As a result of the subprime mortgage crisis, 20% of America’s homeowners have mortgages that are “underwater,” meaning they owe more than their homes are worth. San Bernardino County, California, has experienced especially devastating effects due to the subprime mortgage crisis. After six consecutive years of home value appreciation, the subsequent plunge in the market has left San Bernardino County with 57% of its mortgages underwater. The state of California in general was strongly affected by the crisis, boasting the fifth-highest foreclosure rate nationally in 2012. Thus, in order to preserve its community, San Bernardino County was the first municipal government to express interest in a solution proposed by Mortgage Resolution Partners (MRP), which hopes to use eminent domain proceedings to take over mortgages with values greater than the homes securing them and underwrite principals so that the borrowers can afford their mortgage payments. After consideration of MRP’s proposed solution or plan (the Plan), San Bernardino County ultimately decided to drop the idea due to lack of public support. However, this was not the end for MRP’s Plan. Recently, the city of Richmond, California, facing a depleted middle class and abandoned neighborhoods, became the first city to affirm that it will implement the MRP Plan. MRP alleges that the Plan, if implemented, will do what federal government programs have consistently failed to do—prevent hundreds of thousands of foreclosures across the United States and allow homeowners to remain in their homes.
The power of eminent domain has never been used under these particular circumstances. However, with the continued failure of government programs enacted to address the subprime mortgage crisis, an unconventional solution may be just what the United States needs to rehabilitate the mortgage market. This Comment proposes that what MRP intends to do is constitutional under the Takings Clause of the United States Constitution and, if implemented, could be the solution the United States has been waiting for since the collapse of the housing bubble.
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