I considered posting this in the thread about California bleeding itself to death, but I think the merits of this deserve a separate thread.

I just can't see how this is a good idea. Best case scenario is this turns Richmond into a half-crappy place with cheap housing...that's impossible to leave because no bank will loan to a new homeowner in Richmond. So...stasis.


Richmond to pursue eminent domain on mortgages

Published 5:51 pm, Wednesday, September 11, 2013

Richmond's unprecedented quest to use eminent domain for underwater mortgages will move forward after a divided City Council voted early Wednesday to pursue it.

Meanwhile other cities, including Vallejo, San Francisco and El Monte (Los Angeles County) are also evaluating the concept, despite legal obstacles and overwhelming opposition from financial markets. Thursday, Wells Fargo and Deutsche Bank will go to court seeking a preliminary injunction to halt Richmond's effort on the grounds that it is unconstitutional and would hurt lending.

Richmond's City Council voted 4-3 to continue exploring the use of eminent domain for underwater mortgages, after a lengthy and contentious meeting packed with residents who expressed strong feelings for and against the controversial idea.

"Leadership depends on taking risks," said Mayor Gayle McLaughlin, who proposed the measure to set up a joint powers authority with other interested cities.

More than 300 community members, many wearing T-shirts to proclaim their position - yellow for supporters, red for opponents - cheered, booed, applauded and waved signs or flags as council members and dozens of speakers discussed invoking eminent domain to seize and restructure underwater home loans as a way to prevent foreclosures.

"Richmond and its residents have been badly harmed by this housing crisis," McLaughlin said. "The banks have been unwilling or unable to fix this situation, so the city is stepping in to provide a fix."

How it works
That fix would involve acquiring underwater mortgages at steep discounts and then restructuring them to make the payments affordable. While city leaders emphasized that they would prefer to acquire the mortgages through negotiations with banks and investment firms, eminent domain would be an option to force the sales.

Eminent domain, which involves seizing private property for public use, is more commonly used for such purposes as constructing roads or airports. If Richmond proceeds with its plan, it would be the first city in the nation to use its municipal power of eminent domain for mortgages.

Richmond is still far from actually using eminent domain to forcibly acquire the home loans, however. By state law, that step would require approval by a supermajority of the council, or five members. While McLaughlin and council members Jovanka Beckles, Tom Butt and Jael Myrick voted for her measure, the necessary fifth vote doesn't appear to be there. Vice Mayor Courtland Boozé and Councilmen Nat Bates and Jim Rogers voted against the measure.

Opposing measure
Boozé and Bates floated their own measure to assert that the city would not use eminent domain and would withdraw the offer letters it sent in late July trying to buy 624 underwater mortgages at a steep discount. It failed to win support from any of the other council members.

Rogers proposed a measure to require Mortgage Resolution Partners, the private San Francisco firm that is providing financial backing and technical advice, to purchase insurance to protect the city from legal liabilities. That proposal failed, with only Rogers and Myrick supporting it.

Rogers said the possibility that banks might prevail in a lawsuit claiming multimillion-dollar damages is too risky.

"A 1 percent chance of bankruptcy from this program is a deal-breaker for me," he said.

Thursday's hearing in U.S. District Court in front of Judge Charles Breyer is the banks' attempt to freeze the plan in place. The city says the suit is premature and a form of harassment. Several housing advocate groups filed an amicus brief saying the banks' contention that Richmond's plan would chill mortgage lending in the city is itself a threat of illegal redlining.

http://www.sfgate.com/bayarea/articl...es-4807122.php