It appears the city is talking about seizing the mortgage rather than the house itself and then paying the mortgage holder a reduced amount because the fair market value of the collateral has deteriorated. We do live in strange times, but I don't think this will fly under the banner of eminent domain.
Something to keep in mind here is that the moment a municipal government acquires a property through eminent domain, the property is basically purged from the tax rolls and it is generating $0 in property tax revenue.
4:56 Minutes
Richmond, California
Town Wants To Use Eminent Domain To Seize Homes Worth Less Than Mortgage - Wake Up America
http://www.youtube.com/watch?v=nDvEajV2po8