Richmond, California Mayor Gayle McLaughlin is pushing a radical idea. She’s pressing her city to take over 624 homes that are underwater in this foreclosure-plagued city. San Bernardino had considered the same proposal but had to reject the idea after the banks threatened they might stop lending to the city.
Richmond city officials aren’t backing down. They’re embracing the idea, moving forward, against the bank threats. The city says they’re tired of watching bank bailouts with little or no help to their community. They’re looking at their decaying neighborhoods and are shrugging off the threats.
Richmond wants to take over the ownership of these foreclosed homes using eminent domain laws as needed. They’ve stated they can save homeowners from eviction and will rejuvenate their community.
Most of the homeowners are massively underwater. Eminent domain only requires payment of fair market value, then writing down the mortgage. Traditionally, eminent domain forces the sale of property to make way for highways or malls, but oddly, in this case the eminent domain would help the homeowner stay where they are. (Eminent domain includes all types of property.)
Banks and realtors have voiced their concerns and fears over such drastic moves. The city is saying banks and those who control property have too much power over their lives and it’s time the city take back some of that power on behalf of the people.
Mayor McLaughlin put out a statement, “The banks sold our community predatory loans, and now they have no solution that they’re presenting for this crisis. So we are stepping in to fix the situation. We’re stepping in by taking these troubled loans off the hands of the banks. And we’re paying them fair market value for these loans, and then we’re working with the homeowners to refinance and modify loans in line with current home values. So we call on the banks to voluntarily sell us these loans. And if they don’t cooperate, we will be considering eminent domain.”
Basically the city would seize their most distressed properties and pay fair market value. At this point in time – those prices would be rock bottom or at fire sale prices. Most of these properties lay in communities with high foreclosure rates. The owners would then work with the city to turn their area around, increase the value of their homes and eventually the city would sell the homes to the current resident or other city resident at a profit.
Richmond city officials say they’d start this on a very small scale and work up to larger numbers. These officials believe they can sell bonds to buy real assets that would go up in value as properties get more attention than the absentee bankers have been giving them. They reason if predatory flippers and investors can buy these short-sale properties and flip them for a profit, then why couldn’t the city do the same thing and help their citizens in the process?
Would the banks rather sit on uninhabited homes (stopping the supply therefore raising prices)? Wall Street banks have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt and warn such a move will bring lawsuits and halt mortgage lending to any city that tries it. But residents feel the banks have had enough bailouts and it’s time for another course of action.
Last year, a massive fire at the Richmond Chevron refinery sent toxic smoke over the town. More than 15,000 were treated for respiratory problems. Chevron pleaded no contest to six criminal charges related to the fire but the damage to the community and subsequent falling housing prices was done.
Mayor McLaughlin, a former schoolteacher serving her second term said, “We’re not willing to back down on this. They [banks] can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.”
Currently, there are about 20 other areas considering eminent domain strategy including Newark, Seattle and North Las Vegas.
Perhaps the Mayor’s efforts won’t be realized, but at least the city is thinking of creative ways to help solve their problems. If you’ve ever seen photographs of Detroit’s empty, decaying neighborhoods where rows and rows of these homes barely stand, creative thinking may just be what’s needed.
Keith A. Gantenbein, Jr. is a Colorado consumer advocate attorney, foreclosure defense and real estate attorney located in Denver and servicing all of Colorado. His foreclosure defense practice includes: foreclosure prevention, foreclosure assistance, loan modifications, short sales, and all other foreclosure defense legal assistance. He also handles bankruptcies, wrongful credit reporting, mortgage negotiations, lender liability, real estate, civil litigation, debt defense, debt harassment, contracts and landlord/tenant. If you think you will be facing debt collection, foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.