Andrew Edwards, Staff Writer
Created: 07/01/2012 05:51:46 PM PDT

San Bernardino County may be the site the nation’s next big debate over eminent domain.

A trio of of local governments – San Bernardino County, Fontana and Ontario – have created a Joint Powers Authority (JPA) in an effort to help “underwater” homeowners that may result in the use of seizure powers to buy mortgage-backed securities.

Placing securitized mortgages in the hands of local governments, as opposed to far-flung private investors could give homeowners a better chance of negotiating favorable loan modifications, said Cornell University professor Robert Hockett.

Hockett is a consultant for San Francisco-based Mortgage Resolution Partners, which is pushing the eminent domain plan in San Bernardino County and to officials in seven other states.

The eminent domain idea, however, has also captured the attention of nearly 20 organizations representing local Realtors as well as the banking and financial services industries.

And they don’t like it.

Writing that using eminent domain to seize mortgage loans raises “very serious legal and constitutional issues,” the trade groups contend the plan could be “immensely destructive to U.S. mortgage markets by undermining the sanctity of the contractual relationship between a borrower and creditor.”

Eighteen organizations including the Inland Valleys Association of Realtors, American Bankers Association and National Association of Homebuilders sent that message Thursday in letters to county, Ontario and Fontana officials.

San Bernardino County spokesman David Wert responded that officials participating in the JPA have yet to even decide whether to use eminent domain to seize mortgage-backed securities.

Although participating officials have not chosen what policies would be best for the JPA to help cash-strapped homeowners avoid defaulting on their mortgages, Wert said the county will not kill the JPA to appease trade groups.

“Calling off the JPA and not even having a discussion about whether anything can be done to help these families would be unconscionable … Those who object to any particular approach should attend the JPA meetings and make their case rather than try to prevent the discussion from happening,” Wert wrote in an email.

San Bernardino County has 150,000 households dealing with “underwater” mortgages, Wert said. The phrase refers to the problem of homeowners owing more on a home loan than their home’s market value after mid-2000s housing bubble popped.

Eminent domain, traditionally, is the power of the government to compel private property owner to sell property, usually real estate, at fair market value for a public project, such as a new road.

In 2005, the U.S. Supreme Court affirmed an expanded concept of eminent domain in its controversial Kelo v. New London decision.

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