The ad is brightly colored and scary: Dark, cartoonish vultures circle above a typical Las Vegas-area subdivision, helpfully identified as “Nevada — The Silver State” by a beaten-up sign. A grim voice warns that a California company has hatched a plan to foreclose on homeowners, seizing their property. The birds swoop in on a house as the frightened homeowner looks out through her blinds.
“It sounds unbelievable, but its [sic] true,” warns the website of the political action committee behind the ad.
The evil California company, “a politically connected venture capital firm,” is talking to elected officials “about using eminent domain to seize and foreclose on homes even in cases where homeowners are current on mortgage payments.”
Sounds ominous, all right.
Not mentioned in the television spot or on the website, however, is that the program is designed to keep homeowners in their homes, not foreclose on them. Under the proposal, the company in question, Mortage Resolution Partners, would work with North Las Vegas to use the government’s power of eminent domain to seize the mortgages — not the houses and property, but the note itself. The city and MRP would then offer a much lower, new mortgage to the homeowner.
The idea is that this would lead to decreased monthly mortgage payments and provide relief to North Las Vegas homeowners who owe more on their houses than they are worth — the classic “underwater” homes that comprise about two-thirds of the Las Vegas valley residential housing stock. The proposal is now being considered by the North Las Vegas City Council.
Mortgage Resolution Partners, however, has sparked bitter and coordinated opposition from financiers and real-estate companies, particularly professional Realtors, who see MRP’s plan to acquire — seize, if you prefer the stronger language — the mortgage notes now held by banks as an unconstitutional power grab.
Sean Fellows is the government affairs director for the Greater Las Vegas Association of Realtors. He says that the MRP program, would be a bad deal for Southern Nevada — “a misguided scheme that undermines private property rights and will have a chilling effect on mortgage lending.”
The commercial, which has been in moderate rotation on local airwaves, makes it seem as though homeowners will have their homes confiscated against their will. But, in looking at the program, it would take a rather unlikely sequence of events for that to happen.
First, the homeowner — who, under the MRP program, must be current in his existing mortgage payments — has to willingly engage MRP and the city. Then, the homeowner, for whatever reason, would not be able to meet the new, lower payment, and then the city (or whomever bought the note from the city) would foreclose the property. At that point the homeowner would lose his house — but, of course, if the homeowner couldn’t meet MRP’s lower payment, he wouldn’t be able to make the higher payment he’d have without MRP, so it could be foreclosure either way.
That’s a number of “what ifs,” and the spector of outside companies swooping down and grabbing property without an owners permission “is sheer falsehood,” says Byron Georgiou, an MRP investor and director, lawyer and former Democratic candidate for U.S. Senate from Nevada.
“It’s just a disinformation campaign,” Georgiou says. “It’s a deliberate effort to scare people and scare elected officials. Our program is intended to, and has the primary purpose of, keeping people in their homes by reducing the principal on their homes to something approaching market value. … Our program has nothing to do with taking homes. No person would be obligated to participate in the program, no person would be worse off than they were before participating.”
The North Las Vegas City Council was slated to consider working with MRP at its regular council meeting this week. Whatever the council decides could well have implications for underwater homeowners throughout the Las Vegas Valley — and around the country. MRP is in talks with a half-dozen California towns; municipalities from as far away as New Jersey have expressed interest.
Homeowners could cut a third or more from their home payments. The program could help out an estimated 5,000 homeowners in North Las Vegas alone who are underwater but still current on their mortgage payments. MRP would make a flat fee of $4,500 for each home processed through eminent domain, for more than $20 million.
The proposal has already generated one federal lawsuit from a North Las Vegas Realtor who opposes the MRP plan. If it is passed, there could be more legal trouble.
Fellows, with the Las Vegas Realtors, says MRP’s program isn’t needed, because while there are still many underwater homeowners, including himself, the problem is disappearing as homes go through double-digit value increases valley-wide, including in North Las Vegas. He notes that there are at least 16 federal, state and local programs, public and private, to help underwater homeowners, so the MRP program is not needed, particularly while housing values are rising.
Fellows is trying — as of last week, unsuccessfully — to get the legal opinions from experts hired by the city for the benefit of the council, but he says the “MRP scheme” “raises serious constitutional concerns.”
It is particularly difficult for local governments in Nevada to use eminent domain to acquire property since voters passed a popular constitutional amendment in 2008. The same People’s Initiative to Stop the Taking of Our Land also may (the issue has not apparently been tested in court) require the government to pay for the legal work on both sides of the issue.
Fellows notes that North Las Vegas, which has been teetering on the brink of bankruptcy for years, doesn’t need more financial uncertainty.
The Realtors, of course, make money when a bank forecloses on a house and the house is resold. But Fellows says that’s not why the Realtors here and nationwide oppose the MRP plan.
“It’s about protecting private property rights, both buyers and sellers,” he says. “Like any other small business, Realtors have a business model. But you want stable neighborhoods, you want investment.” Fellows believes that if the program goes through, it will chase away lenders, and that would have a chilling impact on the real-estate market.
Wade Wagner, a North Las Vegas councilman, says he agrees with the Realtors. He has since MRP first approached the city earlier this year.
“I’m the one who has been opposed to it from the beginning,” says Wagner, who was on the losing side of a 4-1 vote to study the proposal. “I do not feel it is the proper use of eminent domain.”
Wagner says that the program, as described in the proposal, wouldn’t help people who are already in default. And it is “not government’s responsibility to fix every problem that we have,” he adds.
“You feel bad for people who are hurting, but this is not the way to go about it,” he says. “This is just another headache we do not need in North Las Vegas.”