NEW YORK (
) -- The Nevada City of North Las Vegas on Wednesday rejected a plan to use eminent domain to seize underwater mortgages from private investors and refinance them.
According to the
Las Vegas-Review Journal
, the city council
voted 5-0 against the plan
aimed at helping borrowers who owe more than their homes are worth avoid default and foreclosure.
Eminent domain gives governments the right to seize private property for public use or benefit for fair compensation to the owners.
Mortgage Resolution Partners
has been making pitches to various local governments that have been hit hard by the housing crisis about using the controversial law to seize mortgage loans that substantially exceed property values from trusts that hold pools of private mortgages and write them down.
Doing so, the proposal's backers argue, will avoid future defaults and stave off foreclosures. In North Las Vegas, MRP calculated that 75% of the homeowners were at risk of losing their homes.
Still, the use of eminent domain to seize mortgage loanss is unprecedented and has been met with stiff opposition from mortgage investors, title insurers, trustees and lobbying groups, who have threatened legal action and warned of higher borrowing costs in cities that plan to seize mortgages.
The California city of Richmond
has said it intends to go ahead with the plan but investors have already filed an injuction against the action in court.
North Las Vegas likely was not prepared for a lengthy legal battle, especially as home prices are rising and the market is starting to heal.
"The home foreclosure crisis hit our town particularly hard and although I believe government has a role in helping, it is important the cure does not become worse than the disease," said first-term Mayor John Lee, according to the report. "Our valley is experiencing a fragile recovery where home values are rising and new home construction is coming back. It does not make sense to risk this delicate environment with unproven experimental programs."
The mortgage industry is watching closely to see if other cities will adopt the proposal. MRP is in talks with Henderson, Las Vegas and Clark County to advance the proposal.