Debra J. Saunders

Cornell University law professor Robert Hockett agrees. In the infamous 2005 Kelo decision, the U.S. Supreme Court ruled that local governments could seize private property for other private entities if there is a public purpose. In that case, New London, Conn., took the waterfront home of Susette Kelo as part of a redevelopment project anchored around Pfizer Inc.

Dana Berliner, an attorney for the Institute of Justice, which represented Kelo, said she believes that the California Supreme Court would overturn any law allowing governments to seize mortgages, because "it's a scheme by one group of securities investors to steal a bunch of money from another group of securities investors."

But what if Berliner is wrong?

"In California, there'll be very little that (governments) can't do," she said. "It would mean that eminent domain can be used to take from one group of people and give to another group of people to make a profit."

James Burling of the Pacific Legal Foundation sees too many opportunities for mischief because of political favoritism.

Think Kelo. Blue-collar homeowners lost their houses so that an "urban village" could replace them. Except the project never happened, and Pfizer closed its anchor operation.

Not to worry, say the folks at Mortgage Resolution Partners. The scheme is legal if the government pays fair market value. (If underwater homeowners think some deep-pocketed new authority didn't pay them enough, they can sue.)

Marrying cash-strapped local pols to brash capitalists usually doesn't make for more financial security. Come up with a truly tortured explanation for it, however, and you'd be surprised who will buy it.

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Debra J. Saunders

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