IRVINGTON, N.J.—Irvington, N.J., is moving forward with plans to become the second municipality in the nation to use eminent domain to buy mortgages that are in foreclosure.

At a rally Saturday, Mayor Wayne Smith said the city will perform a legal study of the proposal to use eminent domain, which has drawn forceful opposition from Wall Street, real estate groups and some in Washington, while gaining the support of a civil rights group typically opposed to the practice.

"When you hear those words, it usually has a negative connotation," Smith said. But, when used to take control of underwater mortgages the city will "recast it so people can stay in their homes."

The city of 53,000 that neighbors Newark has been hard-hit by foreclosures. Officials said nearly 1,800 homes here have been foreclosed on since 2008.

The city has an unemployment rate of 12.4 percent, according to the U.S. Bureau of Labor Statistics.

Richmond, Calif., announced plans to use eminent domain to help underwater homeowners earlier this year and a lawsuit challenging the practice was dismissed by a California district court judge in September. Richmond has not yet used eminent domain.

Smith said Irvington's plan would focus on so-called "private label" security mortgages, or ones that are not backed by the U.S. government.

Smith said the city will try to avoid being sued through "friendly condemnation," which offers incentives to the mortgage owners if they agree to avoid litigation.


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Smith said the city needs a third party to come in and actually buy the mortgages.

According to Cornell University law professor Robert C. Hockett, eminent domain is one of the few tools available to take over and write down an underwater mortgage because it gives municipalities the power to circumvent mortgage contracts, acquire loans from bondholders, write them down and give them back to the bondholders.

"Some government instrumentality is going to have to do this," said Hockett, who helped create the approach. "No private actor can get around the contracts, but a public actor can."

The New Jersey chapter of the American Civil Liberties Union, which traditionally has been loath to embrace eminent domain, fully backs the Irvington plan.

Buying up securitized subprime, underwater mortgages is "exactly the type of situation that demands eminent domain," said ACLU-NJ Executive Director Udi Ofer.

A number of other cities, including Newark and North Las Vegas, Nev., have floated the idea of using eminent domain to help ease the tide of foreclosures.