Local Governments Consider Using Eminent Domain to Seize Underwater Mortgages

Vol. 36 No. 1

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The authors are attorneys at the international law firm of Dechert LLP. Patrick Dolan is a finance and real estate partner and Michael H. Park a litigation partner in the New York office. Robert H. Ledig and Thomas P. Vartanian are financial services partners in the Washington, D.C., office. Ralph R. Mazzeo is a finance and real estate partner in the Philadelphia office. And Scott C. Kessenick is a litigation associate and Kira N. Brereton a finance and real estate associate in the New York office.

Local authorities from San Bernardino County and the towns of Fontana and Ontario, all of which are located in California, have recently created a Joint Powers Authority (JPA) with the purpose of seizing (through the use of the power of eminent domain) and restructuring certain mortgages in an effort to assist “underwater” homeowners and, ultimately, stimulate the local economy. The main initiative of the JPA is the “Homeownership Protection Program” (Program), which would be spearheaded by Mortgage Resolution Partners LLC (MRP), a San Francisco-based venture-capital firm, and would target primarily mortgages that are not in default but that relate to properties whose values have depreciated to less than the outstanding loan amounts—that is, which are “underwater.” On August 16, 2012, San Bernardino County unanimously passed a resolution authorizing county staff to create a request for proposal from entities seeking to address the issues surrounding “underwater” mortgages by partnering with the county in the Program.

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