The tool they're threatening to use is eminent domain, not to build freeways, but to buy troubled mortgages. Other cities have tried it only to be barraged with lawsuits from lenders.
"So today, we stand here, the people of Richmond, and we call on these banks to really do the right thing," Richmond Mayor Gayle McLaughlin said Tuesday. She has decided to take on some of the country's biggest mortgage lenders and come what may. "If we face litigation, our private partners will cover the costs," she said.
McLaughlin and other city leaders have enlisted the help of a group of investors and legal advisors called Mortgage Resolution Partners. Together, they have sent letters to lenders that hold 624 mortgages. It contains an offer from the city to buy the mortgages at market rate. The city would then help the homeowner refinance at the lower rate.
Each home is currently upside down, meaning the owner owes much more than the house is worth. "We bought our home in 2005 for $450,000. I just received a notice from the county assessor saying our house is currently worth $125,000," said homeowner Patty Castillo.
The lenders including Chase, Wells Fargo, and Bank of America have until August 13 to accept the offers. If they don't, the city council may try to seize the mortgages under eminent domain.
"There is tremendous legal authority for Richmond, if necessary, and only if necessary, to do in the public interest, to condemn underwater loans through the use of eminent domain," said Bill Falik with Mortgage Resolution Partners.
"I believe in personal accountability," says Jeff Wright, a realtor in West Contra Costa County. "When lenders make loans in a community, they have a risk model established. There are certain risks associated with making loans. Eminent domain was certainly was not something that was factored into the equation."
The California Mortgage Bankers Association also told ABC7 news that if the city goes ahead with its plan, lenders may be less likely to finance properties in Richmond.
