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Wednesday, April 25, 2012

Destroying Homeowner Wealth in New Jersey

New Jersey -- the Garden State -- may become the Prison State. The largest act of wealth destruction is about to hit New Jersey homeowners with a killer blow that may crash real estate values for generations.

Pending legislation in New Jersey threatens to obliterate the remaining home equity of virtually all New Jersey homeowners -- but especially and most unjustly the middle and working-class homeowners whose wealth is most at risk from attack from their government.

This legislation, the New Jersey Foreclosure Transformation Act (A2168/S1566), really should be called the Home Equity Liquidation Legislation (or "HELL" - get it?).  It will be the biggest and worst means of wealth destruction ever to come out of Trenton (or at least, ever since the infamous Mount Laurel State Supreme Court decisions mandating that each municipality -- no matter its size or wherewithal -- provide low-income housing).  It will be the equivalent of a financial asteroid striking Earth, in this case smashing New Jersey homeowners.

Under the obligatory benign-sounding objectives tailored to be impervious to opposition, the Act will have the State use homeowners' tax dollars to convert neighbors' homes to low-income housing or housing for so-called "special needs" purposes (including shelters for the homeless and those with HIV/AIDS) and, even worse, to restrict their deeds so that such homes remain designated for low-income or special needs for 30 years.  The Act will create a new state agency to subsidize low and moderate-income buyers' home purchases (which is patently unfair to everyone else who bought equivalent homes on their own) and rent out other homes.  It will infuse de-facto housing projects and homeless shelters within suburban neighborhoods full of people who strove, scrimped and saved, permanently crashing for generations the values of the purchased properties as well as those of everyone else around them.  

The legislation will succeed in stabilizing neighborhoods -- after first destroying the values of all homes and ruining once-desirable suburban areas. Once ruined, the Act will stabilize the neighborhoods. Mission accomplished!

But it gets even worse. The damage will not be spread equally. Just look at who is most vulnerable to this wealth destruction. The Act has an escape clause that allows municipalities a 45-day window within which to purchase these foreclosed properties. Wealthy towns like Mendham (Governor Christie's hometown) likely will be able to buy and rescue any properties from such uses, and their residents will assuredly take all necessary measures to keep the projects and shelters out.  Rest assured, the "rich" won't be affected by this Act.  They'll make sure to buy out these foreclosures -- if they don't flee the state first.

However, many New Jersey towns do not have expandable tax bases.  Old and small towns, particularly in the northern and urban parts of New Jersey, have often maximized their property tax ratables because, well, God ain't creating more land. These towns also commonly have strained budgets. These towns, so often populated by the middle and working classes, would be hard pressed to rescue their neighborhoods from the character-destroying effects of this "foreclosure transformation act."  As a result, the remaining wealth of the first generation of homeowners, the responsible and hardworking neighbors among us who so often bought their homes "on their own" and whose modest wealth is often concentrated in their homes, will be extremely vulnerable to destruction.  

Again, as is so often the case with ruinous legislation, this Act targets for financial persecution our middle and working classes, and a large segment of our ethnic and racial minorities who, so far, have succeeded through hard work and prudent savings in making a foothold in suburbia.  These classes, representing some of our most industrious and self-sufficient citizens, would be the prime victims of an unprecedented wave of wealth destruction -- and all in the name of "helping" so-called "victims" of the housing bubble and foreclosure wave.

This Act sends a chilling and dangerous message.  This legislation will defeat the efforts of all the responsible homeowners who didn't try to "game" the system.  It will allow the state to choose your neighbors and, by dictating the price it will pay for foreclosures, to set the new value of your home.  If the Foreclosure Transformation Act is passed, state and local governments, not you, will determine how much your home is worth and who your neighbors will be. Make no mistake about it, the state will set its price for what it's willing to pay to buy a foreclosure.  And this will be done with the regard of the "poor" who supposedly "need" so-called "affordable" housing.  It won't be done with any regard for the home values of longstanding homeowners, who will suddenly face the danger of having undesirables in their midst. The Act will effectively confiscate the remaining home equity for most homeowners, which remains for most people their largest source of wealth. Worse, it will encourage a massive flight out of state as homeowners rush to sell, in turn threatening a new housing price crash.

Of course, the Act's proponents cite the altruistic motives of providing "affordable" housing to low-income residents and stabilizing neighborhoods. These are code phrases for turning bucolic neighborhoods into de facto "mixed" housing where newcomers -- already receiving numerous government subsidies -- will pay barely a fraction of what their new neighbors have and will pay for their mortgage payments. But then consider the specter of having drug users, the homeless and various other undesirables roaming your previously-pristine street, the street for which you sacrificed for years to get that special home, and you can imagine how quickly homeowners' peace of mind will be destroyed in addition to their wealth.

Two generations have been trained to believe it to be politically incorrect to talk about some people being undesirable neighbors.  However, everyone who rents or buys a home makes that exact judgment. People choose where to live and often strive to buy the best home they can afford.  Some areas are more desirable than others. Location plays a role, but so often it is also the "type" of people who are one's neighbors.  But there is one constant: a free people are allowed to select where they live. For better or worse, that is the essence of freedom.  There is nothing racist, sexist or classist in wanting to choose among whom to live.  This is a divine right, the essence of freedom.  For those of us who resisted or rebelled against the concept of arranged marriages, think how repugnant arranged neighbors will be. Conversely, the essence of a totalitarian regime is the state's control over where and among whom you shall live; come to think of it, that's what you face in prison, and indeed the Foreclosure Transformation Act will turn New Jersey from the Garden State into the Prison State.

Get ready for the Act's sponsors to demonize opponents, like me, who object to any government plan to dictate how much my home is worth and who my neighbors will be.  Expect the Act's supporters to impute the vilest of motives to those people who have the audacity to believe that being hardworking and striving to live in a neighborhood they consider nice means that they can choose where and among whom to live.  

The right to property was considered among the most sacrosanct by our forefathers.  This Act will destroy the right to property, by destroying and permanently depressing its value.  Worse than misguided efforts to redistribute wealth, this legislation will transfer it out of state.  Neighboring states' real estate will grow in value, as the value of New Jersey real estate crashes and people flee to new places where they can buy homes without fear that the government will suddenly plop de-facto housing projects or drug rehab centers next door. 

This is worse than eminent domain.  At least in eminent domain lip service is paid to the municipality's efforts to improve an area.  This Act asserts a desire to help the underclass, the homeless and other classes, with a depraved indifference to the rights of their new neighbors who will pay -- in every way imaginable -- for this misguided altruism.

Let's call this Act for what it is: a plan to destroy your home equity and mine. The asserted benefits, to others we already subsidize so they can live among us at a fraction of the cost we shouldered, are almost inconsequential.  This Act is nothing less than an open declaration of war upon the homeowner class, the middle class and the working class.  It is state-sanctioned economic warfare, and quite possibly even more ruinous than ObamaCare.

Eric Dixon is a New York lawyer, political strategist and commentator.  

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