From the New Jersey Spotlight 

 | SEPTEMBER 25, 2014

Leaders in both municipalities address economic, public health and crime, but take different approaches on foreclosures and eminent domain

Tony Vauss
Irvington Mayor Tony Vauss

Two energetic new mayors are facing similar housing, economic development and social issues in their neighboring communities of Irvington and Newark – and their responses are also frequently similar.

Ras Baraka in Newark and Tony Vauss in Irvington are each focused on basic issues related to public health and safety -- combating crime while cleaning up trashed lots and abandoned buildings. But they also have their eyes on the larger issues of building morale in their communities and connecting with people in their neighborhoods.

But on one issue that has brought the municipalities national attention -- whether to help residents with troubled mortgages keep their homes -- Baraka and Vauss are heading in opposite directions.

As the national economy continues to rebuild in the wake of the Great Recession, foreclosures have steadily declined in most housing markets. In New Jersey, tough, new foreclosure cases continue to flood the courts, with more than 36,000 so far this year.

Baraka promised to have a “very aggressive” program in place by the beginning of next year to stem the tide of foreclosures and the resulting vacant buildings plaguing the city.

“We’re going to employ eminent domain to take mortgages from the banks if necessary,” as part of a strategy to pressure banks to work with local borrowers to keep their homes, Baraka said.

Eminent domain allows governments to acquire property, even from unwilling sellers, for a “public purpose” such as road widening or school construction. But courts have allowed its use for a wide variety of private interests, such as shopping malls, arenas or casinos.

In recent years, some legal scholars and housing activists have proposed using it to take “underwater” mortgages – mortgages with higher debt than the actual value of the property -- from lenders, then offer the borrowers better deals to allow them to keep their homes.

“I don’t know that it will eradicate the problem, but we want to slow down more foreclosures,” Baraka said.

Just uphill from Newark, in Irvington, the Township Council was poised to take a similar step in May, but held off after Vauss’s sweeping election victory over a field that included three-term Mayor Wayne Smith.

“I really don’t like talking about eminent domain,” Vauss said. “It’s such a hot-button issue for so many people.”

“With eminent domain, a lot of people are under the illusion that the municipality will do something so they can keep their home and not pay the mortgage,” he said.

Instead, Vauss hopes to convince private developers that the township is ready to do business, by packaging properties already taken for nonpayment of taxes into “redevelopment areas.”

Opposed by bankers

The financial industry opposes the use of eminent domain to help borrowers, and has countered with threats of lawsuits or “red-lining” -- refusing to lend to residents or businesses in participating communities. The clamor has prevented any town but Richmond, CA, from endorsing the concept, and even there the council lacks the super-majority of “yes” votes needed to put it into action.

Before the municipal elections in May, though, the Irvington council voted 6-1 to give the Smith administration the go-ahead to write a redevelopment ordinance that included the use of eminent domain as a strategy to reduce the number of underwater mortgages and homes in foreclosure.

Only outgoing Councilwoman Lebby Jones, who stands to become an Essex County freeholder, voted against the plan, giving the befuddling explanation that “once you’re in foreclosure, there’s nothing you can do.”

After the election, though, the council voted 4-2 to hold the measure for further review. The key switched vote was by retiring council President D. Bilal Beasley. He is also stepping down from his Essex County freeholder seat in favor of long-time ally Jones, but not before engineering Vauss’s local victory.

While housing activists and some residents argued vociferously in favor of anti-foreclosure action, “not everyone was persuaded,” Beasley said. “Notably me.”

Locals credited lobbying by a trade group, the Securities Industry and Financial Markets Association, whose talks with Smith had not gone well, as well as a misleading election-eve mailer from the New Jersey Association of Realtors, for raising doubts about the eminent domain concept.

But the municipal elections also highlighted fault lines within the Democratic Party. Smith lost the support of Beasley and other stalwarts after a quixotic bid for the 10th Congressional District seat in 2012, easily won by Donald Payne Jr. with the backing of the powerful county organization.

In Newark, Baraka took on the same party machinery to beat a candidate whose candidacy was also fueled by extraordinary financial support from Wall Street “school reform” interests. As a result, Baraka owes little to the lenders behind the latest wave of foreclosures.

On the same night that the Irvington council stalled eminent domain and abruptly adjourned amid jeers from the audience, the Newark council, without comment, routinely approved Baraka’s move to add it to the city’s redevelopment plan.

The action in Irvington “could have been worse,” said Udi Ofer, executive director of the state chapter of the American Civil Liberties Union, which has provided legal aid to Richmond and Irvington. The routine process questions raised by council members could be addressed if the township really does review them, he said.

“But it’s a shame because Irvington had a chance to become the national leader, people around the country were watching them,” Ofer said, “and now the attention will inevitably shift to Newark.”

Some of the questions raised by the Irvington council -- such as how to calculate tax values for properties undergoing foreclosure-related redevelopment -- already are being addressed in real-estate deals in Newark.

“It’s puzzling that they would still be asking those questions when there is actually a significant market in distressed mortgages,” said Linda Fisher, a Seton Hall University law professor who studies local foreclosures. “There are a number of hedge funds who specialize in them, and have established formulas for exactly those situations.”

Pilot projects in Newark

Nonprofit groups are trying similar measures, such as one already in progress in Newark. In March, the city contracted to acquire 156 abandoned properties with the nonprofit Community Asset Preservation Corp. for redevelopment as rental and for-sale units.

The units are concentrated in four neighborhoods hit hard by the foreclosure crisis: Lower Broadway, Fairmount Heights, Upper Clinton Hill and Lower Ferry. Some of those areas were stable before the housing bubble burst, but since then all have seen high rates of vacant buildings and the attendant increase in social problems, said Jeff Crum, CAPC’s real estate director.

“Some of those homes may have been bought at the height of the real-estate bubble,” a time of inflated values and often interest rates, he said. The nonprofit is in the process of restoring the homes and returning them to the market at reasonable prices, Crum said.

Beyond keeping Newark families in the city, CAPC also is looking to restore the neighborhoods by providing space for stores and small businesses, according to Crum. The repair and renovation program itself should provide at least a modest boost, since at least 40 percent of the contracts will go to Newark companies, he said.

Stabilizing blocks is a cost-effective way “to give a fresh start to underserved neighborhoods in Newark, keeping more community residents in their homes and revitalizing vacant properties,” said Wayne Meyer, president of New Jersey Community Capital, CPAC’s nonprofit parent.

Like other New Jersey communities, though, Essex County is still suffering the effects of mortgages purchased before the housing bubble burst. Those deals were often based on unrealistically inflated values, and sometimes on erroneous or fraudulent applications, and at unsustainable interest rates.

This spring, researchers for Living Cities, which encourages investment in low-income communities, charted Newark’s real-estate roller-coaster. At the turn of the century, prices for one- to four-bedroom homes in the city averaged about $118,000. By 2006, at the apex of the bubble, the average price had soared to $307,000, according to the report.

By 2012, in the aftermath of the collapse, the average price was back at $125,000, according to the report, which included researchers from Rutgers University, New Jersey Community Capital and the Center for Community Progress.

In response, Baraka has proposed an “HED” strategy, linking housing to economic development. The idea is to distribute housing, business and job opportunities more widely, while enabling the city government’s real-estate, economic development and related programs to work together instead of remaining in their own self-contained “silos,” the mayor said.

“Connecting housing with economic development is something that previous administrations haven’t really tried,” said Richard Cammarieri, a Baraka advisor and director of community projects at New Community Corp. “Some have certainly pushed economic development, but as an end in itself, and often with a focus on the downtown rather than citywide.”

“I don’t think many people realize that there are still more than 300 small manufacturing firms throughout Newark,” Cammarieri said. “We need to find ways to support local businesses.”

Results still uncertain

While there are signs of life in the city’s downtown housing market, the large projects in the pipeline are being supported by government incentives such as tax abatements while not necessarily priced for current local residents, Cammarieri said.

“They manage to move quickly, and obtain significant assistance, leaving some of the rest of us to wonder exactly how that happens,” he said.

Even a project like Teacher’s Village -- a $150 million complex around Halsey Street to include three charter schools as well as stores - does not really address the city’s most pressing housing needs, Cammarieri said. Its apartments, pre-marketed to teachers, are priced “more for people with union jobs,” steady incomes and benefits, he said.

“I don’t know that they’re going to be able to fill that whole complex with the people they thought they were going to attract,” Baraka said, adding he hopes the subsidized projects encourage other development.

Newark officials said the administration would draft neighborhood revitalization plans for five commercial corridors: Clinton Avenue, Ferry Street, Lower Broadway, Mt. Prospect Avenue, and South Orange Avenue. Efforts will be made to promote business and industry clusters in these areas, as well as support community-oriented projects, Baraka said, encouraging residents to chime in with suggestions.

As one of his first steps after taking office in Irvington, Vauss marshaled public works employees to remove trash from abandoned properties and public areas being used as unofficial dumps. In September, he launched phase two, identifying owners of derelict properties and ordering them to take corrective measures.

“If your property is not presentable, you will be given notice to clean it up,” Vauss said. “If you don’t, then we will issue a summons against the property owner, take them to court, place a lien against their property.”

Vauss also has an initial target area for new housing: badly blighted blocks of 21st and 22nd Streets. The mayor said his administration will move quickly to put together a two-year redevelopment program, packaging as many as 100 properties already acquired by the township, mainly for nonpayment of taxes.

“It’s incumbent upon as to get more ratable properties back on the tax rolls,” Vauss said, adding that he might entertain tax abatements for large-scale development, “but not if it’s just one or two homes.”

Turning around such a troubled neighborhood would be a plus in itself, but also could change attitudes about the township, according to Vauss.

He envisions “gated communities” with limited access, similar to the cul-de-sacs that Baraka suggests for some new development in Newark. Vauss hopes to appeal to newcomers being priced out of Brooklyn and Hoboken, adding “clean and safe streets” are a key part of that package.

Whether that helps current residents struggling to keep their homes depends on their individual circumstances, the mayor said. The turnaround will take time, but could eventually improve housing values throughout Irvington, he said.

“Some of the people who are able to stay here and ride it out will see the benefits,” Vauss said.



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In the news: SF considers plan to use eminent domain to lower mortgages

From the San Francisco Examiner

San Francisco may become the first city to partner with nearby Richmond on a groundbreaking program that would use eminent domain to lower home mortgages.

Richmond was one of the hardest-hit cities in the Bay Area by the foreclosure crisis, but San Francisco has also felt the impacts with thousands of homeowners continuing to live with financial insecurity saddled by mortgage costs that could displace them.

Richmond Mayor Gayle McLaughlin is championing a program that would empower cities to use eminent domain power to seize underwater mortgages, which have a higher balance than the value of the home, from financial institutions and refinance them for the homeowner. While financial institutions have sued and criticized the effort, McLaughlin is asking cities like San Francisco to form a joint powers agreement to make the program a reality.

The Board of Supervisors will vote Tuesday on whether to authorize negotiations to enter into the agreement under a proposal introduced by Supervisor John Avalos. To actually join would require a subsequent vote. The proposal was approved Wednesday by the board's budget committee.

"The issue of distressed mortgages is real in San Francisco," Avalos said. "Data shows that there are hundreds of homes at risk right now and there are thousands more potentially at risk in the next few years. There is currently no tool available to really help these homeowners."

Avalos currently has the support of supervisors David Campos, Jane Kim and Eric Mar. Approval would require at least six votes.

Mayor Ed Lee's administration opposed the proposal Wednesday, raising concerns about impacts to The City's borrowing interest rates.

"It is the same banks that you are going after that are buying your bonds," said Nadia Sesay, director of public finance. "They could respond by higher interest rates. But we don't know what that impact will be."

Olson Lee, director of the Mayor's Office of Housing, noted San Francisco has long enjoyed favorable interest rates, but a consequence of the eminent domain initiative could be "either we lose access to the borrowing or we actually just pay more to accomplish the same thing because we are no longer getting the San Francisco discount."

The housing director said he would prefer to work directly with the homeowners, but Avalos said The City has not had success with that.

Use of eminent domain takes a supermajority vote by local bodies to approve, but establishing a joint powers agreement would take a simple majority. Supporters add there is also the benefit of pooling resources.

"It's a better approach to do an economies of scale when you put loans together from different cities, but we also felt like a national movement is important," McLaughlin said, adding that the agreement would also help indemnify cities.


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Help us launch the next set of Local Principal Reduction campaigns

Last year, thanks in part to petitions signed and delivered and phone calls made by Home Defenders, one city, Richmond, California, stood up to Wall Street bankers and created their own program for taking on the foreclosure and underwater mortgage crisis.

Watch this video to see what happened next.

Richmond - and now other cities - worked out a proposal to "Local Principal Reduction" to acquire a set of the worst, hardest to fix underwater mortgages and refinance them to restore home equity. If banks refuse to cooperate, cities may use their legal authority of eminent domain to buy the bad mortgages at fair market value and reset them to current value.

Some people also call it “reverse eminent domain” because it is all about keeping struggling families in their homes. Unsurprisingly, this has a lot of Wall Street's most intransigent bankers upset and they are fighting this tooth and nail. 

We believe this story has two possible endings.

In one, we get programs like Richmond’s implemented in every corner of the United States. In that case, Wall Street bankers have to deal with us, rather than dictate to us. Foreclosures go down, families stay in their homes, cities stabilize. We control our economic future.

In the other, Wall Street lobbyists scare every city in the country except Richmond from taking bold action to control their futures. Foreclosures go on, struggling families lose their wealth and their homes, and we fight hard for settlements that let bankers go free and don’t match the magnitude of the economic destruction they caused.

So we created a way for people around the United States to come together and fight for the first ending. It's called FightingForeclosures.org and it will allow anyone to stand up to Wall Street and help keep struggling families in their homes.

If enough people like you come together, then we'll win. We'll win the ability to control our economic future. We’ll be in charge. Wall Street lobbyists are trying desperately not to let this happen, including spreading fear and confusion to stop other cities from taking such a bold move.

Help us win. Please visit www.FightingForeclosures.org, watch the video, chip in a few dollars (whatever you can do helps) and spread the word.

We can beat the banks. We did it in Richmond. We can do it again. But we absolutely can’t do it without your help. With your help, we control our economic future and keep families in their homes. Without it… well, we’re already going down that road.

Click here to write the ending in which people win back their homes and their futures.

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Don't let the bullies win

We knew the big banks would play dirty in their fight against Richmond’s plan to stop the wave of foreclosures decimating our city’s communities. But we didn’t know they would stoop this low. 

The banks want to bully Richmond out of our plan to acquire underwater homes by threatening to make it more expensive for people to borrow money to buy homes if our plan passes.

There’s another name for this kind of bullying: redlining. It’s a tactic that was used for decades to maintain neighborhood segregation and keep people of color out of home ownership -- and it’s completely illegal. By threatening us, the banks are betting that our plan will lose political support and wither on the vine. That’s why we must hold them accountable for threatening illegal action right now.

Join me in standing up to discriminatory redlining. Sign this petition calling on the U. S. Department of Justice to investigate the banking industry’s threats.

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The people of Richmond, CA 2 - Wall Street criminals 0

Richmond, CA struggling families 2 – Wall Street criminals 0! 

On Tuesday September 10, the Home Defenders League and HDL partner ACCE, joined by the Richmond Progressive Alliance, the Mayor of Richmond Gayle McLaughlin, and City Council champion Jovanka Beckles, beat back a Wall Street-led campaign of threats, litigation, and a full-scale election-style campaign dedicated to ending the Richmond, CA program to help underwater homeowners in that city, using eminent domain if necessary.

On that Tuesday night (well, really Wednesday morning), the City Council voted 4-3 to move forward with the Richmond CARES program despite the huge attacks from Wall Street bankers against it. That was the first victory of the week and it is a really big deal. 

The importance of this victory cannot be overstated. If the lies and fear mongering of Wall Street bankers had been allowed to intimidate Richmond’s City Council into backing down, the entire Local Principal Reduction idea would have collapsed. Instead, the movement is spreading. This week, San Francisco Supervisor David Campos announced a resolution standing in solidarity with Richmond and exploring a similar program there. And in Seattle, more than 30 groups came together in the Reset Seattle Coalition and packed the Seattle City Council to launch an LPR campaign there, too.

We've set up a way to thank the four City Council members - Gayle McLaughlin, Jovanka Beckles, Tom Butt, and Jael Myrick - who voted to continue the Richmond CARES program on our Facebook page here

You can also help keep this fight spreading to other cities by chipping in $20 here.

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Tell Wells Fargo: Stop suing and start negotiating

On August 7th Wells Fargo and Deutsche Bank named the City of Richmond in a lawsuit filed to attempt to block Local Principal Reduction from moving forward.

Please call Wells Fargo CEO John Stumpf and tell him to stop suing and start negotiating.

Here’s his office number: 415-396-7018

Here’s a sample script:

“Hi, my name is __________. I wanted to let John Stumpf know that I support the city of Richmond’s common sense approach to local principal reduction. Wells Fargo needs to drop the lawsuit it filed against Richmond. The foreclosure crisis has hit cities like Richmond tremendously hard. Sell these underwater loans to the city so that we can stop the crisis now!”

You can report how the call went by leaving a comment below.

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MSNBC's Chris Hayes talks with Richmond, CA Mayor about Local Principal Reduction

On August 2nd, All In with Chris Hayes interviewed Richmond, CA Mayor Gayle McLaughlin about her city's decision to move forward with a Local Principal Reduction policy as a way of dealing with the on-going foreclosure and underwater housing crisis caused by Wall Street bankers.

It's pretty clear she and the city's leadership are going to be strong on this and not give in to the bullying of Wall Street bankers and their allies as they try to stop this common-sense solution from spreading and undermining their ability to dictate to the rest of us what kind of economy we should have. 

Watch the full clip below.


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MSNBC's MHP gives Richmond, CA Local Principal Reduction policy a shout out

This past weekend, MSNBC's Melissa Harris-Perry held a roundtable discussion on President Obama's Phoenix speech about housing policy that included a reference to Richmond, CA's Local Principal Reduction policy as one of the key ways to respond to the on-going housing crisis caused by Wall Street criminals. You can stand with Richmond here.

Harris-Perry also did a good job of reminding people that the reason for the massive bailouts of the bankers was their reprehensible predatory lending practices in the subprime mortgage market. Without that criminal behavior, there wouldn't have been a housing bubble or economic collapse in the first place. 

Here's the full clip:


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Local Principal Reduction campaigns starting to generate lots of reactions

Writing in the Huffington Post, Occidental College Professor Peter Drier has posted a comprehensive roundup of the best press, Wall Street reactions, legal analysis and other reactions generated by the Local Principal Reduction (LPR) campaign that got a big boost this week when Richmond California became the first city in the country to offer to buy certain underwater mortgages from private investors. Here's his dead-on opening,

Usually a community group has to protest in front of a bank, take over a corporate shareholders' meeting, or get arrested at a politicians office or a slumlord's home to make the front page of the New York Times.

But on Tuesday, the Home Defenders League - a coalition of community groups who organize homeowners facing foreclosure - made the Times' front page simply by using two words: "eminent domain."

The scale of the reaction from Wall Street as well as what's at stake is captured nicely by this statement,

Wall Street lobbyists are waging a legal, political, and ideological war to stop Richmond and other upstart cities from taking control of their own destinies.



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Stand with Richmond, CA as they support struggling families


As the two-term mayor of Richmond, CA, I’m intensely proud to announce that for the first time ever, a city – my city – is going to force Wall Street bankers to reduce mortgage principal for local homeowners as a way to help struggling Richmond families avoid foreclosure and eviction.

We’re all in. As I told the New York Times on Tuesday,

“We’re not willing to back down on this,” said Gayle McLaughlin, the former schoolteacher who is serving her second term as Richmond’s mayor. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.” [1]

Stand with the people of Richmond and tell Wall Street bankers to sell the loans to the City and help keep struggling families in their homes.

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