Calif. City To Use Eminent Domain To Stem Foreclosures

Aug 1, 2013
Originally published on August 1, 2013 1:49 pm

The city of Richmond, California, has plans to become the first city in the country to use eminent domain to stop home foreclosures.

Eminent domain is typically used to force homeowners to sell their property to make way for a new sports stadium or highway, for example.

But earlier this week, Richmond announced it had sent letters to banks and mortgage holders, threatening to use eminent domain to seize more than 600 underwater mortgages if lenders don’t agree to sell them the loans by mid-August.

The idea comes from the San Francisco-based private equity firm Mortgage Resolution Partners, which is helping Richmond. The firm is also working with cities and towns across the country that are considering this approach.

Wall Street banks strongly oppose the plan, threatening lawsuits if it goes through. Critics in the banking industry argue that using eminent domain in this way could hurt the housing market.


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Eminent domain is typically used to force homeowners to sell, making way for maybe a new sports stadium or a highway. But the city of Richmond, California is likely to be the first city in the country to use eminent domain to keep people in their homes.

Earlier this week, Richmond announced it had sent letters to banks and mortgage holders threatening to use eminent domain to seize more than 600 underwater mortgages if lenders don't agree to sell those loans for about what the houses are worth now. The idea comes from the San Francisco-based private equity firm Mortgage Resolution Partners, which is helping Richmond on this.

Gayle McLaughlin is mayor of Richmond, and she's with us now. And Mayor, take us through this. The city first tries to make a deal with the bank to buy the mortgage at today's fair market value. And if the banks don't agree, then what happens?

MAYOR GAYLE MCLAUGHLIN: If they refuse to cooperate with us, then we will consider moving forward with acquiring these loans at fair market value through eminent domain.

HOBSON: And you would then essentially pay them the same amount that you were willing to pay them before for those loans.

MCLAUGHLIN: Yes. The fair market value is the purchase price that we will be putting out there for either voluntarily acquiring the mortgages or, if necessary, the consideration of eminent domain to purchase them.

HOBSON: And then you would do what with the homeowner in order to try to keep them in the home?

MCLAUGHLIN: So the homeowner, in the meantime, stays in their home. And what we do is we reach out to the homeowners, and we explain to them this opportunity that they have to be a part of this program. It's up to the homeowner whether they opt in or opt out. We think most will opt in, and then we bring the transactions to the city council. And the city council ratifies the transactions, whether they are the voluntary purchasing of the loans or the consideration of eminent domain to acquire them.

HOBSON: Now, Mayor McLaughlin, there has been a lot of criticism of this. There are a lot of concerns about it, and I want to go through some of them with you. First of all, the banks are saying this is going to raise prices for everyone, raise the interest rates that everyone is going to have to pay, whether they're in a troubled mortgage or not, because nobody's going to want to lend to anybody in Richmond.

MCLAUGHLIN: Well, first of all, we've looked into this, and we think these are just threats that they're making to get us to back down. I mean, the only entities that we're aware of, the only opponents that we're aware of, are Wall Street lobbyist groups. And they are trying to get us to back down, and of course you know, we are, you know, unwilling to do so because we stand with our homeowners. This is a problem that has not been fixed by the federal government nor by these institutions, which frankly should have been fixed a long time ago.

And we think this is a simple and fair transaction. The owners of the mortgages will receive fair market value again for these loans. It's in their interest. It's in everyone's interest to avoid foreclosure. And if any of these Wall Street entities move in terms of restricting credit and lending to Richmond, we believe strongly that we have a strong legal case against them. This amounts to redlining, and we most definitely have the legal standing on our side.

HOBSON: But you may not have the support that you need in Washington. Representative John Campbell - he's a Republican of California - has introduced a bill that would prohibit Fannie Mae, Freddie Mac and the Federal Housing Administration from making or ensuring mortgages anywhere that do what you want to do here and use eminent domain in this way.

MCLAUGHLIN: Right. Well, I think that bill is being fought, and I see it as something that will not be approved because of the strong understanding by many cities, states and many in federal offices who understand the importance of resolving this crisis.

HOBSON: Now, San Bernardino County did want to do this. They announced they were going to do exactly this last summer, and then they abandoned those plans. What do you think that they figured out that you have not?

MCLAUGHLIN: Well, first of all, the reason, you know, they backed off was because of the Wall Street lobbyists that pressured them, and they succumbed to that pressure. In Richmond, we are not succumbing to that pressure. There was also a flaw in the process in San Bernardino. They did not have a community outreach piece. So the Wall Street perspective ruled the day, if you will. In Richmond, you know, there is that strong outreach program. Groups like the Alliance of Californians for Community Empowerment has done town hall meetings. You know, we think we have filled in the gaps that San Bernardino has - did not at the time. And we see more and more cities joining us, and I look forward to this becoming a national movement.

HOBSON: Mayor McLaughlin, one of the things that a lot of cities have done is just waited for prices to come back. And in a lot of the country, there is a rebound in the housing market, in some places more than others. What is the housing market like right now in Richmond? Have you not felt any of that rebound in prices?

MCLAUGHLIN: In some of our neighborhoods there has been some rebound in prices, but in a lot of them there have not. We have now I think it's 900 and something homes that actually last year went into foreclosure. And we have about 835 that are expected as future foreclosures. The situation in Richmond is such that we have a lot of our residents who were targeted by these predatory lenders, and they targeted people of color, often low-income minority communities. Richmond is predominantly a minority community.

And while certain areas of the country and certain parts of Richmond are experiencing a rebound, predominantly Richmond is not, and this has to be stopped. There's no way that an economic recovery for the country as a whole is going to occur when we have low-income people throughout the country still suffering from this crisis.


Gayle McLaughlin is the mayor of Richmond, California. Mayor, thank you so much for talking with us.

MCLAUGHLIN: Thank you very much. I really enjoyed it. Transcript provided by NPR, Copyright NPR.