The Richmond City Council in California voted to move forward with a controversial plan that would utilize the power of eminent domain to restructure underwater mortgages.
Richmond CARES, a local group advocating for the proposal, confirmed late Tuesday that the city council voted 4-to-3 to move forward with the initiative.
When the eminent domain deal was proposed earlier this year, the thought was that it would allow local city officials to seize underwater mortgages using the power of eminent domain. This would then allow officials to adjust the existing loan terms for troubled borrowers.
Mortgage Bankers Association CEO David Stevens called the plan a “short-term solution for a few underwater borrowers that will have severe negative long-term costs for every homeowner in the city.”
The controversy over whether or not to approve the plan in Richmond was not the first battle over eminent domain. Back in January, the Homeownership Protection Program Joint Powers Authority declined the proposal to use eminent domain in San Bernardino County, California. Then just last week, the North Las Vegas city council unanimously rejected the idea of using eminent domain.
The debate over whether or not to go through with the Richmond plan, however, was much more highly scrutinized and publicized than the other proposals. Traditionally, eminent domain has worked against homeowners that are forced to sell their property to make way for a new landmark. However, Richmond planned to use the program’s power to assist people to stay right where they are.
As the plan became closer to a reality in August, attorneys for banking institutions began to push back against Mortgage Resolution Partners as well as the City of Richmond in court. The banks argued that many of the targeted 624 loans are not even underwater.
"The eminent domain seizure of mortgage loans by the City of Richmond will cause a serious and immediate threat to the U.S. mortgage market…," wrote Phillip Burnaman, co-founder and principal of Murry & Burnaman in a court declaration.
Just Monday, Mortgage Resolution Partners Chairman Stephen Gluckstern bailed on a debate with Realtor Jeff Wright, which raised the question: Was MRP that unconfident in its product?
As of Tuesday night's vote, Richmond is the first municipality to keep the plan alive after undergoing full city council consideration.