Why Eminent Domain Can't Save Broke Cities Like Richmond, California

As we've mentioned, the city of Richmond, California, recently took the drastic step of voting to use eminent domain to try to rescue underwater homeowners. Under the plan (the city has not yet actually executed it), Richmond would effectively seize mortgages from investors who currently hold them, paying about 80 percent of a home's current market value. A for-profit company working with the city would then restructure the mortgages and sell them back to the current homeowners at a rate they could afford.

The idea has prompted all kinds of criticism (as well as populist praise) far beyond Richmond. Banks cry that they'll have to stop giving credit to cities that show they're willing to seize mortgages. The Federal Housing Finance Agency has wagged its finger. And law professors debate whether all of this is even legal. For outsiders less interested in the housing implications or the legal theory, the story has simply been a compelling one about a hard-luck town forced to rescue its own residents when no one else would help.