BOS EminentDomain 

Supervisor John Avalos' Proposal


San Francisco Board of Supervisor John Avalos, along with co-signing Supervisors David Campos, Eric Mar, and Jane Kim, sponsored the above proposed resolution.  The Board voted on July 8, 2014, to postpone a decision.  This proposal has been around since September of 2013, when Supervisor David Campos urged the Board to adopt a similar measure.  You can see our analysis of that 2013 proposal in our article, Supervisor Campos to Explore Underwater Property Eminent Domain

The idea of seizing underwater mortgages from private lenders is not going away.  To the contrary, according to what Supervisor Avalos indicated during the meeting of July 8, he is looking forward to working with the rest of the Board, the Controller’s Office, and the City Attorney to craft a Joint Powers Authority Ordinance to be introduced later in 2014 – note the reference to an ordinance, not a mere resolution.

The forging ahead with this proposal is occurring in spite of investors giving every indication that they stand ready to flood every entity involved with lawsuits.  Wells Fargo, Deutsche, and Mellon banks have already sued, although, as the court decided, prematurely, since the plaintiffs had not yet been harmed.  No doubt, everybody will be back in court as soon as any actual seizing of mortgages is attempted!

Although these investors are powerful corporations, they are not voters, upon whom Supervisors depend at election time.  Therefore, as always, we encourage voters - ordinary citizens - to get acquainted with the issues, contact their government representatives, and vote wisely.

File No. 140709 starts out by proposing that San Francisco commend the City of Richmond for “their work on creating a Local Principle Reduction Program…” – emphasis ours – and gets worse with each “Whereas.”  Here are our primary concerns with Supervisor Avalos proposal:

Applies only to homeowners who are still making payments on their mortgages.  It does not apply to borrowers who are no longer able to pay, and are truly facing foreclosure.

Applies only to securitized mortgages.  Traditional mortgages still being held by original lenders are not included, no matter how underwater they are.

Applies to a relatively small percentage of borrowers, but will have a negative effect on all borrowers as well as on some investors.  Lenders will have to increase the price of all mortgages in order to offset possible and actual government seizure of some of their loans.  Savers will suffer losses if their savings instruments are 401K’s or annuities invested in the mortgage-backed securities targeted by eminent domain.

The likelihood that investors will sue under attempts to seize their investments by force is high.  This proposal seeks to form a Joint Powers Authority in hopes the Authority will shield the member cities from liability.  However the ultimate victim, regardless of what entity is determined liable, is the taxpayer.

The language of this proposal includes several references to “predatory lending” perpetrated by big banks.  It makes no reference to Mortgage Resolution Partners LLC, who designed this eminent domain plan, and who will be handsomely paid for their role in funding the plan.  Funds used, will most likely come from “Wall Street.”  This situation coming full circle seems evident to us.

Lastly, a bastion of progressive politics, San Francisco is intentionally becoming a government-owned town.  Private property and the Constitutional protections associated with it are carelessly cast aside as inconvenient institutions.  Witness the endless list of rules as to what a property owner can, cannot, and must do with his property; proposed legislation on the November 2014 ballot intended to curb the development of market-rate housing; the threats hurled at in-law apartments and Airbnb’s; and the vast amount of “affordable” (non-private) housing being built or planned.  The further expansion of the powers of eminent domain to seize privately-held mortgages by force is viewed by City leaders as one more hammer in the tool box of government ownership.  Every City resident needs to be concerned where the money is coming from to finance all this government ownership, and where the relentless loss of private property will lead us. 

Of course we at the Libertarian Party of San Francisco are painfully aware of the devastation caused by the bursting of the housing bubble.  We are also aware of the pivotal role federal agencies had in promoting the bubble by encouraging liberal and increasingly risky credit expansion to support a vision of home ownership by all.  As expected, lenders, some of them unscrupulous, did not shy away from taking advantage of this scenario, thereby making a bad situation untenable. 

However, attempting to correct one government-inspired mess with another one does not strike us as an optimal path.  Perhaps it is time to dial back on government intervention on the inexorable rules of the marketplace.