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April 28, 2015

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North Las Vegas moves ahead with controversial rescue of underwater homes


Steve Marcus

A vacant HUD home is shown in North Las Vegas April 2, 2013. A neighbor said that it has been vacant for about two years. (1524 Gaber Court, North Las Vegas)

Updated Wednesday, June 19, 2013 | 11:30 p.m.

North Las Vegas is moving forward with a controversial plan to partner with a private company and use the city’s power of eminent domain to help underwater homeowners refinance their mortgages.

The city council voted 4-1 Wednesday night to enter into an advisory services agreement with Mortgage Resolution Partners, the company pitching the plan.

The agreement gives the company permission to begin surveying the North Las Vegas housing market for mortgages that would be eligible for refinancing under its program. The company will have 60 days to develop a program to help these homeowners before it must report back to the city council.

Another affirmative vote would be required by the council before any mortgages were acquired using eminent domain.

The agreement signed Wednesday is terminable at any time by the city and also requires MRP to provide a detailed explanation of the potential costs and risks to the city if it chooses to implement the program.

While MRP is inventorying the market, city staff will also be doing their due diligence, including soliciting an outside legal review of the program and looking into what aid is already available to underwater homeowners through state, federal and nonprofit housing assistance programs.

North Las Vegas is the sixth and largest city to pursue MRP’s plan, which calls for the company’s private investors to purchase a specific subset of underwater home mortgages that are held in mortgage-backed securities. The mortgages would be bought at market value significantly below their initial value and then refinanced back to the original homeowner with a lower principal.

North Las Vegas would serve as the middleman in the process, using its power of eminent domain to seize the mortgages from trusts that own the mortgage-backed securities. Once the mortgage is refinanced and sold again, the city would receive a fee of several thousand dollars for its troubles.

Investors in Mortgage Resolution Partners would see a return on their investment whenever a home is refinanced and the company itself would receive a flat $4,500 per transaction fee.

Wednesday’s meeting was a culmination of months of lobbying on the issue, which has drawn fierce opposition from the real estate and banking industries.

Over the course of more than an hour, a stream of residents, Realtors and bankers repeated the litany of criticisms that have been lobbed at the program over the past months, including that it would destabilize the housing market and expose the city to expensive litigation. Concerns were also raised about the use of eminent domain to benefit a private party.

“The issue of eminent domain is one of those rights that we fundamentally are concerned about. If something is actually taken for public use and for the benefit of the public, that’s certainly a potential use,” said Nelson Janes, CEO of the Greater Las Vegas Association of Realtors. “It should not be an action that could benefit individuals and perhaps not benefit those from whom the property is being taken.”

Others spoke out in favor of the program, including several underwater homeowners nearing desperation after several failed attempts to modify their mortgages and representatives from the local chapters of the Culinary Union and the Service Employees International Union.

Council members have spent dozens of hours at this point studying MRP’s proposal. On Wednesday, they made repeated mention of “unanswered questions” about the program, but signaled a willingness to continue forward.

Although there are many state and federal programs that aid underwater homeowners, Councilwoman Anita Wood said it’s not clear that those are having the needed impact.

“If all these options are working so well than why are all these people still suffering?” she said. “We have got to come up with some programs that work for our residents. Refinancing and getting out from an underwater home (mortgage) in this economy should not take years and should not be so difficult.”

Woods voted in favor of the agreement with MRP, but laid out several questions she wants answered when they return in two months, including what happens in the case of second mortgages on a home, can residents be pre-qualified for the program and how the value of a mortgage would be calculated for eminent domain purposes.

Councilman Wade Wagner cast the lone vote against the agreement, citing deep concerns about the way eminent domain would be used in the process.

“We’ve heard a lot of testimony over the past few months on this issue. There’s a lot of emotion and thought that’s been tied up into this,” he said. “To me it comes down to the eminent domain laws ... In my opinion this is not for the public use, it’s not for the good of the residents of North Las Vegas.”

Wagner worried that the city would need to create a new division to oversee the program’s implementation and that there was no hard guarantee that a homeowner would get to stay in their house after the refinancing.

“I think the only thing it really guarantees is we’ll be tied up in a lot of litigation for a lot of years,” he said.

Although Wednesday’s victory provided a bit of momentum for MRP, the company will face a reshuffled city council when they report back in August after the recently elected John Lee and Isaac Barron replace Mayor Shari Buck and Councilman Robert Eliason, respectively. Both Buck and Eliason voted in favor of MRP in their final meeting on the council.

Byron Georgiou, one of the Nevada representatives for MRP, a group that also includes developer Michael Saltman and Danny Greenspun, a member of the family that owns the Las Vegas Sun, said the company will spend the next two months addressing all the concerns raised by the council and incorporating them into the program that’s presented in August.

“It’s a first step but it’s an important step,” Georgiou said after Wednesday’s meeting. “I congratulate the council members on their courage in taking a step that was necessary on behalf of their citizens who have been struggling so mightily during this recession."

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  1. North Las Vegas is now the last place on Earth any one will buy a home.

    Congratulations city council, you're about to flat line your own city.

  2. justfacts2013 - who's paying you to post these comments?

    4. MRP has agreed to finance any Legal defense that may be incurred by the City. (No Risk to the City)

    ^^ You might want to look in to this more. This company has been signed in five cities in California, and not a single one has had a home go through with this questionable scheme. Where exactly will they get the money for years of litigation? And how can we ensure the company wont shudder it's doors and file bankruptcy?

    This is not the answer.

  3. Wasn't there an article on this site only a few days ago about some poor couple in Henderson being prosecuted for doing exactly what this proposal proposes to do?

    What is the difference if you allow an investor to buy if the intent is that you will get your property back at market value - as opposed to simply doing it with out the middle man involved - the middleman being NLV and this company who will reap benefits?

    It really is a crazy hypocritical system. Always shafting the people for these "investors" and Gov't hogging the people's money.

    This is just insulting! Slap in the face of homeowners.

  4. I have to agree with another commenter. I find it suspicious that people who join the day of a story and only comment on it strongly in one view point aren't affiliated with a group that would benefit for from this merger going forward.

    justfacts2013 - Do you live in the Las Vegas valley? Will you or anyone you know financially benefit from MRP being allowed to work their scheme here?

    No wonder the city of North Las Vegas is in such a mess. Incompetent leaders fall for major housing scam. No one in their right mind will ever buy in NLV again.

  5. justfacts2013 - Seizing property by use of eminent domain doesn't constitute a foreclosure. Those are two different things. Please make sure you're not mislead by improper use of realty terms.

    If you are a home owner in North Las Vegas, have you gone through the proper channels and already existing programs to refinance your home? If you're not interested in going through a refinance process, have you considered a short sale? These are real life choices and consequences when owning a home regardless of the realty market.

    Have you considered where you would live if your home were seized through eminent domain? Do you understand that once your home is seized through eminent domain, you have no claim to it, and can be forced off of the property?

    Why do you think that this company or the city would have to sell this parcel of land back to you, at a lower dollar amount than what you already owe ? What if you do not agree to the terms set forth in a pending contact with the company? What if they have no safeguard against interest rates leading to loan sharking, and and eventual foreclosure of the home?

    What makes you think this company will be any different than current lenders?

    When you read that there are backed financing but no names are given, do you wonder where this monopoly money is coming from?

    Think about it.

    'If it doesn't make sense, it's not true.'
    -Judge Judy Sheindlin

    If you own a home in North Las Vegas, and are stupid enough to think that this get out of from under quick scheme will work, then perhaps you deserve the b-s that will ensue if it goes through.

  6. Does everyone realize that the picture showing the home that has reportedly been vacant for the past two years is owned by the US Federal Government?

    Why not go and try to fix where the real problem is - the vacant properties. Homes that are sitting vacant awaiting foreclosure and are sitting vacant. If they are vacant, then the homeowner apparently has walked away from the home and gave it back to the bank. Get these homes back on the market, get them sold and taken care of.

    Let the market recover and get the Government out of the way and stop the manipulation that has been occurring that distorts the housing market.

  7. Amen Retired_Army!

    Bill 284 has caused more havoc than good in our market. And now banks are figuring out ways around it. The market will more than likely take another bubble burst with the rapid inflation due to bottle necking in the market because of B284 litigation.

    What a housing market hail storm! Adding RPM to the mix would just further distort the market.

    And let's cross our fingers and hope so lvdefault!

  8. Hey everybody--I have read all your comments.

    It does not appear that any of you truly understands what's really going to happen in North Las Vegas.

    One of you seems to believe that NLV houses will be taken by eminent domain. Maybe all of you believe that. It's not really possible to tell,because most of the comments are unclear. Just saying...

    Before you are "for' or 'against' something you you should really understand it. It appears from your comments that either you did not read the article,or if you did that you truly did not understand it,or decided to ignore what it said.

    You are the ones that the misleading and untrue ads and fliers issued by the Greater Las Vegas Real Estate Association are aimed at.

    These ads target the people out there who prefer not to read,think or understand the facts. Do yourself a favor--get acquainted with what this unique type of eminent domain really is--then make up your mind.

    This concept is the brainchild of Robert Hockett,Professor of Law at Conell University.

    His idea is to allow municipalites to broker the buy out of existing underwater mortgages called Private Label Securitization Loans. These loans are owned by securitization trusts. These loans are like cobwebs with tons of spiders(investors),who can't talk to one another,so they can never reach an agreement on anything,much less reducing the principal on an underwater loan, even if it is in their interests to do it, so as to avoid a default and all the related expenses.

    So what happens is that this inflated loan remains in effect,and the homeowner has no one to talk with about modifying it. At some point the homeowner decides to default,and walks. The loan then becomes worth the market value of the
    now vacant home,and the investor trust writes down the asset value of the investment on their books to match the home's market value. At this point the homeowner is gone and house is vacant(that is unless the homeless have moved in).

  9. Continued........

    Along comes Professor Hockett's unique type of eminent domain. When this happens the City,but only with the homeowner's consent, uses funds from another private investor to buyout the old cobweb investor trust's underwater loan for fair market value,and gives the homeowner a new loan in which the principal is lowered from the inflated amount of the underwater mortgage to the fair market value of the home. Under this use of eminent domain,the homeowner remains in his home. The previous cobweb investment trust is now out of the way,having been paid the current market value of the home. As you can see the only difference between the to alternatives is that under eminent domain that there is no default,the homeowner stays put, no vacancy occurs,the neighborhood remains stabilized,the homeowner has a loan he can afford, and the old cobweb investor trust receives a payment roughly equivalent to the market value of the home.

    What should be noted here is that is that the home has not been taken by the City. What has been "taken" is the old cobweb investor loan in exchange for just compensation(i.e.the current market value of the home).

    One thing is missing in this equation. Where does the the "public purpose" come into play? Under Hockett's eminent domain concept,the public pupose is the public benefit that is created by the removal/avoidance of blight, the avoidance of vacant homes in neighborhoods,the presevation of neighborhoods,reduction in crime that accompanies vacant homes in decimated neighborhoods,the increase in local tax revenues and the improvement in community amenities and aesthetics--to name a few.

    When you look at eminent domain in this novel light,it makes more sense. Under the prposed use of eminent domain in North Las Vegas,there are bound to be legal challenges,and court appearances. The fact that there is no legal precedent for the use of eminent domain in this exact way means that there are no case law anchors to latch onto to help decide the legal issues that will arise. These are risks against which the potential rewards must be weighed.

  10. @Justfacts2013:

    Before commenting I had not read your post.
    Thanks for stating the ED usage so clearly.
    I also live in North Las Vegas. I do not have
    a Private Label Securitization Loan. Therefore, no personal financial stake in this plan.

    I have attended sevaral meetings now. I have listened to the vaious interests involved--

    Homeowners who are in need of relief.

    Bankers and GLVAR


    I have been disappointed in the bankers and GLVAR. They have shown no interest in furnishing relief to residents who are suffering from the housing crisis.Neither are they concerned,based on their comments,about the condition of NLV neighborhoods,and the surrounding City.
    The fliers and ads distributed by GLVAR are false and misleading. Their "Occupy Eminent Domain" tactics are pretty disgusting.I am interested in seeing how the next 60 days develops. Basically I am rooting for ED,MRP and the City Council to succeed. But above all I want Council to do the right thing in the end.There will be legal challenges for certain. The absense of any legal precedent for the type of ED makes the pathway somewhat uncertain. But this is an innovative new concept that deserves a fair hearing. An independent legal opinion has been ordered by Council. That must be studied carefully. And common sense and good judgement will be required along with as many facts that can be gathered.
    Just because there may be uncertainty is no reason
    to negate this plan. Americans have always been willing to take bold steps and take risks on new ideas that offer promise. I don't see this plan as being any different.

  11. justfacts2013 - Eminent domain takes the property from the owner, and in traditional use does not give it back. What you're reiterating is pie in the sky, which will be much different in practice. If you feel so comfortable with this scheme perhaps you could volunteer your home for the first run of private sector use of eminent domain for monetary gain of a private company, and private person...hmm, doesn't sound like that really falls under eminent domain? Because it doesn't.

    Use of eminent domain to avoid blight.....really? Is this the best thing you can come up with.

    If people are in their home and not keeping it up to standards that would make an HOA happy, and the local governance doesn't require they maintain any standard, it's their right to let it blight. Sad, but true. However, this wouldn't be a reason to use eminent domain.

    Why would our local government not try to fix the systems it has in place for homeowners that protect and help them, and instead do this?

    You want my answer to how to fix this mess? Let the market recover, it is right now. It is slowly recovering. Hold the banks accountable, example B284, the state needs to make B284 work more smoothly, give banks time lines, hold them to deadlines, dont allow foreclosures to sit in wait for years, give it a time line.

    Unfortunately if someone takes out a loan no matter the reason, if they dont pay they go in to default and there are ramifications for doing so. Americans have to learn how to deal with that. Our spending got out of control, our prices got out of control, and the bubble burst. Deal with it. But in the mean time, dont be taken advantage of or allow private business to run things through government.

    If this program is so effective, and this business so great, they should be able to figure out a way to operate without the government forcing the hands of so many things for them to do a business transaction. Government is not a for profit business. It's an operator. The lines are being blurred.

  12. @AshleyAshley]

    I believe in the market. Alway have, always will. There is an old saying in economics "that we are all dead in the long run". This instructs that the short term is where our major focus should be. We have to survive first! In the market melt down we have been struggling with,it does not mean anything to an owner who is no longer able to make his payments that "the market is improving". Who really cares-- when his oxygen has been shut off,he needs some now,not later. Same for the underwater homeowner--the recovery is very slow--people need help now, North Las Vegas is at Ground Zero in this crisis. Property values plummeted by over 60%. The recovery is not only slow, most of us lost substantial down payments that we will never recover in our life times.Let's get realisiic. People need help now. Personally,I do not have a private label securitized loan. I have nothing to personally gain by this plan--other than to see my friends and neighbors remain in their houses,restoring my neighborhood, decreasing the crime from breakins to vacant homes,and stabilizing my local environment. It seems like you may be disconnected from the reality of this crisis--"we are all dead in the long run",focus on the immediate to survive!

  13. @LilJoe

    Thank you for posting this additional information. I am just reposting your links so they are still available after the untrusted comments expire for this story.

  14. @Houstonjack - I dont want our comments to become an argument, or personal attack, but I have to ask, at the time you bought the home - did you feel that you were paying a fair value, and did you think the amount you put down as an initial down payment was fair and in your best interest?

    At the time you were looking at the short term and - I would think, like most home owners, you believed home buying to be a good investment.

    Have you spoken to a financial adviser who is willing to give you advice from a third party perspective, baring they have no profit from your situation?

    I'm not a relator, but I am a home owner, and tax payer, and would wager that people who are truly distressed homeowners may feel desperate, and think this eminent domain idea is good. But, if it's so good, why not refinance through MRP without the use of eminent domain?

    I really think the results of allowing eminent domain to regain control of a property then resell to the same person under a different company is unwise and not government business. It's private business and lending.

    Looking at the short term future if MRP is allowed to go through with this, I dont believe banks and lenders will be warm to lend in NLV anymore. I think it will become increasingly difficult for people to purchase homes in NLV unless they can put down cash, which often comes from out of state and town investors who become long distance landlords. You'll have a town of renters, with absentee landlords, and locals with no way to put down for a home.

    So, are you really saved as a home owner by this situation? Not necessarily. If anything I think more people will want to live in other parts of the valley like Henderson and Summerlin, which are newer, more desirable, less crime ridden areas.

    I think this will hurt NLV long and short term. I also beg an answer, that if 5 cities in California have adopted MRP as a business, why have no homes gone through the MRP process there? Why not wait and see how it goes there before we let it go through here? I dont think the results will be pretty long or short term.

  15. AshleyAshley

    When I bought my home in 2005, I was assured in my mind that the price was a fair market value. Hind sight is always perfect. There are no bugs on the rear view mirror.

    America collapsed almost overnight. So here we are. Now,this eminent domain concept is not without its risks--I have been upfront about that--but a focus on the here and now is what is important.

    You feel more comfortable if the guys in California go first. No good ideas would ever be capitalized on if everybody decided to wait until the other guy went first. It is up to us to decide if this is an idea worth doing. Read the Hockett paper. It wasn't until then that I understood the concept. After reading it,I had one lingering thought--will this concept work in practice?

    My one and only question to MRP at their presentation was--"Is there any legal precedent for this exact use of eminent domain?" The final answer was "no". Being a corporate business guy who worked hand in glove with legal issues and attorneys for over 40 years,I knew that legal precedent is important--courts look to prior case law in deciding current cases--in this case there are no perfect or near perfect fits--we would be venturing into virgin turf to an extent.

    At the last City Council meeting when I addressed the Council on this matter, one of my recommendations was that the City Council obtain two independent legal opinions from law firms who are deeply experienced in eminent domain cases and law. Then read these opinions carefully,weigh their advice, and then using your own best judgement decide what is in the City's best interests. Happily one of the final motions by Mayor Buck was that the City secure an indeopendent legal opinion on the use of this concept as proposed by MRP.

    One thing I know,America would never have become the great nation it is if Americans did not step out and take risks. That's what we do best,or at least we used to.

    Lastly, I still think from what you stated that you think that this plan calls for the taking of private real estate(i.e.the house)> That is not what happens at all. The City,with the homeowner's prior approval, buys out the former private label securitized loan,and replaces it with a new and reduced loan for an amount slightly less than the market value of the house.

  16. This letter, published in the WSJ, addresses the public benefit aspects of the eminent domain plan for North Las Vegas.

  17. Robert Hockett of Cornell University describes in detail the use of eminent domain in rsscuing underwater Private Label Securitization Loans.

  18. Houstanjac, I'm sorry to hear, that from what you say, your home is upside. I also find it admirable that you're open to new options which bare legal questions not yet answered. However, if this does not go through and no homes are put through the process which MRP has proposed, what is your plan of action for your own situation?

    It's easy to say that American's have forged new frontiers and tried new things. It's also honest to say that we've tightened our belt straps before and gotten back to work at making our selves and our country better than before through work. Work isn't always an easy fix, it's work. So, if MRP is unsuccessful in seizing property in this fashion, what is your plan of action for your home?

    And to address the fact that homes are being seized by eminent domain, you have to know that eminent domain, in it's most basic use is the taking of land by the government. Taking that land does not insure how it will be used, or to whom it will be sold to again in the future.

    Here's an example. What if the city of NLV seizes your home as eminent domain. At this point you no longer own it. MRP is given the property to resell back to you as a lending instituition, but they go belly up - remember, they claim to only make 4500 off the refinance of your home - and if your home is the only one to go through, they might not be able to make payroll, pay for insurance, liability, and legal fees surrounding them. They go belly up, and all of a sudden the city still owns your home as part of eminent domain. Is this city now responsible to find a lender to finance the resale of your home back to you? Or will the city become a bank? Last news article I read, the city of NLV was upside down on their budget. I wouldn't exactly trust the financial minds of NLV as my bankers. But, to each their own. And at this point, you no longer own the home. If you still live there, you may be considered a squatter and removed. Hope you dont get tased.

    I know, it might all work out perfectly. But, do you really think that one company will slowly take this city out of it's financial depression in the housing market? I dont. I think a lot of home owners with upside down homes, if they are unable to afford it should refinance, or short sale their home. I think if you asked a real estate professional you'd get similar advice.