California Town Proceeds with Emiment Domain Plan to Seize Mortgages

California Town Proceeds with Emiment Domain Plan to Seize Mortgages

09/11/2013 BY: KRISTA FRANKS BROCK 

Despite widespread opposition from the finance industry and the Federal Housing Finance Agency (FHFA), Richmond California, plans to move forward with a plan to use the government’s “eminent domain” privilege to seize homes with underwater mortgages on behalf of homeowners.

Richmond’s city council approved the plan in a narrow four-to-three vote early Wednesday, according to Reuters.

The city will work with Mortgage Resolution Partners, a San Francisco-based company that presents itself as a “community advisory firm working to stabilize local housing markets and economies”—to purchase 620 delinquent underwater mortgages from banks at a discount. If the banks refuse to sell, the city will use its right to eminent domain to forcibly take the properties from the banks, preventing possible foreclosures.

Wells Fargo and Deutsche Bank have already filed a lawsuit to stop the plan.

“Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit,” said John Ertman, a partner at Ropes & Gray LLP, the law firm representing the financial institutions.

“This unconstitutional application of eminent domain will be devastating for mortgage finance both public and private,” he added. “It will completely undermine the willingness for private capital to return to the mortgage markets.”

Several industry groups have already spoken out about the harm such actions would have on investors and the future of housing finance.

FHFA labeled the plan “a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.”

Some of Richmond’s city council members seem to be paying heed to these statements. According to Reuters, some council members warned the plan would invite costly lawsuits the city might not be able to afford.

Mortgage Resolution Partners has attempted to work with several other cities to invoke eminent domain in the same manner. However, Richmond, California, is the first city to approve the plan.

 

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