Richmond, California, May Abandon Plan to Seize MortgagesMichael B. Marois
The City Council of Richmond, California, may withdraw offers to buy hundreds of troubled home loans that it threatened to seize under eminent domain laws if they refused, according to city documents.
If the plan stays alive, the council may require Mortgage Resolution Partners LLC to provide insurance to protect the city from lawsuits. Both proposals are listed for consideration when the council meets Sept. 10, according to an agenda for the meeting released yesterday.
Richmond, a refinery town of about 106,000 east of San Francisco, is the farthest along in a plan advocated by Steven Gluckstern’s Mortgage Resolution Partners for U.S. cities to confiscate underwater mortgages and write them down in an effort to help homeowners escape oversized debts. Almost half of Richmond mortgages have higher values than the homes they financed.
City officials didn’t respond to telephone calls after regular business hours seeking comment on their plans.
The city sent letters in July to 32 servicers and trustees with offers to purchase 624 mortgages in which the loan balance exceeds the property’s value. The loans were the first targeted by the city, which said it would seize them unless servicers agreed to sell.
Mortgage bond trustees representing investors including BlackRock Inc. and Pacific Investment Management Co. sued the city on Aug. 7, alleging the proposal was unconstitutional and seeking a court order blocking any seizures. The idea has drawn opposition from at least 18 trade groups representing the finance industry, homebuilders and real-estate firms.
Governments have long used eminent domain to take private property for public uses, including highways, and for economic development such as shopping malls, providing compensation to the owner. Richmond planned to issue new loans to homeowners that reflect current property values, easing their debt burdens.
Other municipalities, including California’s San Bernardino County and Chicago, considered similar moves last year.