It's called the doctrine of Eminent Domain. It basically amounts to the right of government to expropriate private property and it usually requires the government pay market value compensation.
Now a California municipality wants to put eminent domain to good use to rescue "underwater" homeowners by "seizing" their inflated mortgages and reselling them for the actual value of the mortgaged property, not the face value of the mortgage.
The mortgage company gets fair market value but not a dime more and the homeowner gets a lower mortgage debt that, with any luck, will be affordable.
It's a great idea. The mortgage company isn't actually losing anything. The homeowner is getting a lifeline. Neighbouring homeowners are relieved from the pressure of bank firesales depressing their own property values. Good for the homeowner, good for the neighbours, good for the municipality and a break-even deal for the mortgage company.
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