Document Type


Publication Date

Fall 2012


Eminent Domain, Financial Crisis, Foreclosure, Mortgages, Mortgage Crisis


Property Law and Real Estate


Respected real estate analysts forecast that the U.S. is now poised to experience a renewed round of home mortgage foreclosures over the coming six years. Up to eleven million underwater mortgages will be affected. Neither our families, our neighborhoods, nor our state and national economies can bear a resumption of crisis on this order of magnitude.

I argue that ongoing and self-worsening slump in the primary and secondary mortgage markets is rooted in a host of recursive collective action challenges structurally akin to those that brought on the real estate bubble and bust in the first place. Collective action problems of this sort require duly authorized collective agents for their solution. At present, the optimally situated such agents for purposes of mortgage market clearing are municipal governments exercising their traditional eminent domain authority. What is required, in short, is a manner of “inverse Kelo” action, pursuant to which eminent domain authority is exercised in order to keep people in their homes rather than to eject them.

I sketch a plan pursuant to which municipalities, in partnership with investors, can condemn underwater mortgage notes, pay mortgagees fair market value for the same, and systematically write down principal for mortgagors. Because in so doing they will be doing what parties themselves would do voluntarily were they not challenged by structural impediments to collective action, municipalities acting on this plan will be rendering all parties better off. They will also be leading the urgently needed project of eliminating debt overhang nationwide and thereby at last ending our ongoing debt deflation.

Publication Citation

Published in: Stanford Journal of Law Business & Finance, vol. 18, no. 1 (Fall 2012).