Aug 7 (Reuters) – An investor group filed a federal lawsuit
against Richmond, California, to prevent the city from using
eminent domain to seize mortgages of local residents who owe
more than their properties are worth in a bid to keep them in
their homes.
The lawsuit was filed on Wednesday in a northern California
court by mortgage bond trustees Wells Fargo and Deutsche
Bank on behalf of an investor group that includes
Pacific Investment Management Co, or PIMCO, BlackRock Inc
and DoubleLine Capital LP.
The northern California city recently sent notice to the
holders of more than 620 so-called underwater home mortgages in
the city, asking them to sell the loans to the city. It would
buy the mortgages for 80 percent of the fair value of the homes,
write them down and help the homeowners refinance their loans.
The investor group said if the city of Richmond is allowed
to go ahead with its plan it may result in steeper down payment
requirements and higher interest rates.
“The purpose of the lawsuit is to protect retirees and
savers from an unlawful and unconstitutional seizure of private
property and prevent severe damage to the country’s home
mortgage market,” the investor group said in its filing.
Ropes & Gray LLP, the law firm representing the
institutional investor group, uploaded a copy of the filing on
its website. The filing is not yet available on the court
website.
Richmond is working with San Francisco-based Mortgage
Resolution Partners (MRP), a private investment firm that has
been pitching the plan to U.S cities and municipalities for more
than a year.
MRP, raising money from private sources, would work with the
city to obtain the financing to buy the distressed mortgages and
restructure them. MRP would receive a fee for every troubled
loan it restructured under the plan.
The investor group said in its filing that the program is a
profit-driven strategy designed to enrich Richmond, MRP and its
financial backers.
“Such a program does not involve a legitimate ‘public use’
for which the government’s eminent domain power is expressly
reserved,” the group said.
The institutional group requested the court to prevent
Richmond from going ahead with its program and declare its plan
to seize mortgages as unconstitutional.
“MRP has reviewed the lawsuit and is confident that it is
without merit. The actions of the city of Richmond and MRP are
entirely within the law, and any loan purchase will be at fair
value. No investor in any trust will be made worse off by the
sale of any loan,” MRP chairman Steven Gluckstern said in a
statement issued to Reuters.
The case is in re Institutional Investor group vs City Of
Richmond, California and Mortgage Resolution Partners LLC, Case
No. 13-3663, U.S. District Court, Northern District of
California.
