Richmond, Calif., is poised to become the first city to use eminent domain to provide relief to distressed homeowners, The New York Times reported.
On Monday, the city of Richmond, on the eastern side of San Francisco Bay, sent letters to owners and servicers of loans offering to buy 626 distressed mortgages, The Times said.
If the offers are rejected, Richmond plans to invoke eminent domain to condemn underwater mortgages and purchase them from investors for 80 percent of the value of the homes associated with them.
After seizing the loans, the town would write down the balance of those mortgages to a degree that would put them above water, leaving once-underwater borrowers with loans whose balances no longer exceed the values of their homes.
Some investors would receive less than half the balance of their loans for selling them to the city.
The tactic has raised concerns among the National Association of Realtors, investors and financial trade organizations, which argue that it’s unconstitutional, unfair to investors and would raise borrowing costs.
It has even sparked legislation that would prohibit government-backed mortgage guarantors from insuring any mortgages in areas that use eminent domain to seize loans.
Such opposition derailed plans to use eminent domain to help distressed homeowners in San Bernardino County, Calif. Source: The New York Times