Coming Up for Air: The Constitutionality of Using Eminent Domain to Condemn Underwater Mortgages

Abstract

Following the Great Recession, home prices in many areas capsized, leaving many homeowners “underwater.” Today, home prices have not yet returned to pre-recession levels, leading many commentators to fear that these underwater mortgages will default and bring about a flood of new foreclosures. Local governments are now contemplating using the power of eminent domain to condemn these mortgages and reduce the principal owed. This move would allow homeowners to build equity and, in turn, reduce the fear of default and foreclosure. This Note analyzes the constitutionality of using eminent domain in this manner and discusses whether it would pass constitutional muster under the Fifth Amendment’s Takings Clause.