California city tries using eminent domain to help underwater homeowners

Eduardo Martinez with the Richmond Recreation and Parks commission walks down an alley with several foreclosed homes during a bus tour of foreclosed and blighted properties on July 13, 2012 in Richmond, California.

A novel plan by one city to use eminent domain to rescue underwater mortgages has sparked a lawsuit by major banks. The complaint filed in federal court yesterday is against the working class city of Richmond, California, a suburb of San Francisco, where nearly half of homeowners' mortgages are underwater.

Since the mortgage crisis, homeowners all over Richmond are underwater -- meaning they're stuck in mortgages where they owe way more than their house is currently worth. If the banks won't refinance or modify the loan -- and often they can’t or won't -- the next step is commonly foreclosure.

In order to stem a tide of more foreclosures, the city of Richmond recently approached lenders of more than 600 underwater mortgages and offered to buy the loans at their much lower current market value. The city says it will then help homeowners refinance in order to keep its citizens in their homes. If the banks refuse Richmond's offer, the city plans to use eminent domain to force a sale.

Wells Fargo and Deutsche Bank, two of the banks involved in the lawsuit, argue that the plan would hurt their investors -- everyone from big Wall Street firms to retirees with pensions. The banks also say using eminent domain would be unconstitutional because it's not for a "valid public purpose," and instead would benefit a small group of Richmond citizens and the company that's coordinating the plan, at the expense of out-of-state investors.

Richmond is the first city to try using eminent domain to help underwater homeowners, but others -- like Newark, Seattle, and North Las Vegas -- are paying close attention to what happens in Richmond. The case will be a key legal test for all these cities.

Underlying the case is a deeper question -- what really is a “valid public purpose”? In eminent domain cases, usually it's homeowners who are the ones who lose out, when municipalities build something like a freeway or a sports stadium. In this case, the city is arguing that the public good is the benefit to the local economy of keeping homeowners in their homes.

About the author

Krissy Clark is the senior reporter for Marketplace’s Wealth & Poverty Desk.
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Yeah, especially since these "banksters" utilized our troubled homeowners to perpetuate further fraud via the REMIC conduits that bypassed the secondary market, bifurcated and disintegrated these loans by immediately securitizing and turning them into stocks that were offered up to investors under a rigged libor index. "Fannie Mae Freddie In Uniform with MERS" on every deed of trust intended to perpetuate these frauds, filed under the Securities and Exchange commission.

WWW.DefraudedNations.com learn the REAL truth why these idiots are offended. If they can't foreclose they don't get the 70%-90% FDIC insurance payout.

Personally if I were the city, I would be more tick off at the fact the banks messed with their pension annuities by swapping out these annuities under the (newly discovered rigged) ISDAfix index, which BTW is the index that controls the value of the dollar, yen. euro, Deutschmark etc... Oh and how about the 3 million $100 bill influx from our US treasury (the largest historical infux in 2012) laying claims they are not adding additional printed money to cover up the fact, that this manipulated benchmark essentially reduced that $20 bill down to $17.50. I wonder how state employees are going to take it when they find out the states are paying higher interests rates on their swapped out pension annuities that result in a reduced pension payout to them. hmm...

Anyone who reads this, please go to my website and find out how to help fight this...


Use your keyboards as paddle boards, you have a right to be mad. Wells Fargo and Deautsch Bank are the biggest criminals of all. Deautsch Bank Securities are the ones who underwrote hundreds of thousands of Trust specifically for the purpose of defrauding their investors. They set this up on Page one of every prospectus on every trust I have seen. Breaking pools of these loans down into certificates to be offered under a RIGGED LIBOR product to the investor. Wells Fargo is a Master Servicer on most these trusts.

Investigations now include Bank of New York Mellon, Chase Home Mortgage of the Southeast, GMAC (now Ally Financial), HSBC, Merrill Lynch, Nationwide Advantage Mortgage Company, Suntrust Bank, United Guaranty Corporation, Washington Mutual (now owned by Chase), Wells Fargo, Deutsche Bank, U.S. Bank, and La Salle Bank. Bank of America, J.P. Morgan Chase, Deutsche Bank AG (DBK), HSBC, Citigroup, Citi, Bank of Tokyo-Mitsubishi UFJ, Credit Suisse, Lloyds, HBOS now a subsidiary of Lloyds, Rabobank, RBC, Royal Bank of Scotland, UBS, WEST LB, NORINCHUKIN.

Many more smaller banks were in collaboration and the FDIC was under supervision of Deutsche Bank Securities and Barclays (who had actually arrests on the Rigged LIBOR index) for the banks ((i.e…. Indymac) that went belly up to other banks i.e.… One West) via the use of Tarp funds for the “acquisition”.

Oh and don'f forget HSBC 3.9 mill euro penalty for money laundering. Hey yo US Attorney General can we say VIOLATIONS of Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) When are you going to prosecute TITLE IX — REGULATORY ENFORCEMENT AUTHORITY AND CRIMINAL ENHANCEMENTS SEC. 951 This is RICO territory.

Racketeer Influenced and Corrupt Organizations Act .

Pay-option Countrywide predatory arm that paid mortgage brokers based upon the adjustment of a margin as a SEC violation SECURITIES EXCHANGE ACT OF 1934 (A) ASSET CLASSES (B), shall define that term to be no broader than the definition ‘‘qualified mortgage’’ as the term is defined under section 129C(c)(2) [108] of the Truth in Lending Act ‘‘(k) PROHIBITION ON STEERING INCENTIVES! Allowing a mortgage broker to adjust the margin for a higher payout without disclosing this to the buyer ANYWHERE in the paperwork, is not allowing rate choices (par/pts) to the consumer.


Municipalities are, without doubt, legally entitled to take possession of these assets, particularly in light of "Kelo v. New London" which expanded the definition of "public use." Clearing blight and restoring homeowners to possession under a new and fair deed of trust are certainly valid public uses. Moreover, municipalities are justified in compensating current mortgage holders based upon the prevailing fair market price, not the over-inflated value mortgage bankers et al. keep on their books. When shorted investors whine about taking a big haircut, they ought to recall that investment carries risk: that is the essence of capitalism. If investors want recourse, they ought to sue the bond rating agencies and the investment banks for the obvious fraud they committed.
The banking industry, specifically the Calif. Bankers Ass'n, The Ass'n of Mortgage Investors, the Securities Industry and Financial Markets Association, and various Realtors associations threaten than they will pull out of lending in these communities if these appropriate eminent domain remedies are put in to place. Such threats expose these bad actors for the bullies that they are.
San Bernardino County successfully formed a Homeownership Protection Program Authority in 2012 to undertake this same kind of remedy, and we should encourage other cities like Richmond to likewise move ahead without fear from these market bullies.
Another great resource on this strategy is Michael Sauvante's 2012 book, "Eminent Domain."

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