A Solution to the Foreclosure Crisis

Summary

Not since the Great Depression have so many homes been seized in foreclosure proceedings. With no end in sight, our country and local communities are faced with the realization that neither Washington nor Wall Street is willing or able to solve the problem.

National Commonwealth Group has developed a set of solutions that can be initiated at the local level independent of outside help. They begin with actions that just take some political will on the part of local county officials, which "political backbone" they might conveniently find with the help of local citizens action groups, the small business community and local newspapers, TV & radio. 

We have defined a 6 step program that communities can put in motion. The first 4 steps represent largely mitigation efforts that can dramatically reduce the negative impact that foreclosures have on homeowners, their neighbors, the banks and the community as a whole. In some cases those steps will translate into stopping certain foreclosures outright. However, if a community wants to step them entirely, then steps 5 and 6 provide them with the means to do that.

We have detailed those 6 steps in the following downloadable document entitled "Stopping Foreclosures: A Local Action Plan". It is our understanding that not all states and counties in the country, due to local and state laws, would be able to apply these recommendations as is. Nonetheless, a sufficiently large enough segment of the states and their counties could follow these guidelines that they should start to have impact on a large number of communities impacted by the foreclosure problem. We are working with some experts in those states that have a different foundation for how foreclosures are administered to develop an alternate plan for them as well.

In the meantime, we recommend you read the "Stopping Foreclosures: A Local Action Plan" document first and then proceed to read the balance of this section, as it drills deeper into our recommendations contained in Steps 5 & 6.

Steps 5 & 6 entail local governments, in particular counties and larger cities, using two sets of laws that will allow them to seize control of their local foreclosure problem and bring about a halt to the devastation they cause to the community and all participants. The first set of laws related to the eminent domain powers of government bodies and the second set of laws relate to banking. Here is a brief synopsis of those two solutions. It is followed by a more in-depth exploration of the whole topic, including a downloadable .pdf document that can be read offline.

Let us begin with the eminent domain powers of these entities. We recommend this solution be pursued primarily at the county level. Here's why:

Counties are the government entity most concerned with foreclosures in their jurisdiction, in that legal proceedings occur at the county court level and county sheriffs are the law enforcement agency tasked with carrying out evictions. The first step we recommend is that a county issues a moratorium on foreclosures within the county, along with ordering the sheriffs to discontinue any evictions (of homeowners facing foreclosure or those who move back in post foreclosure as currently promoted by Occupy Our Homes et al.). Counties can take such actions under their mandate to promote the public good. 

Next, they can address the problem of MERS, the principal perpetrators of foreclosure actions against homeowners. MERS was established to bypass the normal title transfer process and costs, resulting in purported title holders unable to prove clear title. Few homeowners have the financial resources to fight foreclosures on this basis, but counties clearly have the financial muscle, ability and motivation to challenge MERS on title questions. 

If MERS (or any other purported title holder) cannot prove clear title, then it is in the interests of the county and the homeowner for the county to step in and seize the mortgage contract for the property under its eminent domain authority. (Note - as explained here, eminent domain can be used to not only seize real property, but personal property like contract rights and other intangible property, including mortgage contracts.)

Post seizure (which costs the county virtually nothing), the county is in a position to work out new terms with the homeowner, allowing them to remain in the home and make mutually agreed upon payments. In the process, the county and all other local constituents avoid the negative impact a foreclosure has on the community and the homeowner gets to stay in the home.

The above solution could address about 50% of the pending foreclosures in the community, corresponding to the percentage of all mortgages held by MERS. If that happens in enough counties, the magnitude of the losses to MERS may well force a national solution to the title issue, but in the meantime, counties could use the process to begin to address their local foreclosure problem. That begs the question of what can be done about the mortgages held by legitimate titleholders, such as community banks, that did not resell their mortgages? 

A county could still exercise its eminent domain rights and seize those mortgage contracts to those properties as well. In those circumstances, eminent domain rules dictate that the county need only pay a “fair market” value for the mortgage, just as it does with any other normal eminent domain purchase. This would actually currently yield more income to the selling bank than it would see through a foreclosure auction, a plus for the bank. 

For this solution, download the following article or read it online by beginning with the Next button below. 

Download the full article that explores the eminent domain and county bank solution here:  or click "Next" to continue.