Mortgage-backed securities made the news frequently in the first part of the recession when the housing bubble burst. A mortgage-backed security is basically an investment in the loans that are given to mortgage holders and entitles the investor to a share of the profits from that loan. This type of security was seen as a very safe and smart investment until loan qualification standards were relaxed and many people were able to obtain mortgages that they were unable to pay back.

Still, there are many mortgages in the United States that are still a part of mortgage-backed securities sold by banks. Recently, the Federal Housing Finance Agency became involved in a conflict surrounding mortgage-backed securities, which are sometimes subject to eminent domain takings by municipalities.

Eminent domain seizures can happen when a local government has a legitimate interest in a property and wants to take it for public use. The government is required by the Fifth Amendment to the United States Constitution to justly compensate the private property owner.

The Federal Housing Finance Agency has moved to prevent municipalities from exercising the power of eminent domain on properties that have mortgages that are a part of an investor’s security interest. The agency issued a press release indicating that it is considering a variety of steps to prevent local governments from exercising eminent domain on these properties, including legal action and economic pressure from government-supported lenders Fannie Mae and Freddie Mac.

Michigan property owners who are concerned about any type of title or ownership dispute including eminent domain may find more information on our real estate law firm’s website.

Source: Bloomberg, “Fannie Regulator May Seek to Block Eminent Domain Seizures,” Jody Shenn, August 8, 2012.