LAS VEGAS (CN) – The City of North Las Vegas is endangering its financial status with a cockeyed plan to seize up to 5,000 homes through eminent domain, buy them with public money and flip them, a man claims in court.
Gregory D. Smith sued North Las Vegas, its City Council and City Attorney Jeffrey Barr, in Federal Court. They are the only defendants.
“The City of North Las Vegas has entered into and embarked upon a plan to use the power of eminent domain to condemn and seize privately-owned residential mortgage loans in the City,” the complaint states.
“The City intends to target for seizure mortgages 1) that are performing, i.e. current in their mortgage debt obligation of the homeowner; and 2) where homeowners owe more on their mortgages than the current fair market value of their home, i.e. ‘underwater’ mortgages; and 3) that are owned by private securitization trusts in secondary mortgage market lending portfolios rather than backed by the federal government through Fannie Mae, Freddie Mac, or the Federal Housing Authority.
“An example of the functioning of the Plan is a home in North Las Vegas worth $200,000 in the real estate market today but with a $300,000 current mortgage balance. The City plans to condemn and seize privately owned residential mortgage loans and to pay the owner of that note what it believes is just compensation, say, $150,000 for purposes of the example, from money borrowed from private investors. The City would then purport to accept a short payoff of the mortgage loan originally seized, through a new loan for, say, $190,000, if such new financing could be found and the homeowner can qualify for same. The City then plans to extinguish the original $300,000 note it had seized for $150,000 and to pocket the $40,000 difference as revenue to the City.
“There are, by City estimates, approximately 5,000 mortgages in North Las Vegas that qualify and will be targeted for seizure by exercise of the power of eminent domain.
“On June 19, 2013, the City Council approved a contract (the ‘Agreement’) between itself and MRP to initiate and carry out the Plan.
“Preparation for and implementation of the Plan will require expenditure of public funds. Seizing all 5,000 or so of the estimated numbers of mortgage loans targeted by the City, at $150,000 each, would require the City to borrow more than $750 million. Such borrowing will entail interest, fees, and servicing costs. Indeed, the loaned monies themselves would represent City funds to be expended on the Plan.
“The Plan itself and the Agreement entered into by the City with MRP, calls for expenditure of public monies by the City. Out of the $40,000 of City revenue identified as the outcome of the example described above in Paragraph 15, the City would be required under the Agreement to compensate MRP and its investors for their ‘facilitation’ of the Plan.
“At its June 19, 2013 meeting, the City Council directed the City Attorney to engage outside legal counsel to advise the City on its conduct of the Plan, and has or will expend public monies for such engagement and retention.
“The public fisc of the City of North Las Vegas will be depleted and endangered by the unlawful use of public monies expended in pursuit of the Plan, which is an unlawful and invalid exercise of government power under the United States and Nevada Constitutions, and under Nevada statutory law.”
Smith wants the plan enjoined as unconstitutional.
He is represented by Don Springmeyer, with Wolf, Rifkin, Shapiro, Schulman & Rabkin.
North Las Vegas, pop. 220,000 is a suburb of Las Vegas.
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