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"Eminent Domain" Bailout Comes To New Jersey

Tyler Durden's picture




 

With Richmond, CA's plans to use eminent domain to "help" underwater homeowners still ongoing (as suits from mortgage-backed securities owners such as PIMCO, Blackrock, and DoubleLine having been initially dismissed), it appears the "wealth transfer" scheme is gaining traction around the nation. As we warned it would, the appeal of this "bailout" - with no thought to the unintended consequence of crushing an entire investing class out of the market (and its implicit rate-increasing result) - is just too strong for local government and sure nough New Jersey town Irvington is moving in that direction. As AP reports, Irvington's plan would focus on using eminent domain to purchase so-called "private label" security mortgages, or ones that are not backed by the U.S. government.

 

 

Via AP,

Irvington, N.J., is moving forward with plans to become the second municipality in the nation to use eminent domain to buy mortgages that are in foreclosure.

 

...

 

"When you hear those words, it usually has a negative connotation," Smith said. But, when used to take control of underwater mortgages the city will "recast it so people can stay in their homes."

 

...

 

Richmond, Calif., announced plans to use eminent domain to help underwater homeowners earlier this year and a lawsuit challenging the practice was dismissed by a California district court judge in September. Richmond has not yet used eminent domain.

 

Smith said Irvington's plan would focus on so-called "private label" security mortgages, or ones that are not backed by the U.S. government.

 

...

 

Smith said the city needs a third party to come in and actually buy the mortgages.

 

According to Cornell University law professor Robert C. Hockett, eminent domain is one of the few tools available to take over and write down an underwater mortgage because it gives municipalities the power to circumvent mortgage contracts, acquire loans from bondholders, write them down and give them back to the bondholders.

 

"Some government instrumentality is going to have to do this," said Hockett, who helped create the approach. "No private actor can get around the contracts, but a public actor can."

Worryingly, the idea is now gaining traction across the nation with Newark, NJ and North Las Vegas also floating the idea... Of course, with the Fed buying everything in sight, who cares? Oh wait, doesn't the government want to encourage a private mortgage market? Oh well...

 

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Tue, 11/19/2013 - 09:34 | 4169101 GetZeeGold
GetZeeGold's picture

 

 

I would have gone with Force Majeure.....but whatever.

Tue, 11/19/2013 - 09:41 | 4169120 DaddyO
DaddyO's picture

The depths of insidiousness are on display with this whole Eminent Domain ruse.

Whatever happened to Life, Liberty and Property?

DaddyO

Tue, 11/19/2013 - 09:47 | 4169144 krispkritter
krispkritter's picture

Going the same way as Freedom.  More proof that you don't own your land or property.  Wasn't there a state that was trying to reintroduce alloidal titles?  

Tue, 11/19/2013 - 09:49 | 4169145 Stackers
Stackers's picture

So where does the money for the "eminent domain trust" come from ? the already broke states and cities ?

Tue, 11/19/2013 - 09:54 | 4169172 CheapBastard
CheapBastard's picture

Rent Control is being talked about by my city council ... to the Dismay of the Landlords.

Tue, 11/19/2013 - 10:17 | 4169275 smlbizman
smlbizman's picture

rent control has been stealthfully installed to some....i have tenants that have rented from me for 12 yrs...they were hit hard from the crash...i suggested they apply fo section 8...they did..long story short...they have not for the last 2 yrs allowed me to raise my rents and the way it reads i will never be able again...so i have to get creative to keep my cost in balance...the tenants however have less to pay every year....anyone else facing this?

Tue, 11/19/2013 - 10:33 | 4169320 LawsofPhysics
LawsofPhysics's picture

Location, location, location.  I sold a property because of this.  My rentals are now all students at a local university and all but one have had their parents co-sign on the lease.  These rentals are generating 35% over cost, so a great deal, so long as I keep them filled.  The downside with students is that these are year leases so you do have to work to keep them filled.

I have had to deal with damage on occassion.  I also had two young ladies who I was pretty sure should have graduated.  When I investigated this further i realized they were running a brothel out of their condo.  Fortunately I evicted them peacefully before the local authorities caught on.  Apparently thier "Mrs." degrees didn't work out.  In any case, more work, but a better pay off.  In any case, rentals are not for those who don't want to work and actively manage.  I have always had better luck dealing directly with the rentor ahead of any potential problem.  Once the state gets involved in anything, you know you will lose.

Tue, 11/19/2013 - 11:06 | 4169480 ParkAveFlasher
ParkAveFlasher's picture

Pimp Daddy LOP!  My wife has two buildings, one mixed use.  Students make great renters, their parents secure the deal and there is low risk of squatty-type or now-I'm-never-leaving behavior.  There's a low-sq-ft bar on the first floor of the mixed use that's the best tenant she's ever had. 

Strike that, there's a room with a full bath about a block from the Citibank building, rented by a Citibank executive that lives in Conn. but needs to crash after long hours some weekends.  I'm sure he appreciates his discretion.

Tue, 11/19/2013 - 12:43 | 4169942 666
666's picture

Will Irvington be the next to declare bankruptcy?

Tue, 11/19/2013 - 10:03 | 4169204 Groundhog Day
Groundhog Day's picture

if you like you're ghetto you can keep your ghetto

Tue, 11/19/2013 - 09:42 | 4169123 negative rates
negative rates's picture

I gained alot of land over that domain thingy.

Tue, 11/19/2013 - 09:35 | 4169104 The Axe
The Axe's picture

Irvington would need several class 5 tornados to improve that situation.

Tue, 11/19/2013 - 10:25 | 4169303 Dr. Venkman
Dr. Venkman's picture

One evening, I took a spooky detour through Irvington on my way to Brasilia Grill. Your analysis is pretty close.

Tue, 11/19/2013 - 09:38 | 4169107 Big Corked Boots
Big Corked Boots's picture

Just so people know, Irvington is one of the cespool communities of the Garden State... it's next to Newark and is just like Camden, only with more boarded up buildings and a little less gunfire. Having the 'community leaders' set up a program like this is very apropo, since the residents have been stealing other's wealth for generations.

My brother taught high school there for a year. He used to require weapons be turned in to his classroom upon entry, and got in trouble when none of the students would show up.

Tue, 11/19/2013 - 09:37 | 4169109 Rock On Roger
Rock On Roger's picture

United States of America is fucked.

 

 

Stack on

Tue, 11/19/2013 - 09:37 | 4169110 Waffen
Waffen's picture

so is this the closest thing we get to a debt jubilee, or does that happen when .gov uses imminent domain to just take the land and decide to let you live in it if you follow set rules?

Tue, 11/19/2013 - 09:40 | 4169113 Sudden Debt
Sudden Debt's picture

"Some government instrumentality is going to have to do this,"

WTF DO PEOPLE THINK THIS IS???!! A FREESTATE??!! THE GOVERNMENT ISN'T THERE TO GIVE MONEY!!! THEY ONLY TAKE MONEY!!!

IT'S HOW GOD WROTE IT IN THE... you know on that big piece of pigskin..... OH YEAH, DECLARATION OF ENSLAVEMENT: "THY SALT GIVETH ALL YO MONEY TO OBAMA"

 

AND THAT'S A OFFICIAL DOCUMENT!!

It's signed by Obama imself... Michell Obama... Bo Obama...

THE CLAN!!! SO IT'S OFFICAL SHIT!

Tue, 11/19/2013 - 09:42 | 4169125 Bangin7GramRocks
Bangin7GramRocks's picture

We're right here. Stop yelling.

Tue, 11/19/2013 - 09:38 | 4169116 idea_hamster
idea_hamster's picture

"with no thought to the unintended consequence of crushing an entire investing class out of the market (and its implicit rate-increasing result)"

"with no thought to the unintended consequence of marking balance sheet assets to accurate market value (and the implicit rate-normalizing result)"

Fixed it for ya'!

Tue, 11/19/2013 - 09:44 | 4169131 LawsofPhysics
LawsofPhysics's picture

Indeed.  What's this "investing class" horseshit anyway?  How many people actually hold equities?  Do robots count?

Allow mark to market (price discovery) and let a real market set the interest rates.  It's called capitalism, let's try this for a change, it's been a hundred years or so since we did and unltimately it requires a respect for capital.

 

Tue, 11/19/2013 - 09:39 | 4169118 whoopsing
whoopsing's picture

After this, what private entity would ever write a mortgage again ?

Tue, 11/19/2013 - 09:45 | 4169135 LawsofPhysics
LawsofPhysics's picture

Shit, what private entities write them now (that hasn't been bailed out by the taxpayer)?

Tue, 11/19/2013 - 09:54 | 4169167 Debeachesand Je...
Debeachesand Jerseyshores's picture

That's the whole idea.In effect the US Government will be the sole owner of all US territory that it doesn't own now.

 

Tue, 11/19/2013 - 10:12 | 4169218 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Close the US Government will back the sole mortgage writers left without directly owning the properties but in essence call the shots like a landlord.

Fascism at it's best. Government controls everything in partnership shell corporations and then makes you buy it from them while crushing all private competition and rigging the rules in the process as they see fit since they also control the regulators. TBTF/SEC/CTFC is the blueprint for the full fascist sideways nationalization of every major industry in the US. First the banks, now healthcare......

Property rights was always a myth. As long as property tax exists you don't own your property period.....

Tue, 11/19/2013 - 10:34 | 4169348 LawsofPhysics
LawsofPhysics's picture

"That's the whole idea.In effect The Federal Reserve will be the sole owner of all US territory that it doesn't own now."   - FIXED, a very important difference as well.  If the government owned it, then we the people would control those assets.  The federal Reserve is a private bank, big fucking difference.

Tue, 11/19/2013 - 12:35 | 4169898 rwe2late
rwe2late's picture

LawsofPhysics

If the government owned it,

AND IF THE PEOPLE ACTUALLY CONTROLLED THE GOVERNMENT,

then we the people would control those assets.

 

Nonetheless, your comment is well taken.

Tue, 11/19/2013 - 14:40 | 4170504 Clowns on Acid
Clowns on Acid's picture

LoP - faulty logic as a constructed argument in theory. In practice... well you know.

Tue, 11/19/2013 - 09:48 | 4169147 shovelhead
shovelhead's picture

A great new municiple pension plan investment vehicle to create the perfect bankrupt circular clusterfuck.

Sheer genius.

Tue, 11/19/2013 - 09:59 | 4169190 Seasmoke
Seasmoke's picture

Wouldn't live in Irvington if they paid me. 

Tue, 11/19/2013 - 10:01 | 4169195 moonstears
moonstears's picture

Well, could get interesting. Either the bank owns, the buyer owns, or the muni/state owns through im domain. Once in state hands it'll be sec 8 housing or something, maybe a nice FEMA camp lease area to US Gov(here comes the crazy(?) tin foilers)

Tue, 11/19/2013 - 10:04 | 4169200 Its_the_economy...
Its_the_economy_stupid's picture

LoP has it right. The FDIC and the Fed are permitting the "mark to horseshit" on mortgages held by the banks. The real estate market has LOST its cleansing mechanism. The foreclosures sit in the pipeline, the properties fall apart, the municipalities suffer, and the populace has no barometer by which to rent or buy real estate.

 

This eminent domain ruse is an attempt to right a listing ship.

Something must be done. The states and cities get it. The Fed and the federal bureaucrats do not.

Let the fight begin.

Tue, 11/19/2013 - 11:33 | 4169581 ParkAveFlasher
ParkAveFlasher's picture

The judges will secure their own salaries + pensions by "interpreting" the litigation in a favorable manner. 

Tue, 11/19/2013 - 16:00 | 4169770 Emergency Ward
Emergency Ward's picture

Ten years from now, Richmond and Irvington will declare the homes and surrounding homes as blighted. The US Supreme Court has provided the ammunition for them to grab the property -- without compensation (to the occupants), because, after all, who owned it? (hint: whoever bailed the occupants out) -- and turn it over to Walmart.

Tue, 11/19/2013 - 10:06 | 4169221 Elliptico
Elliptico's picture

RE affirmative action.

Tue, 11/19/2013 - 10:16 | 4169270 Its_the_economy...
Its_the_economy_stupid's picture

"Mark to Horshit" is Bankster affirmative action

Tue, 11/19/2013 - 10:27 | 4169312 Downtoolong
Downtoolong's picture

Isn't this the real question still to be answered: "Where's the grift and who gets it from all this money shuffling?".

I mean, come on, we're talking about Irvington and Newark here. Do you really think those city council members paid for their million dollar homes with their public service paychecks? 

 

Tue, 11/19/2013 - 10:33 | 4169343 Its_the_economy...
Its_the_economy_stupid's picture

good point.

i picked up my shovel today and said "great it's almost the time of year for my 13th month paycheck". My shovel said" shutup and dig, this is the private sector".

Tue, 11/19/2013 - 11:38 | 4169602 nah
nah's picture

private property is only worth the paper its printed on bitchez!

Tue, 11/19/2013 - 12:11 | 4169738 Emergency Ward
Emergency Ward's picture

The American Dream: a home owned by the Government.

Tue, 11/19/2013 - 23:19 | 4172365 Polymarkos
Polymarkos's picture

And the same gubbamint will decide who gets to live there...an unwashed Mexican family for YOU, my former big house owner.

Tue, 11/19/2013 - 13:15 | 4170122 conspicio
conspicio's picture

Give us your mortgages or we seize them. And for those who are lucky enough to have the privilege of living in or moving to an area where this is occurring, the mortgage lenders are going to wreck their world with higher standards and squeeky tight applicant requirements to issue the loans in light of the uncertainty. I don't blame them a bit. Price the market to grind to a halt until the stupidity ceases.

These fucking local government idiots. But hey, someone elected them, and they could unelect them if they were so inclined. Apparently, no one is so much inclined in these areas. Enjoy the ride, kids.

Tue, 11/19/2013 - 15:45 | 4170868 Clowns on Acid
Clowns on Acid's picture

"If you like your mortgage , you can keep it".

If not, we will provide you with a lower cost alternative, just sign up on our new Mortgage Exchange.gov (provide all your personal info including bank accounts, Soc. sec #, passwords, etc. - if you don't have those no worries we'll just get them from the NSA.)

Tue, 11/19/2013 - 13:23 | 4170178 jonjon831983
jonjon831983's picture

"acquire loans from bondholders, write them down and give them back to the bondholders"?

How does this work?  What price are they buying them?  Aren't they only helping these JPM types by purchasing these bonds that probably nobody even wants at god knows what price?

 

It is like that "occupy" movement that is raising money to buy up debt to cancel.

Tue, 11/19/2013 - 14:38 | 4170497 Clowns on Acid
Clowns on Acid's picture

It's the Fabian socialist strategy for useful idiots... "Everyone gets trophy"..... "Everyone gets a underwater real estate write off".

It's just an update from Marx's 1875 manifesto "From each according to ther ability, to each according to his need".

Same "philosophy" behind ObamaCare, same as public housing projects, Common Core, ... and of course the Fed's money printing !

The felon Yellen - " Savers wear different hats", translated from her Fabian roots "The Fed will determine what savers "needs" are.

Tue, 11/19/2013 - 16:04 | 4170980 Praetorian Guard
Praetorian Guard's picture

States won't pay for this, but will profit from said decision... They take the property via ED, turn around and self fund through bonds, or private lender, and then turn said property into Section 8 eligible, which is funded by the Fed's...

Tue, 11/19/2013 - 23:16 | 4172355 Polymarkos
Polymarkos's picture

Why do they always feel the need for the flimsiest and most ridiculous kinds of legal justification/authority for their tyranny? Why not just act like they tyrants they are?

I really HATE communists.

Wed, 11/20/2013 - 05:27 | 4172724 SmittyinLA
SmittyinLA's picture

There is no eminent domain when you ain't got no money, this is just another scheme to get more federal funds that ain't gonna be paid back- and bail out the greedy hedge fund speculators with even more federal funds.

Eminent domain is perfectly legal and moral, the only rule is you have to pay "fair market value".

Nobody is going to loan Richmond money to buy out overpriced homes occupied by unemployed Socialists on welfare (other than the federal govt).

Would you pledge your IRA to give an illegal alien SEIU worker a 70% off discount house? (That's what they can afford).

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