San Francisco Supervisor David Campos introduced a resolution on September 9th, urging the Board of Supervisors to explore the feasibility of the City using eminent domain to seize underwater properties from lenders. Ostensibly, such a plan is designed to keep homeowners in their underwater homes when lenders do not readily cooperate in reducing mortgage principal to match what borrowers can pay. In reality, this resolution fits right in with the City’s relentless march toward “public” (as opposed to private) control of real property, by totally distorting the capital market via (1) promotion of home ownership regardless of borrowers ability to pay, (2) rent control, (3) passage of legislation such as the Housing Trust. The laws of economics are as immutable as the laws of nature. The more these laws are messed with, the more messing is required to keep things from imploding.


We need to remember, that the word “homeowner” represents a complex concept. Unless buyers pay the entire selling price of a property at time of sale, the real owners of the property are the lenders, as well as the investors behind the mortgages. Banks and other lenders employ a lot of folks in the City, supported by a lot of mortgage investors.  Is Mr. Campos remembering that? Or is he planning more legislation to force banks and other lenders to do business in the City?


And let’s not forget SB1 currently hatching in the State Legislature, expanding the use of eminent domain to include inefficient land use. Is your property safe from the proliferation of land grabs?  If you do not think it is, you might want to call Campos and the other Supervisors expressing your concern.



The version of eminent domain used in cities such as Richmond and proposed by Supervisor Campos often results in a lot of financial rewards: borrowers get their principal drastically reduced, city governments keep the difference between what they paid for properties and what they sell them for to their investors, investors get fees for handling the transactions, lenders might even benefit from short sales.   Add political benefits accruing from the expansion of power, and such plans become unstoppable.


However, from our perspective, although financial rewards are of course desirable, if they come with serious consequences, they should be rejected. Therefore, we encourage San Franciscans to consider the following:


Investors in mortgage backed securities (public employees’ pension funds, Fannie Mae, Freddie Mac, bequests funding various institutions) are likely to suffer losses as the securities get shuffled around.


States and municipalities, trying to find ways to overcome the challenge of ever increasing pension costs will find themselves with one more thing to worry about, the increased risk of MBS, rendered open to modifications due to property seizure.


Ordinary wage earners will see a loss of job opportunities as the more risk-averse lending institutions shy away from operating in localities with heightened eminent domain powers.


Borrowers might see a loss of borrowing opportunities from the more risk-averse institutions.


We all lose with any whittling away of the private property protections clearly spelled out in the United States Constitutions – there are good reasons why our Founding Fathers placed those protections there!