City of Richmond Moves Forward With Eminent Domain Plan For Underwater Mortgages
On September 11, 2013, the Richmond City Council voted 4-3 to move forward with a controversial plan to aid underwater homeowners by purchasing their mortgages at their current market value and reselling them to homeowners at reduced prices and mortgage payments through the power of eminent domain. Richmond is the first city to pursue this strategy (San Bernardino considered using it and decided not to). Richmond recently voted to make offers to buy underwater mortgages, if lenders refuse, the city will take them by eminent domain and worked with a group of friendly investors (Mortage Resolution Partners, or MRP) to refinance the loans with the Federal Housing Administration.
Home prices in this city have plummeted by 58 percent since 2007 and homeowners have lost over $264 million last year alone. Thousands of Richmond homeowners have lost their homes to foreclosure and about 12,000 - half of all homeowners with mortgages in the city – are underwater. The city government, which has lost millions of dollars in property tax revenues, has cut funds for road repairs and reduced the number of municipal employees.
Under the Richmond Community Action to Restore Equity and Stability plan, or Richmond CARES, the city, through a joint powers authority, could use eminent domain to force the sale of the mortgages if lenders don’t accept the city’s offer. So far, the Southern California City of El monte has expressed interest. Blasted by mortgage lenders, including Fannie Mae and Freddie Mac, the National Association of Realtors, Wall Street and most banks, a coordinated effort has been aimed at dissuading local officials from pursing the strategy, including a lawsuit brought against the city by Wells Fargo and Deutsche Bank that the plan is unconstitution, which was thrown out as premature. MRP has agreed to cover the costs of any potential litigation, so most city officials view the lawsuits as empty threats.