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Eminent Domain Information
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Nor Shall Private Property Be Taken For Public Use, Without Just Compensation
- The 5th Amendment, U.S. Constitution

ACLU, Center for Popular Democracy, and other groups sue FHFA over foreclosure fighting tactic

The American Civil Liberties Union has sued the Federal Housing Finance Agency, asking it to disclose efforts to stop municipalities from using eminent domain to bail out underwater homeowners and make its dealings with the financial industry more transparent.

The ACLU, Center for Popular Democracy and other nonprofits filed a freedom of information lawsuit against the agency in early December 2013, in federal court in San Francisco.

Richmond, Calif., was the first city to discuss implementing the foreclosure fighting plan. The city has not yet used eminent domain to seize a mortgage.

The agency said in August it may initiate legal challenges against municipalities that want to use eminent domain to fight foreclosures and could direct regulated entities to stop doing business in those places. The nonprofits said most of the cities exploring the use of eminent domain have been besieged by foreclosures and have predominantly low-income, minority populations.

The nonprofits filed freedom of information requests with the agency in October, seeking communication between agency leadership and representatives of the banking, mortgage and financial industry, and records of meetings between the agency and financiers, among other requests.

FHFA acknowledged, but did not complete, the requests, according to the lawsuit, so the groups sued. The nonprofits are asking for the documents to be procured on an expedited basis.

“The FHFA has taken an aggressive stance on this issue in a way that has harmed minority communities. The public deserves to know why,” said Linda Lye, a staff attorney with the ACLU of Northern California, in a statement.

A FHFA spokeswoman said the agency is not commenting on the lawsuit.

By using eminent domain, municipalities can circumvent mortgage contracts, acquire loans from bondholders, write them down and give them back to the bondholders with reduced principals. According to Cornell University law professor Robert C. Hockett, who devised the plan, only government has the power to forcibly sidestep mortgage contracts.

The tactic only works with mortgages that are not backed by the federal government.

FHFA oversees government-backed loans owned by Fannie Mae or Freddie Mac. They cannot be seized by eminent domain.

The lawsuit said one of the agency’s “statutory mandates is to help the housing market recover,” and threatening to sue municipalities that try to use eminent domain conflicts with that obligation.

“By threatening legal action,” the suit said, the agency “effectively blocks the communities hit hardest by the foreclosure crisis from pursuing one potentially effective solution on behalf of their residents.”

The suit also said the agency’s threats to deny credit to communities raises Fair Housing Act and Equal Credit Opportunity Act concerns.

Members of the financial industry have said they fear using eminent domain could be penalize people who save and invest in mortgage-backed securities.


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