The avalanche of news stories (newsmagazines are increasingly getting into the act) continues unabated. We make no attempt to inventory, much less comment on them. But it seems proper to take note of the fact that much of this outpouring comes from people who obviously don’t know what they are talking about. So we offer these caveats for our readers.
First, eminent domain can be used to acquire all species of private property, not just land.
Second, when property is taken by eminent domain, the condemnor does not get to set the price unilaterally. The owners who are dissatisfied with a condemnor’s offer or deposit, can litigate over value, and can put on testimony by their own appraisers.
Third, in most states, value is determined by a jury (except in New York, Connecticut and Rhode Island). In some states there is an intermediate step in the process of valuation: before going to court the valuation evidence of both parties is heard by “Commissioners,” lay individuals selected for the job. In federal law, there is no right to a jury, but under Federal Rule of Civil Procedure 71A, valuation cases are usually tried to juries, although federal judges can appoint Commissioners instead. In Florida, that practice has been frequently abused by federal judges — which is another story, too complicated to go into here. But if you want to know, check out the Formatora case decided by the 5th Circuit.
Fourth, in the proposed takings of “underwater” mortgages, the right to take can probably be established under existing federal constitutional law, but query whether states will go along with it. A definite maybe, because among other things, a number of states have modified their law after Kelo to limit the exercise of eminent domain when it is sought to be used to transfer private property from one private owner to another.
Fifth, the big problem is how to value those mortgages, and here is where it gets complicated, because the people behind this caper want to pick low-hanging fruit by condemning only those “underwater” mortgages that are current — i.e., those where the homeowners-borrowers are continuing to make regular payments on their loans. Obviously, mortgages like that are more valuable than those in which the borrowers have defaulted. Also, if a particular mortgage has been “bundled” with others and put up as security for a mortgage-backed bond, the problems multiply, because it seems clear that the bonholders will claim [severance] damages to their remaining property, i.e., the uncondemned, remaining mortgages in the “bundle.” See United States Trust v. New Jersey.
Last, some of the reporters and on-line posters do not understand the difference between San Bernardino County (which is behind this caper) and the City of San Bernardino which is in bankruptcy.
These observations are not intended, and cannot in this limited space, give a detailed picture of what this caper portends. So if you want to be informed, be careful about what you read in the papers, as the old expression goes, and take the time and effort to inform yourself.
Follow up. We just came across a not-so-old news item reporting that 9 out of 10 home mortgages are held or insured by federal government entities, most of them by Fannie and Freddie. Roger Lowenstein, Cracked Foundation, N.Y. Times, April 25, 2010, at p. 11. Good luck on a one-horse county’s attempt to condemn those!