Richmond Expands Battle for Eminent Domain To Save Homeowners From Foreclosure

Search form

Richmond Expands Battle for Eminent Domain To Save Homeowners From Foreclosure

Richmond Expands Battle for Eminent Domain To Save Homeowners From Foreclosure
Tue, 12/10/2013 - by Carolyn Said
This article originally appeared on San Francisco Chronicle

For Patti and Robert Castillo of Richmond, using eminent domain to prevent foreclosures boils down to a simple reality.

"We are living paycheck to paycheck just to pay the mortgage," Patti Castillo said. Reducing their principal through eminent domain "would help keep money in our pockets and let us stay in our house."

Their mortgage on a modest house now worth half of the $420,000 they paid for it in 2005 is among 624 home loans that the city of Richmond has threatened to seize via eminent domain in an effort to restructure them to be more affordable.

While homeowners like the Castillos welcome the idea, the banking industry loathes the idea of municipalities forcibly seizing mortgages and is vigorously fighting the effort. Last week, the American Civil Liberties Union filed a lawsuit against the nation's top housing regulator, seeking information on whether it's been unduly influenced by the banking industry.

The Federal Housing Finance Agency in August threatened possible legal action against localities that pursue eminent domain for mortgages, and said it might bar Fannie Mae and Freddie Mac from backing new home loans in those areas.

Now the ACLU's lawsuit seeks to uncover "the nature of (the FHFA's) relationship with the financial industry," said Linda Lye, a staff attorney at the ACLU of Northern California. "Its unusual and very aggressive stance raises potential questions of governmental integrity."

An FHFA representative declined to comment.

The eminent domain plan, in which cities would forcibly acquire mortgages at discounts, then help homeowners refinance into smaller, more affordable home loans, is at heart a form of principal reduction, Lye said.

"Principal reduction is very mainstream; there have been calls for it from entities including the secretary of the Treasury," she said. "Communities like Richmond particularly interested in principal reduction are disproportionately minority. The FHFA should be treading very carefully and looking at whether its conduct has an extra impact on communities of color. The general concern is that they would be effectively red-lined."

Banks filed lawsuits in August seeking to stop Richmond from mortgage seizures, but a federal judge dismissed them as premature. Richmond is the city furthest along in pursuing eminent domain for mortgages, but remains one City Council vote short of the supermajority needed to exert that municipal authority.

However, if Richmond or another city exercises eminent domain for mortgages, banks have signaled that they will rush to court seeking an injunction. And banks may soon have other cities to fend off.

The City Council in Newark, N.J., last week unanimously voted to study eminent domain for mortgages. That followed a November move by fellow New Jersey town Irvington to conduct a similar study.

Steven Gluckstern, founder and chairman of Mortgage Resolution Partners, the private San Francisco firm that is providing funding and advice on Richmond's eminent domain quest, said MRP does not have a formal relationship with those cities but is sharing information with them about how the plan would work.

"These efforts are bubbling up from the grass roots," he said. Several other California towns, including El Monte, Baldwin Park and Pomona (all in Los Angeles County), are considering the idea, he said.

A polarizing issue

However, both financial and political pressures continue to mount. In August, Richmond failed to find buyers when it tried to refinance some municipal bonds, an unusual snub that experts said was related to its eminent domain quest. Richmond will return to market with those bonds in January, said City Manager Bill Lindsay.

"The eminent domain program doesn't affect our credit-worthiness or ability to pay debt service, but the fact that there are headlines about it makes it more expensive for us to borrow money."

The expected cost of a higher interest rate is likely to be slightly more than $1 million over the 15-year span of the bond, he said. About a quarter of that would impact the city's general fund; the rest affects various agencies.

Richmond sold $12.1 million of annual tax revenue anticipation notes, a standard way that cities get cash flow for operating expenses, on Wall Street last week. The city's financial adviser said about $13,000 in additional interest costs might have been caused by "other factors including the headline risk associated with the mortgage risk reduction program," Lindsay said.

In moves that could presage a congressional showdown, four U.S. senators last month wrote a strongly worded letter asking the administration to oppose mortgage seizures, while 10 U.S. representatives wrote letters supporting the plan.

Eminent domain for mortgages could "scare off private capital, dry up new mortgage credit, and harm investors and taxpayers," said the opposition letter from senators Pat Toomey, R-Pa., John Boozman, R-Ark., Mark Begich, D-Alaska, and Heidi Heitkamp, D-N.D. "We are prepared to pursue a legislative solution."

The support letter raised similar points as the ACLU lawsuit, saying refusal by government agencies to insure loans changed by eminent domain would constitute discrimination.

Meanwhile, for the Castillo family, staying put carries extra urgency, as their 24-year-old son, Leon, is severely autistic. Renting was difficult, with neighbors complaining about his vocal outbursts.

They can just swing the mortgage with Robert's income as a diesel mechanic and the money Patti gets from In-Home Supportive Services for caring for Leon.

After seeing five neighbors lose their homes to foreclosure in recent years, the Castillos hope the city's plan will work for them.

"If eminent domain doesn't go through, we're not going to be able to stay here," Patti Castillo said. "We already feel the stress of raising a child with special needs. Losing our house would ruin our credit, and we'd lose our down payment. It would benefit Richmond to help keep people in their homes."

Originally published by San Francisco Chronicle

Article Tabs

low federal deficit, Federal Reserve, quantitative easing, Public Banking Institute, Reconstruction Finance Corporation

Liberals are celebrating the news that the federal deficit is $59 billion lower this year than last year and defending Obama's record in the process – but making an argument for decreased public investment is doing conservatives’ work for them.

wealth inequality, income inequality, destructive capitalism

From the failure to create jobs to the inability to rescue the environment or provide adequate housing and education, the catastrophe of modern day capitalism is more and more evident by the day – and something's got to give.

refugee crisis, Syrian refugees, EU refugee policy

With thousands of migrants standing by, Hungary's police said they intend to reinforce their positions outside the Keleti railway terminal as the volume of asylum-seekers arriving through Serbia grows by the hour.

David Ige, Hawaii energy policy, Hawaii renewable energy, carbon emissions, carbon cuts

David Ige’s decisive and ambitious energy vision is making Hawaii into the world’s most important laboratory in the fight against climate change – revealing an unlikely partnership between local government and the U.S. military.

Jeremy Corbyn, New Labour, U.K. anti-austerity movement, austerity policies

As the left-wing MP prepares to seize the reigns of his party, he is riding massive popularity on a mandate to reject austerity policies, make education free, re-nationalize the railways and energy companies, and rebuild universal healthcare.

household debt, student debt, credit card debt, debt illegitimacy, International Citizen debt Audit Network, odious debt, debt resistance, positive money, negative-interest currency

No street protests are necessary, no confrontations with riot police, to stop payment on a credit card or student loan – the financial system is vulnerable to a few million mouse clicks.

Posted 6 days 18 hours ago
Guatemala protests, Otto Pérez Molina, #RenunciaYa, anti-corruption protests, CICIG, Guatemala massacres

Pressure to impeach President Otto Pérez Molina for his involvement in a major corruption scandal that has thrown the country into political crisis is mounting.

Posted 6 days 17 hours ago
Japan Self-Defense Forces, Tokyo protests, Japan security bill

Tens of thousands of people have gathered in front of Japanese parliament to protest against security bills they believe to be unconstitutional, allowing Japanese soldiers to fight overseas in defense of national interests.

Posted 4 days 2 hours ago
350.org, The Academy of Sciences, fossil fuel divestment

The Natural History Museum and 350.org launched a collaborative campaign calling on the country’s top science and natural history museums to dump all stocks in oil, coal and gas.

Posted 6 days 17 hours ago
whistleblowers, Thomas Drake, Edward Snowden, Diane Roark, Ed Loomis, J. Kirk Wiebe, William Binney, NSA secrets, NSA revelations, National Security Agency, THINTHREAD, Michael Hayden, Keith Alexander, TRAILBLAZER, Whistleblower Protection Act

The NSA wasn't interested in having its faults pointed out – so it sent the DOJ after the whistleblowers.

Posted 6 days 17 hours ago
Occupy Central, Joshua Wong, Hong Kong democracy protests, Umbrella Movement, freedom of association, freedom to assemble, Hong Kong Federation of Students, Scholarism, Leung Chun-ying

"Today is a political prosecution," said Joshua Wong after his arrest last week. "My involvement in the Civic Square action is the best thing I have accomplished in the four years I've been involved in social student movements."

350.org, The Academy of Sciences, fossil fuel divestment

The Natural History Museum and 350.org launched a collaborative campaign calling on the country’s top science and natural history museums to dump all stocks in oil, coal and gas.

Malaysian protests, anti-corruption protests

People participating in the 34-hour protest slept in the streets overnight in an unusually calm demonstration of public outrage by the group Bersih, which means “clean” in Malay.

Privatization advocates contend that Katrina brought essential reforms to Louisiana’s education system – but the facts tell a different story, as black residents report they live in a city that has yet to recover.

Sign Up