County looks at taking over underwater loans using Eminent Domain

A novel approach has arisen to dealing with a neighborhood crisis in especially hard hit areas – Eminent Domain.  This is the power granted to the state in the 5th Amendment to the US Constitution and extended to the state and local level by the 14th Amendment .  Fortunately, the Denver housing remained strong enough that a drastic solution such as this is not necessary:

The cities of Ontario and Fontana, in partnership with the (San Bernadino) county (California), are exploring using private funds to acquire mortgages that are “underwater,” in which the homes wouldn’t sell for enough money to pay off the loans. Under the Homeownership Protection Program, the loans acquired by government authority would be restructured, lowering the amount owed, with the intent of helping the owner keep the home.

Government agencies occasionally use the power of eminent domain to take property – with just compensation paid to the owner – for use in project that benefit the public good.

An easy example of this is a highway widening project.  In any project where additional land is required, the State will initially negotiate with the owner and offer them reasonable market value for the property.  If negotiations fail, the State can utilize the power of eminent domain to take the property – paying the owner the reasonable market value, less any damages or benefits to the remainder (ie. if all they needed was a part of your property with a garage on it, you would get compensated for the reasonable market value of the land taken, the value of the garage structure, plus any diminution in value associated with now having a property with no garage.

At the state and federal level, the process is very structured to protect the property owner from being disadvantaged.

Eminent Domain has been extended down to the local level in some cases, with the City taking a blighted property for urban renewal.  This has led to much controversy, as it is often a private property owner (developer) that ends up with the taken property and profiting from development of the land.  This has been tried at the Supreme Court Level:

Kelo v. City of New London545 U.S. 469 (2005)[1] was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible “public use” under the Takings Clause of the Fifth Amendment.

Some info on Denver’s Eminent Domain standards:

When is eminent domain used?

Colorado state statute requires that unless a property has been abandoned or the landowner agrees to the use of eminent domain, the landowner must be given the opportunity to participate in the development of a property that has been found blighted and in need of redevelopment by the city and urban renewal authority.  In cases where agreement is not reached with the landowner to participate, DURA works to reach a fair and equitable purchase price for the property.  However, in those cases where the parties cannot agree on the fair market price, eminent domain may be used by DURA.  If eminent domain is used and DURA intends to transfer the property to a private party to achieve the public purpose, DURA must:

  • seek Denver City Council’s determination that the property is blighted (finding that at least five factors of blight are present);
  • issue a public request for proposals for rehabilitation or redevelopment from all property owners, residents and businesses located on the property, as well as other interested parties;
  • and determine that the redevelopment of the remaining property within the urban renewal area is not viable without the parcel to be condemned.

Eminent Domain has come up in the controversy and  discussions with neighbors of the  redevelopment of the University of Colorado’s 9th and Colorado site – since the site is effectively owned by the State – not sure how this would play out….