Tuesday, August 27, 2013

The Poetic Justice of Eminent Domain

On the August 27th edition of C-Span’s “Washington Journal” the guest was Professor Steven Eagle of George Mason University.  The topic being discussed was the use of Eminent Domain by cities and states to condemn mortgages on property, giving “just compensation” to those banks holding the mortgages, and resetting the mortgages to the current value of the property.   

Imminent Domain is the power of government to take private property for the public good.  The 5th Amendment to the U.S. constitution was put into law by James Madison to ensure property owners would receive “just compensation” for their property.  Just compensation as defined by the Supreme Court means fair market value.

Prior to the 2005 Supreme Court Decision in Kelo vs. New London Connecticut, eminent domain could only be used to condemn private property for the good of the general public, such as to build roads, or heavily regulated utilities, or for general public benefit such as parks, schools, etc.

“Susette Kelo, the plaintiff in Kelo vs. New London, Connecticut was realizing her dream of owning a home that overlooked the water.  In 1997, she had lovingly restored her little pink house in New London Connecticut where the Thames meets Long Island Sound.  The Dery family, up the street from Susette, had lived in Fort Trumbull since 1895; Matt Dery and his family lived next door to his mother and father.  Matt’s mother was born in her house in 1918 and had never lived anywhere else.  The richness and vibrancy of this neighborhood reflected the American ideal of community and the dream of homeownership”.

In 1998, the pharmaceutical giant Pfizer built a plant next to Fort Trumbull and the City of New London used its power of eminent domain to seize the private land from the residents of Fort Trumbull to grant the land to a private, for profit development company, New London Development Corporation (NLDC).  The entire neighborhood was condemned for demolition for private development with the nebulous claim of “economic development”.

The City of New London wanted to complement the new Pfizer plant with the development of hotels, shops and restaurants.

The funny thing was Pfizer never wanted to build in Connecticut but was enticed by the City of New London to pull out of Ann Arbor, Michigan where it was the largest employer to move to Connecticut, where it would enjoy tax incentives to relocate.  NLDC stood to profit immensely from the acquisition of the historic prime waterfront land at current fair market value to build stores, restaurants and hotels.

“The fight over Fort Trumbull eventually reached the U.S. Supreme Court, where the Court in 2005, in one of the most controversial rulings in its history, held that economic development was a “public use” under the Fifth Amendment to the U.S. Constitution.”  (Kind of like money is free speech). 

The Supreme Court’s 5-4 decision against Kelo and her neighbors sparked a nation-wide backlash against eminent domain abuse, leading eight state supreme courts and 43 state legislatures to strengthen protections for property rights.

“Moreover, Kelo educated the public about eminent domain abuse, and polls consistently show that Americans are overwhelmingly opposed to Kelo and support efforts to change the law to better protect home and small business owners.  Moreover, in the five years since the Kelo decision, citizen activists have defeated 44 projects that sought to abuse eminent domain for private development.” 

The city of New London bought out as many houses as they could, and as soon as they bought a house they demolished it to demoralize the other residents.  Once they bought out the last of the houses through eminent domain and demolished them, the economy turned and the land remained barren.  

“Meanwhile, in New London, the Fort Trumbull project has been a dismal failure.  After spending close to 80 million in taxpayer money, there has been no new construction whatsoever and the neighborhood is now a barren field.  In 2009, Pfizer, the lynchpin of the disastrous economic development plan, announced that it was leaving New London for good, just as its tax breaks are set to expire”.

Now in 2013, a town in California is making headlines on how it is tackling its foreclosure crisis.   In the City of Richmond, California almost half of the city’s residential mortgage holders are underwater.
Last week, Richmond became the first city in the country to offer to purchase mortgages of distressed homeowners from Wall Street banks and other lenders.  The city council approved a plan in April to allow the city to use its eminent domain authority to purchase loans in order to modify them and allow families to avoid foreclosure and stay in their homes. 
According to Richmond Mayor Gayle McLaughlin, “We are stepping in by taking these troubled loans off the hands of the banks, and we’re paying them fair market value for these loans.  And then we’re working with the homeowners to refinance and modify loans in line with current home values.  We call on the banks to voluntarily sell us these loans, and if they don’t cooperate, we will be considering eminent domain”.
You’ve got to love it, karma is a female dog.  Ha ha.   But wait, this is rich….
“Wells Fargo, three other banks and even the Federal Housing Finance Agency think otherwise”.
“The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain, which allows governments to seize private property for public use – like a house in the path of a new highway or a piece of land needed for a new park”.
Ha, ha, ha.   Oh, please stop, my sides hurt.
“The banks argue the plan would "severely disrupt the United States mortgage industry" because many other cities would likely adopt the same program to help homeowners who owe more on their mortgages than their houses are worth”.
You, think??
“So far, Richmond has sent out more than 600 offers, but has not yet begun any eminent domain proceedings. Newark, N.J., North Las Vegas, Nev., El Monte, Calif., and Seattle are considering similar plans, according to Wells Fargo's lawsuit.”
Sweet, sweet poetic justice. 

By Patricia Baeten

Coming soon, A Down The Rabbit Hole Exclusive: “The Controlled Demolition of America from Enron to ALEC".

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