The City Council has defeated a proposal to use eminent domain powers to seize bad mortgage loans and, with a private financial partner, sell them back at lower interest rates to residents in need. The vote was 7 to 5 against the proposal by Councilor at Large Jass Stewart. Some officials have stated that Brockton already works with residents to sort out foreclosure issues and it isn’t interested in going into the real-estate business. Brockton has 7,000 homeowners currently “underwater,” or living in homes that are valued below their mortgages. “While this was not the outcome I’d hoped for, I believe the legal experts did an amazing job of laying out the various arguments,’’ Stewart said.