very old concept that predates the founding of the United States. Under the doctrine, as he explains it, a government may seize private property. He states that the power is embodied in the Constitution in the Fifth Amendment in the Bill of Rights. Zadek says the government may take private property under two conditions: the property has to be taken for a “public use,” and the person from whom the property is taken must be given “just compensation.” He emphasizes that the important point is that the government can take property if there is a public use. Is America Doomed by Voter Ignorance? (2013)
The Kelo decision
Zadek recalls that the show had discussed the Kelo decision years earlier. He describes it as a Supreme Court case coming out of New London, Connecticut. In that case, property was taken from Mrs. Kelo—her home—in a down-at-the-heel area of New London. Zadek says it was not taken for a public use but was taken, together with a lot of other homeowners’ property, in order to give it to a private corporation so that the corporation could build a casino and high-income housing. He calls this a first in America. The city of New London, he says, argued that there was no public use; they wanted to take Mrs. Kelo’s property and give it to a real estate developer—taking property from one private person and giving it to another. They were going to pay Mrs. Kelo, but she said she did not want the money and wanted her house. Zadek says the Supreme Court said this was okay, and there was a backlash. Is America Doomed by Voter Ignorance? (2013)
Richmond’s mortgage seizure plan
In the news, Zadek reports, was the city of Richmond, California, which he describes as a city across San Francisco Bay from Marin County, a bit north and east of San Francisco, and basically a city under profound economic pressure. He says Richmond is in parts a blighted community, heavily minority-populated, suffering from high crime, and with a large number of underwater mortgages—where the house is worth less than the value of the mortgage. The danger, he explains, is that homeowners with underwater mortgages start to leave, houses become vacant and boarded up, neighborhoods are destroyed, and the value of the houses of people who remain declines.
A company called Mortgage Resolution Partners, Zadek says, came up with a solution using eminent domain. Under the program, the city of Richmond would take by eminent domain not the real property but the mortgages from the banks. Zadek says the city would tell JPMorgan Chase and Wells Fargo that it is going to foreclose by eminent domain the mortgages they hold on houses in Richmond, paying just compensation. He gives the example of a $200,000 mortgage on a house worth $160,000, with the bank receiving $160,000. The city would then tell the homeowner to stay in the house, rewriting the mortgage for $180,000 or $140,000, giving the homeowner equity and an incentive to stay. Zadek describes this as using eminent domain to take mortgages away from the banks and give a windfall to the homeowners—a homeowner with a house worth 160 and a $200,000 mortgage waking up to find the mortgage is 140, a gift by the city of Richmond through eminent domain.
Zadek asks whether this is the proper use of eminent domain or simply increasing moral hazard, since a homeowner who got himself in a jam wakes up one morning and gets a gift from the city. He says the approach was attempted to be sold to the city of San Bernardino, which is in bankruptcy in California, and that San Bernardino turned it down. If it works in Richmond, he says, it will be offered to other cities around the country. The banks, he reports, are threatening: they say that if Richmond does this, they cannot make mortgages to the city anymore and will not lend to its residents. Wells Fargo has publicly threatened not to make any more loans in the city of Richmond. Zadek also notes that the process was pushed by and encouraged by the Occupy movement—Occupy Richmond—and that a bunch of other cities in California are looking at it depending on what happens in Richmond. He says it goes on the “let’s watch it” list, but that it sure strikes him as being a misuse of the process of eminent domain. Is America Doomed by Voter Ignorance? (2013)
Across episodes
Only one episode in the excerpts, the 2013-09-21 show, treats eminent domain; the excerpts show no development of the topic across episodes.
What the sources do not cover
The excerpts do not state the outcome of the Richmond program, whether any mortgages were actually seized, or how the Kelo case was resolved beyond Zadek’s statement that the Supreme Court said the taking was okay. They do not give the full name of Mortgage Resolution Partners’ principals, the text of any statute or ordinance, or the names of the other California cities considering the approach. The excerpts also do not state the amendment or constitutional provision on which the Richmond plan’s legality would turn, beyond Zadek’s general reference to the Fifth Amendment.