The North Las Vegas City Council has rejected a controversial proposal to use eminent domain to help refinance underwater mortgages and instead will wait for the state to weigh in on the legality of the plan.
The council’s unanimous decision at its Wednesday night meeting comes as a significant blow to the hopes of Mortgage Resolution Partners, which has lobbied city decision makers for more than six months to implement a plan it says can help underwater homeowners reduce their principal owed and stabilize the North Las Vegas housing market.
Mayor John Lee said the city doesn’t have the resources to fully vet MRP’s proposal and instead will look to the state for guidance on whether the plan is sound.
“I’d like to see the bigger questions answered so local governments can make decisions based on state law,” Lee said. “Without guidance from the attorney general, everything we might do would be based on what we figured the court system might (allow).”
Lee said several legislators expressed interest in studying the proposal further, something he thinks will benefit the entire state.
“If MRP did pass here they would seek another customer and another customer until eventually, this is a Nevada issue,” he said.
Even if the city had wanted to move forward with MRP, Lee said there isn’t enough money or manpower in the budget to establish and administer the program, a situation that could change in the future.
MRP’s plan, which targets a specific subset of underwater loans held in private label security-backed trusts, would have used private dollars to help homeowners refinance their mortgages and reduce the principal owed, staving off costly foreclosures that can wreak havoc on neighborhoods.
Executing the plan would have required the city to lend its power of eminent domain to facilitate the acquisition, a proposition that raised legal questions and sparked fierce protest from bankers, financial institutes and real estate professionals.
Entrepreneur Byron Georgiou poses at his office in Las Vegas, April 3, 2013. Georgiou and others are working on a plan to help Las Vegas residents with underwater mortgages.
For every successful refinancing, MRP would have received a $4,500 fee and its investors who lent the city the initial capital would receive a return.
The proposal won tentative approval in June when the council voted to enter into an advisory agreement with MRP, allowing the company to begin surveying the local housing market.
North Las Vegas was the sixth and largest city to partner with MRP when it approved the advisory agreement in June, joining California cities Richmond, La Puente, El Monte, San Joaquin and Orange Cove.
Two initial supporters of that plan, former mayor Shari Buck and Robert Eliason, are no longer on the council, replaced by Lee and Isaac Barron, who both opposed the proposal Wednesday night.
In the months since that June approval, federal lawsuits have been filed to stop the plan from being implemented in California and Nevada while the federal housing officials have warned municipalities against using eminent domain to restructure mortgages.