Approximately ten years ago, many homeowners across the country were struggling with the housing crisis. According to research conducted by the Century Foundation, nearly 10 million homeowners (roughly 20 percent of households with mortgages) in 2013 still owed more on their home loans than their homes were worth. Homeowners in these situations often felt trapped—they no longer had the financial resources to make their mortgage payments, and they were unable to sell their homes to repay the loans or move to a different city for a new job. In the wake of the urban housing crisis, many individuals and families found themselves living in foreclosed homes, ultimately compelling them to move away and leave these properties vacant.
With more and more properties becoming foreclosed and vacant, the housing market in urban centers continued to plummet and lose value. Gradually, cities experienced a slew of abandoned homes and properties, which devastated the local economy and contributed to urban blight. However, certain cities started seeking solutions to this urban foreclosure crisis. In 2013, the city of Richmond, California, made headlines when it announced its intention to use eminent domain power to address the housing crisis. However, states like Texas and Alabama have legal protections that aim to prevent overuse of eminent domain authority in order to preserve the legal rights of private landowners. Now that more than a decade has passed since such explorations were announced, let’s take a closer look at whether eminent domain is useful in addressing the urban foreclosure crisis. As a private landowner, it’s essential to enlist the guidance of a trusted and experienced eminent domain attorney to help you navigate any potential condemnation actions that could affect your property.
Defining Eminent Domain and Condemnation
Before we explore the potential impact of eminent domain on the urban foreclosure crisis, it’s important to define these legal terms and understand their implications. According to Cornell Law School’s Legal Information Institute (LII), eminent domain “refers to the power of the government to take private property and convert it into public use, referred to as a taking. The Fifth Amendment provides that the government may only exercise this power if it provides just compensation to the property owners.” In other words, a governmental entity, such as a federal, state, or local Department of Transportation, may invoke its eminent domain authority to seize private property in order to construct a new highway to improve traffic flow and ease congestion—a public benefit. However, the entity must provide just compensation to the affected property owners in exchange for taking their land. While eminent domain refers to the Constitutional power to seize private property in qualifying instances, condemnation refers to the legal process that occurs when an entity invokes its eminent domain authority. The condemnation process typically begins with the governmental entity providing the affected landowner with a condemnation notice informing them of the entity’s intent to seize the property for public use.
Eminent Domain as a Way to Address Foreclosures
Historically, eminent domain actions were used to construct freeways, railways, reservoirs, public libraries, or other utilities or services that benefited the public in some way. In the wake of the urban foreclosure crisis, which was especially fraught in 2012 and 2013, some cities started to explore the potential of eminent domain to address these issues. According to a plan put forth by the city of Richmond, California, “the city would use its eminent domain authority to purchase underwater loans at fair market value, then write down the loans to bring homeowners above water. Potentially, Richmond could turn around thousands of properties, and in the process save entire neighborhoods from ruin.” Once Richmond announced this plan, several other cities implemented similar strategies to address the urban foreclosure crisis. When developing an approach to this potential solution, industry experts identified two criteria for determining whether such a plan would be appropriate or beneficial to individuals and the community as a whole. The loan must be significantly underwater, to the point that modifying the loan will improve its expected value. Second, discovering that structural obstacles (i.e., creditor collective action problems, conflicts of interest between first and second lien holders, etc.) are preventing win-win modifications.
The Impact of Eminent Domain on Urban Foreclosures
Now that several years have passed since the use of eminent domain to address the urban foreclosure crisis was proposed, we can assess and measure these effects. In 2021, a group of tenants in Los Angeles took up a campaign to use eminent domain to save themselves and others from eviction. The city of Los Angeles is still reckoning with a long history of using eminent domain for highway expansion and stadium construction projects that led to the displacement of communities of color. However, a group of lower-income tenants proposed using eminent domain to ensure that they are able to remain in their homes in a city that is quickly becoming less affordable. Under such a plan, the Los Angeles City Council would pay the market rate for the building and keep rents affordable and manageable for the tenants.
Many other cities have explored the potential of using eminent domain to seize larger individual properties in order to create affordable housing units. However, several ethical concerns have arisen about whether displacing a homeowner is justified by the need for more affordable housing. Every city has its own way of addressing and exploring these issues, and community engagement is critical to ensuring that projects only proceed once they have been fully vetted.
Get Started With an Experienced Eminent Domain Attorney Today
Whether you have just received a condemnation letter informing you of an upcoming project or you are worried that a government agency may initiate condemnation proceedings at some point, enlisting the guidance of a highly qualified and knowledgeable condemnation lawyer is the best way to make informed decisions that affect the rest of your life. Reach out to a dedicated eminent domain attorney to start exploring your options for pushing back against a condemnation action or negotiating a more equitable settlement offer in exchange for handing over your property to the governmental entity. No matter what your unique concerns may be, working with a seasoned and caring condemnation attorney ensures that you move through the process with clarity and certainty and turn the situation from a problem to an opportunity.
If you have questions about the eminent domain or condemnation process, reach out to the dedicated legal team at Sewell Sewell Beard LLC to discuss your options. We’ve been doing this for 39 years. Call our Jasper, Alabama office at (205) 544-2350 or our Prosper, Texas office at (972) 777-5390 today to get started.
