Eminent domain is a doctrine predating the founding of the United States under which a government may seize private property. In the excerpts, Bob Zadek describes it as embodied in the Fifth Amendment and subject to two conditions: the property must be taken for a “public use,” and the person from whom it is taken must be given “just compensation.” He notes that the power may seem un-American but is the law, and that the government cannot simply take property without paying for it. richmonds_eminent_domain_mortgage_seizure
The Kelo decision
Zadek recalls a prior episode’s discussion of Kelo, a Supreme Court case from New London, Connecticut. In that case, property was taken from a homeowner, Mrs. Kelo, in a down-at-the-heel area of New London—not for a public use, but together with other homeowners’ property to give to a private corporation to build a casino and high-income housing. Zadek calls this a first in America: taking property from one private person and giving it to another. The city argued there was no public use and wanted to transfer Mrs. Kelo’s property to a real estate developer; she was to be paid but said she did not want the money and wanted her house. The pretense was that developing the property with a casino and expensive housing would yield higher taxes to the city and benefit everyone except Mrs. Kelo, who would be homeless with a check for the low value of her house. The Supreme Court said this was okay, and there was a backlash. richmonds_eminent_domain_mortgage_seizure
Richmond’s mortgage seizure plan
In the news at the time of the episode was the city of Richmond, California, described by Zadek as a city under profound economic pressure, in parts blighted, heavily minority-populated, with high crime and a large number of underwater mortgages—where the house is worth less than the mortgage, leaving no equity for the homeowner. The danger is that homeowners with underwater mortgages leave, houses become vacant and boarded up, neighborhoods are destroyed, and remaining houses decline in value. A company called Mortgage Resolution Partners proposed a solution using eminent domain. Under the plan, the city would take by eminent domain not the real property but the mortgages from the banks—from JPMorgan Chase, from Wells Fargo. The city would pay just compensation: for a $200,000 mortgage on a house worth $160,000, it would give the bank $160,000, on the reasoning that foreclosure would yield only that much anyway. The city would then tell the homeowner to stay, rewrite the mortgage to $180,000 or $140,000, and give the homeowner equity and an incentive to stay. Zadek characterizes this as using eminent domain to take mortgages from the banks and give a windfall to homeowners—a homeowner with a $200,000 mortgage on a $160,000 house waking up to a mortgage of $140,000 and a gift from the city. richmonds_eminent_domain_mortgage_seizure
Zadek frames the policy question: setting aside whether this is the proper use of eminent domain, and noting it is not about harming the banks or Jamie Dimon’s bonus, is it good policy to make a gift to a homeowner with taxpayer money? He asks whether this is the proper use of eminent domain or simply increasing moral hazard, because a homeowner who got himself in a jam wakes up to a gift from the city. He states it strikes him as a misuse of the process of eminent domain. richmonds_eminent_domain_mortgage_seizure
Additional background from the episode: the approach was attempted to be sold to the city of San Bernardino, which is in bankruptcy in California, and San Bernardino turned it down. If it works in Richmond, it will be offered to other cities around the country. The banks are threatening 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 Richmond. The process was pushed by and encouraged by the Occupy movement—Occupy Richmond—and a number of other cities in California are looking at it depending on what happens in Richmond. Zadek places it on a “let’s watch it” list. richmonds_eminent_domain_mortgage_seizure
Across episodes
The excerpts show eminent domain treated in one episode’s discussion of Richmond’s mortgage plan, with Kelo referenced as background from a prior show; the excerpts do not contain a second episode’s independent treatment of the topic, so no development between earlier and later treatment can be traced from the sources provided.
What the sources do not cover
The excerpts do not state the outcome of any legal challenge to Richmond’s plan, nor whether the plan was ultimately implemented. They do not give the holding or amendment basis of Kelo beyond Zadek’s account, nor the names of the parties or the year of the decision. They do not state the founding date of eminent domain doctrine beyond its predating the founding of the country, and they do not cover any other jurisdiction’s adoption or rejection of the mortgage-seizure approach beyond San Bernardino’s refusal.