private-propertyIt’s one of those government powers that can really make a mess of a property owner’s life, or make that owner a lot of money.  Eminent domain is the process by which a government entity takes private property for a valid public purpose.

Classically, the state uses eminent domain to take over private property to create a new exit ramp for a highway or create a new municipal dump.  Businesses have gotten involved, convincing government entities to help them with their projects.  The public, according to these businesses, would benefit as a result.

One example is a Connecticut case that went all the way to the U.S. Supreme Court in 2009.  It centered around the New London Development Authority using eminent domain to take private property to allow the Pfizer pharmaceutical company to build a new headquarters.  The court sided with the city and found the taking was for a ‘valid public purpose’ and was constitutional.  New London residents didn’t benefit for long since Pfizer closed down the building and moved to a neighboring town this year.

As government entities, more and more desperate to keep and create jobs in their communities, used eminent domain more and more for private development, they were being painted by critics as reverse Robin Hoods, stealing from private property owners for large corporations to benefit (though property owners are entitled to a process by which fair market value of their property is determined (with the help of property evaluation experts) and that’s what they’re supposed to be paid).

In this slow economy, local governments are facing many challenges, not just job development.  Many cities have huge numbers of home owners with ‘under water’ mortgages (their houses are worth less than their mortgages).  When that’s the case, owners often don’t make payments, maintain their properties or pay taxes and abandon their homes.  Mortgage holders are often unwilling or unable to re-finance the debt and foreclosures result.  This invites vandalism and crime into these neighborhoods.  The value of neighboring properties plummet.  Cities collect less in taxes, their tax base shrinks and demands for building code and law enforcement increase.

One California city is asking mortgage holders to sell residents’ ‘under water’ mortgages to it at the current value of the properties.  If the mortgage companies refuse, the city is threatening to use eminent domain to force the sale of more than 600 mortgages, then help residents re-finance so they can stay in their homes.  Two of the mortgage companies are challenging the plan in court, claiming it’s not for a valid public purpose.  If the plan fails in court, if nothing else, the city can claim it at least tried to be a real Robin Hood for home owners.

Is helping these home owners avoid foreclosures and keeping neighborhoods from imploding any less of a ‘valid public purpose’ than taking private land to build a new corporate headquarters?  If the parties can’t work something out, they, their attorneys and their mortgage loan expert witnesses will in in court weighing in on the next development in eminent domain.

By:  Rodney Warner, J.D.