Did San Bernardino County Violate California’s Brown Act in Eminent Domain Talks?

This story has been updated with comments from San Bernardino County

Groups that represent the interest of mortgage bond investors have been caught off guard by a move San Bernardino County, Ca might make to use eminent domain to buy underwater mortgages with the help of wealthy private investors and a San Francisco based venture capitalist firm. Today the Southern California County held it’s first meeting with public comments on the subject and Greg Devourex, county CEO, started the meeting stating they’ve been working to address the issue openly with the community and ideas will be thoroughly vetted in public. But concerned residents and local real estate brokers say they only heard about the plan through press reports last month nor have they actually seen any plan proposals.

Representative of powerful financial investor groups like SIFMA and the Association of Mortgage Investors told me the newly formed joint protection agency hasn’t come to them for viewpoints or research on how this would affect mortgage investors, borrowing rates in their area, or the securitization market. SIFMA has clients like PIMCO and Blackrock who’ve bought billions of residential mortgage securities for investors and even pension funds that could be effected by the plan. They clearly have a role to lobby for only one of the players the plan could affect but they also have deep industry research and data to help elected officials, in one of California’s lower to mid income areas, make informed decisions. I found it interesting that Devourex, or city officials from Fontana and Ontario who also want to use the plan, didn’t think these industry groups were worth speaking with. It wasn’t until the industry groups proactively sent letters of concern that a special public hearing magically happen.

But these out-of-state players aren’t the only ones shut out of the decision-making process. Even groups like the Inland Valleys (San Bernardino area) Association of Realtors have tried to get officials to explain the request for proposal procedure the county used to engage in contract talks with the private investors, Mortgage Resolution Partners, but they’re getting stonewalled. One agency that expressed concern over the eminent domain plan said cities like Fontana responded to a Freedom of Information request saying they didn’t keep documents of their discussions to work with MRP so they couldn‘t honor the FOI request. Fontana city council did not respond for comment. This could bring up questions about the cities violating the Brown Act. A California legislation passed in the 50’s to prohibit secret meetings of official bodies.
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But it looks the Matt Goldstein, a pretty good Reuters investigative reporter, has done the leg work for those left questioning how long this new player, MRP, has been working to get the ear and interest of city officials. Interest in a plan that fellow Reuters financial blogger Felix Salmon explains is somewhat greedy and not a valid use of eminent domain. Goldstein’s report says according to public record Reuters got a hold of, Greg Devourex and his San Bernardino County team started talking to MRP in January. On February 9th they even signed a non-disclosure with MRP saying they’d keep the talks private. Goldstein reports it wasn’t until the County thought they might really want to do the plan that they let the public know what was on the agenda. The fact that it took them about six months to inform the public is kind of alarming and even now residents I’ve interviewed still don’t really know how the plan would work because the county isn’t sharing a lot of informed details of what they’ve labeled the ‘home ownership protection plan’.

Multiple industry professionals I spoke with today who were not ready to comment publicly felt there’s been some questionable back room dealing and idea sharing to get the process along this far.

Groups like SIFMA also prepared public comments for the hearing but very few who attended got past the 2-3 minute limit to finish their thoughts. The whole meeting lasted only 36 minutes and there was no discussion or rebuttal from the likes of Deveraux’s team.

SIFMA’s argument against the plan, while obviously concerned first for the mortgage investors, did bring up an interesting concern for homeowners who might take part in the plan. Will they be ready to pay taxes on debt relief if the IRS comes after them and the tax break temporarily in place goes away? Say a homeowner who is paying on their mortgage in an underwater home that isn’t government insured now ( we think this is MRP’s target customer) gets a $100,000 principle modification; does the homeowner have enough cash saved to pay tax on that little gift? Gift tax can be a pretty steep rate.

The other concern dissidents of the plan, like local realtors from the mountain resort of Crestline, Ca, expressed was this plan would wipe out local firms that are trying to do refi’s for San Bernardino County home owners. Remember MRP doesn’t want the delinquent loans, they want the ones that are still paying but underwater in value. Of course if local banks/lenders had moved faster to actually reduce principle on So-Cal‘s underwater homes (a tough economic decision because it lowers the assets on their balance sheet) the county of San Bernardino likely wouldn’t have even considered an extreme move like trying to use eminent domain on personal property that isn’t going to used for public projects.

This plan is going to get a lot of press on why it’s a ‘disastrous idea’ for long-term economic reasons and violations to basic contract law. A few lefty congress people like Rep Brad Miller will voice reasons why it should work without giving any stats or details to support his ideas. But the short-term story is whether the Joint Protection Agency even started the process legally and with transparency for the residents who they claim they’re trying to help? That’s the story local California reporters should be on but at least a well-known national reporter like Matt Goldstein, who has likely never been to the Inland Empire, got the news out.

UPDATE 7-17-12: David Wert, public relations for San Bernardino County, told me the talks with MRP actually began as far back as October. Reuters reported they began in January because that’s as far back as they requested county call logs. That means they didn’t sign the non-disclosure agreement with MRP for about 3 months. The timeline of when the talks started with MRP before the idea of forming the JPA was announced is important to industry observes who questioned if the County violated the Brown Act. Wert says the County CEO is an appointed position, not elected, so he is not subject to holding all meeting in public like the Board of supervisors. Wert flat said he doesn’t think Devourex did anything in secret but will continue to sign non-disclosures with private firms when an idea to help the county is presented to him so that intellectual property is protected. Wert expressed frustration with the media’s coverage on when the County CEO informed the public about the idea to use eminent domain for their housing problem and said this is nothing more than a smear campaign by the investment community. He believes once the idea of forming the JPA was first mentioned at an April public board meeting, that local press attended, the county did its job to start open communication with the public.

NetNet-he thinks they followed the books regarding the Brown Act but since local press didn’t pick up on the importance of using eminent domain in this knew way and the preceived risk it could place on the mortage investors and constitutional/contract law the public feels missinformed.

In a way he has a point – it wasn’t till my peers in the national media who are schooled in high finance caught on to what was going on (via calls from their mortgage investor/trader sources) and printed stories calling the plan a scheme did the Republican minded locals (and realtors) get restless and start to voice concern.

The County thinks there is a lot of miss-information getting printed about MRP’s plan because the County and MRP haven’t finalized anything yet. But speculation about how some of the details that have been shared work is simply part of the role of journalism. Question, analyze, share what you know, and let the reader decided – that’s our job. As San Bernardino County moves along in the process, it’s important all ideas and plan details are openly discussed and published. I’d expected San Bernardino to have a special website up soon to data dump everything they have on the possibility of the Home Protection Program. Unfortunately, most residents still aren’t likely to understand the impact of taking money off the table from one investor group and giving it to another in effort to modify underwater homes until the County starts to get their arms around the risks also. Risk San Bernardino County residents might be willing to take because at the end of the day having the chance to show Wall Street some pain might be enough of a motive – regardless of the financial after effects.

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Comments

  1. Teri, you’ve heard about smart growth agenda 21 right? textbook. Fab writer Rose Koire has big piece on this issue on her democratsagainstunagenda21.com. She is a democrat by the way, just in case you had not heard of her before. None of the news stories mention that San B has bankrupted itself via redevelopment, to the tune of 1 billion, it is hard to fathom. They are thick in agenda 21 which uses the guise of being environmentally sound in order for developers and those connected to make big money, leaving towns and tax payers in their wake. The trend is ALL over the country, everywhere because the A21 offshoots sold software to towns willing to pay dues, instituted it in all urban planning, conservation non profits and even all energy companies. Tax payers simply do not pay attention, so this has spread over last 20 yrs. Nasty business, seems nice on surface. Hope people will go to their town mtgs and listen for the language of sustainable development. 🙂

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