An increasing number of cities are turning to the power of eminent domain to reduce the number of residential foreclosures.
Cities in New Jersey, New York, Minnesota and California are exploring the possibility of “friendly condemnations” in which the city buys the mortgage of an underwater homeowner. If the investor refuses to sell, the city may then use eminent domain to take the house.
Proponents say that such a plan gives owners with negative equity in their homes a way out, and also prevents the neighborhood blight caused by abandoned or otherwise unoccupied houses; opponents warn that such a plan may make it difficult for homebuyers in these cities to obtain a mortgage loan.
Mayor Wayne Smith of Irvington, a Newark suburb, is undeterred, saying that friendly condemnations could save between 500 and 1,000 homes.
Solutions to excess mortgage debt
Eminent domain is just one way that a distressed homeowner may find relief from an underwater mortgage, and, thus far, no cities in Florida appear to be considering the rather risky strategy. Instead of waiting for the government to act, or waiting for the mortgage lender to follow through on vague promises of a loan modification, bankruptcy may be a better option. Filing bankruptcy to take control of your financial situation can help in several ways:
• In a Chapter 7 bankruptcy, lien-stripping may be available. Many people bought their homes using 80/20 financing, and their home values have dropped so much that there is not enough value to secure both loans. By stripping off – removing – the junior lien, you can commit more money to the senior lien and pay off that loan much faster.
• In a Chapter 13 bankruptcy, the trustee works with you to come up with a three or five year repayment plan. Instead of cashing in a 401k to come up with $10,000 or $15,000 up front, you can spread those payments over 36 or 60 months.
You may be behind on payments and faced with foreclosure, but a bankruptcy attorney can offer practical solutions. For a free consultation with a Brevard County bankruptcy attorney committed to helping you preserve your assets, contact our office.