The Fight Over the Use of Eminent Domain to Seize Underwater Mortgages: Recent Updates

October 02, 2012
The debate continues over plans by some California municipalities to use eminent domain to take title to underwater mortgages secured by real property within their jurisdictions and to pay the mortgage holders “fair market value” as the just compensation required by the Fifth Amendment of the U.S. Constitution. Municipalities and private investors would then issue new mortgages to the homeowners and write down the principal balance of their loan. This update reviews the latest developments on this issue, which have important implications for lenders nationwide.