An attorney for investors on Friday vowed to “immediately” re-file a lawsuit against Richmond if the city takes steps toward adopting Mayor Gayle Mclaughlin’s plan to seize underwater mortgages through eminent domain.
The threat came after investors withdrew their appeals of a federal court ruling that had dismissed their original lawsuits to block Mclaughlin’s controversial eminent domain proposal, known as the Richmond CARES program, according to a Reuters report.
The original lawsuits were dismissed by U.S. District Judge Charles Breyer in September. The judge at the time ruled that the lawsuits were premature, since Richmond CARES has not been employed or adopted by Richmond City Council.
On Friday, investors withdrew their appeal of the judge’s ruling for the same reason: The mayor’s plan hasn’t materialized, said John Ertman, a lawyer representing mortgage trustees Wells Fargo and Deutsche Bank.
But Richmond can expect to be slapped with another lawsuit if Richmond CARES gains council approval, Ertman told Reuters.
Richmond CARES is a well-intentioned program aimed at rescuing local residents whose homes are worth less than the amount owed on their mortgages. The proposal would have the City of Richmond acquire more than 600 underwater mortgages at fair market value, possibly using eminent domain powers if creditors refuse to sell.
Usually, eminent domain powers are only used by governments to seize properties that stand in the way of planned roadways or other infrastructure projects. The goal of Richmond CARES is to keep residents in their homes and allow them the ability to afford their monthly mortgage payments, thus stabilizing communities.
But financial institutions say the use of eminent domain to seize underwater homes would have a negative effect. They warn the plan could halt mortgage lending in any city that employs it. Investors say the program would steepen down-payment requirements and increase interest rates.
“We continue to believe that using eminent domain to seize mortgage loans is unconstitutional, and harmful to homeowners and ordinary savers with a pension, 401(k) or IRA,” Ertman told Reuters.
The warnings have forced some Richmond councilmembers to vote against Richmond CARES.
While Mclaughlin has been trying to convince other cities to join the eminent domain proposal in order to strengthen Richmond’s legal authority, thus far there have been no reports of interest from other jurisdictions.