Saturday, September 14, 2013
2013-09-12 "Richmond's eminent domain quest allowed to proceed"
by Carolyn Said from "San Francisco Chronicle" [http://www.sfgate.com/business/article/Richmond-s-eminent-domain-quest-allowed-to-proceed-4810357.php]:
A federal judge Thursday said it would be premature to take the "extraordinary" step of halting Richmond's eminent domain quest. But U.S. District Court Senior Judge Charles Breyer said he might consider putting a lawsuit by two major banks against Richmond in abeyance rather than dismissing it outright.
In a 40-minute hearing in San Francisco, attorneys for plaintiffs Wells Fargo and Deutsche Bank who filed suit on behalf of bondholders argued that Richmond's threatened eminent domain seizure of underwater mortgages "is going to happen imminently."
Attorneys for the city and Mortgage Resolution Partners, the private San Francisco firm assisting it, pointed out that the Richmond City Council would first need to schedule and vote on a "resolution of necessity" to exercise eminent domain - and that a supermajority of five votes are necessary for that to pass.
In an early-morning decision Wednesday, the council voted 4-3 to pursue the possibility of eminent domain by creating a joint powers authority and continuing to study the issue. A decision to move forward would make Richmond the first city in the nation to use the power of eminent domain to seize underwater mortgages.
While the council does not appear to have the crucial fifth vote to actually act, bank lawyers argued that two other council actions indicate the city will follow through. The council voted 6-0 (with one abstention) in April to partner with Mortgage Resolution Partners, and in the early-morning Wednesday meeting, it voted 5-2 to reject a motion to abandon eminent domain altogether.
"Given their commitment to go ahead, that resolution of necessity is just an administerial act," said John Ertman, speaking for the plaintiffs. The city's lawyers "are arguing there's theoretical possibility the council may change their mind. That is just pure speculation."
However, the judge didn't buy his argument.
"While (the case) raises serious issues and I'm sympathetic to that fact, I do not believe it's ripe at this point," he said.
Breyer gave both parties until 5 p.m. Friday to file supplemental briefs about whether he should dismiss the case or hold it in suspension. He will rule Monday, he said.
If Richmond were to invoke eminent domain, Breyer said, he would act quickly in response to a lawsuit.
"When people's houses are on the line, I appreciate that there is a need for expeditious, immediate response by a court," he said. "It's not the sort of thing that goes to court and sits there. (If that happened) I wouldn't have a problem with (the banks') argument about the immediacy of necessity of relief."
Richmond Mayor Gayle McLaughlin said afterward that she was pleased with the judge's finding that the banks' lawsuit was "way, way premature." Her resolution, passed by the council, calls for a series of steps, she said.
The banks and other mortgage lenders have taken a strong position against the city's plans, arguing that the use of eminent domain would disrupt the financial markets and make it more difficult for homeowners to obtain future mortgages in Richmond.
Already, the financial markets have reacted negatively to the city's efforts, refusing to participate in a municipal bond sale shortly after Richmond made its plans public.
2013-09-10 "Why a Small California City Could Be Wall Street's Worst Nightmare"
by Josh Harkinson from "Mother Jones" magazine [http://www.motherjones.com/mojo/2013/09/richmond-eminent-domain-wall-street-nightmare#13791421979941&action=collapse_widget&id=237504]:
The outcome of the foreclosure crisis—and the fate of many investors who bet on it—may hinge upon a city council vote tonight in a little-known working-class suburb (see update below). The Northern California town of Richmond (population: 105,000) will decide whether it wants to become first city in the country to use eminent domain to rid itself of underwater mortgages. The securities industry has threatened to make life miserable for Richmond and its residents if they move ahead with the plan.
In late July, Richmond sent letters to 32 banks and other mortgage holders, offering to buy 624 underwater mortgages at discounts to the homes' value. None of the offers were accepted. Richmond must now decide whether it will use eminent domain—a power more often used to build roads or shopping malls—to seize the homes, paying a court-determined fair market value.
Richmond would carry out the purchases with the help of Mortgage Resolution Partners, an advisory firm run by a politically connected group of investors. (Read my original story on MRP's eminent-domain plans here [http://www.motherjones.com/politics/2013/01/eminent-domain-mortgage-gluckstern]) After Richmond seizes the loans, new lenders arranged by MRP would step in and essentially refinance them. The borrowers would stay in their homes, and the new loans would reflect the current value of the properties. In this scenario, a family in Richmond that bought a $300,000 house that's now worth $200,000 would see its monthly payments decrease by $300 to $800.
For more than a year now, MRP's chairman, Steven Gluckstern, has been trying and failing to convince some of the cities worst hit by the foreclosure crisis to adopt his eminent domain plan. Politicians in San Bernadino, Salinas, and about a dozen other towns flirted with the idea to varying degrees before getting cold feet. But Richmond is supposed to be different: "We're not willing to back down on this," Richmond's Mayor Gayle McLaughlin, a former schoolteacher, told the New York Times in July. "They can put forward as much pressure as they would like, but I am very committed to this program and I've very committed to the well-being of our neighborhoods."
That, however, was before the Contra Costa County Association of Realtors began blanketing the town with misleading mailers. "Don't let Wall Street take another bite out of Richmond homes," one flyer admonishes. There's a grain of truth to the claim—Gluckstern himself is a former Lehman Brothers investment banker. But the fact that Wall Street trade groups actually oppose MRP's plan may be lost on average voters.
The securities industry recently sued Richmond in federal court seeking a preemptive injunction against its eminent-domain strategy. A judge will hear that case on Thursday.
Tonight, assuming it doesn't delay the decision, the Richmond City Council will vote to either proceed with the plan, terminate it, or to move it forward only if MRP can indemnify the town against all unintended side effects—something Gluckstern says is impossible. "In life, there is no such thing as a free lunch," he says. "You've got to weigh whatever small likelihood of a potential loss against the upside."
An anti-MRP mailer from the Contra Costa Association of Realtors:
UPDATE: At a meeting attended by hundreds of residents on Tuesday night, the Richmond City Council voted 4-3 to proceed with the MRP plan. Richmond will now form a Joint Powers Authority to administer the program along with any other cities that want to team up with MRP.
The vote comes amidst an active grassroots campaign in support of the plan by labor unions and left-leaning consumer groups such as the Alliance for Californians for Community Empowerment (ACCE) and the Home Defenders League.
At a Monday press conference, San Francisco Supervisor David Campos announced that he will propose a resolution before the city's Board of Supervisors expressing support for the Richmond plan and calling on San Francisco to pursue a similar foreclosure-reduction strategy.