Wall Street has a Cow as Town uses Eminent Domain to Help Homeowners avoid Foreclosure (Lazare)

Eminent Domain for the People Leaves Wall Street Furious

Housing justice advocates hopeful about innovative Richmond plan to use public seizure laws to save underwater homes from foreclosure

Sarah Lazare writes at Commondreams.org

Using the authority of state government to actually help people has Wall Street bankers in a panic, spurring threats of aggressive legal retaliation against the town of Richmond, California simply for trying to help some of its struggling homeowners.

'Eminent domain' has long been a dirty term for housing justice advocates who have seen municipalities invoke public seizure laws to displace residents and communities to make way for highways, shopping malls, and other big dollar projects.

But in Richmond, city officials are using eminent domain to force big banks to stop foreclosing on people's homes in an innovative new strategy known as 'Principle Reduction' aimed at addressing California's burgeoning housing crisis.

richmondca

Richmond became the first California city last week to move forward on a plan that has been floated by other California municipalities to ask big bank lenders to sell underwater mortgage loans at a discount to the city (if the owner consents), and seize those homes through eminent domain if the banks refuse. The city has committed to refinancing these homes for owners at their current value, not what is owed.

City officials launched this process by sending letters in late July to 32 banks and other mortgage owners offering to buy 624 underwater mortgages at the price the homes are worth, not what the owners owe.

"After years of waiting on the banks to offer up a more comprehensive fix or the federal government, we're stepping into the void to make it happen ourselves," Mayor Gayle McLaughlin said in late July.

Wall Street is furious at the plan and has vowed to sue the municipality, a threat that did not stop Richmond but did slow other California cities in adopting the strategy.

Big banks have been slammed for their damaging mortgage loan policies that target poor and working class people and communities of color with high risk loans, policies that have had a profound impact on Richmond, which has large latino, African American, and low-income communities.

Eminent domain laws also have a painful history in Richmond, but housing justice advocates are hopeful about this new twist on the seizure law.

"For years we have seen cases where eminent domain was used in a harmful way, and it really hurts low-income communities of color," David Sharples, local director for Contra Costa Alliance of Californians for Community Empowerment, told Common Dreams. "People here in Richmond talk about when they built the big 580 Freeway, and people had their houses taken and were displaced."

"But we see this as a way eminent domain is finally being used to help keep families in their homes," he added. "It is finally a way for it to be used in a good way."

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Mirrored from Commondreams.org

Posted in US politics | 13 Responses | Print |

13 Responses

  1. Three cheers for Richmond! (As a former Bay Area resident who traveled thru it often enough.)

    It is truly inspiring to see a governmental power such as eminent domain used constructively, for the benefit of local homeowners. Again, three cheers.

    The non-democratic nature of far too many local governments in America, from 1789 to the present day, is a major historical fact that receives too little attention, from either academic historians, relatively impartial journalists, or popular perception of any sort. If I may toot my own horn here, check my site’s “political ron” page for how the city manager model of city government has anti-democratic effects, yet also why some level of local government,at least in the modern American context I am most familiar with, is absolutely essential for civil peace.

  2. I wonder if the banks realize that if they sue Richmond, they will make every executive in the bank a target for the witness stand and that all of their internal communication would be subject to discovery.

    After Richmond gets done with discovery and starts roasting the executives alive on the witness stand, I wonder how quickly the banks will fold and slink off into the night?

    I wonder how long the CEO of BoA would last on the stand when he has to tell the truth or plead the fifth?

    • I think the banks are betting on being able to outspend people in court. In an endurance match, they do generally have an advantage.

      I’m not so sure about this case.

    • That’s bogus reasoning: Clearly the ability to refi ad a much higher price than the condemnation price is proof in and of itself that the condemnation price was too low.

      False. The removal of the risk of default makes the loan more valuable.

    • MPR is trying to consult with city of El Monte, but I see no evidence they are involved with Richmond. Yves is certainly right to condemn commercial operators who are just rent seeking, but local governments do not need outside sources for commercial purpose here. They can keep this in house. If they do that, what is potentially wrong that Yves spoke about are potentially moot, am I seeing this right?

  3. Sorry, but I’m skeptical of the wisdom of further government insulation of people from the downsides of leveraged speculation in risky investments. Yes, Wall Street has benefited from just that; two wrongs do not make a right.

  4. The city is taking the loans, not the homes. The city doesn’t end up owning any land. The city is doing this not to provide parks or streets, but to deal with an economic problem. There is no public land, no use of any property seized by the public.

    Remember the controversial Kelo Supreme Court case, that upheld the taking of private homes to allow the redevelopment of the neighborhood into a higher-value commercial project? These eminent domain takings are legal under the Fifth Amendment because of the doctrine, upheld in that decision, that allows the use of eminent domain for economic development, and not just to acquire land that will be used by the general public.

  5. There’s a precedent for this from the State of Hawaii.

    Almost nobody in Hawaii actually owned the land under their houses. They only leased the land from one of the 22 holding companies formed by early missionaries to the islands (“they came to do good and they done right well”). Five of those owned much of the privately held land in the islands. Sometime in the 70s (IIRC) the state realized that most of those leases were going to expire starting in the 90s and the holding companies had no intention of renewing on the original $1 for 99 years terms – they were going for some serious “revenue enhancement”.

    The state decided to require that the holding companies allow homeowners to buy the land under the houses for a reasonable rate (considering the companies got the land free from local kings who had no concept of ownership or contract law). The stick was that if the holding companies didn’t allow purchase, the state would take the land by eminent domain and sell it to the homeowners with the proceeds covering the compensation to the holding companies.

    It went all the way up to the Supreme Court who basically said “unusual remedy that we’d normally not allow, but the situation itself is unprecedented on this scale” and ruled for the state. Case was Hawaii Housing Authority vs. Midkiff.

  6. This is a win-win for the communities that do this. First of all it prevents properties from being emptied via eviction. Secondly it maintains homeowner residency and ability to pay the mortgage. Lastly the municipality gets the money for the mortgages.

  7. hehe If wall street sues all the town has to do is demand a jury trial and add a countersuit for frivolous action. Pretty sure any will make the bankers pay the town a couple million just for being bankers.

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