Richmond’s Eminent Domain Plan Causes Divide

Eminent domain is a strong power of the government. It can be used to improve roadways and expand educational systems just as easily as it can be abused …

Eminent domain is a strong power of the government. It can be used to improve roadways and expand educational systems just as easily as it can be abused on a local and national level.

Recently the city of Richmond, CA proposed a program which would utilize its governmental powers and provide mortgage loan relief to local residents by seizing underwater mortgages. The mortgage loans would be purchased at a significant discount by the local government’s partner, Mortgage Resolution Partners (MRP), and refinanced into more affordable loans. Richmond plans to seize 624 mortgages in the area under the eminent domain law.

The city is doing this partially to incentivize residents to remain in their homes and therefore pay their mortgage loans and property taxes.

Although the plan has positive sounding intentions, residents and political leaders do not support the plan and believe it would surpass the required powers of a city.

The Power of Eminent Domain

In order for the government to seize property under eminent domain, there needs to be a public purpose achieved by the property acquisition and there has to be just financial compensation for the owner.

The first use of eminent domain traditionally falls into categories of road widening, school openings or government property development. The second use is for redevelopment where the government takes a property and allows another organization to profit off of it.

Eminent domain allows for the government to take less tangible properties as well. In the past, courts have granted the government permission to take items ranging from insurance to stocks.

But one attorney is unsure if the local Richmond law is being overstepped when requesting mortgage loans.

Anthony DellaPelle, an attorney with eminent domain firm McKirdy & Riskin, questions whether this case fulfills the legal confines of eminent domain law. Due to the state-by-state nature of eminent domain laws, it can become difficult.

If a property is taken by the government, some states require “blight” to be present in the area.

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“Redevelopment is allowed because the public purpose that it serves is generally described as the removal of blight,” he said.

DellaPelle has not noticed anything to signify that the areas in Richmond area are blighted.

Two separate homes that could be seized under the plan were purchased for over $1 million. The plan is purchasing mortgage loans for homes with balances ranging from $98,000 to $1.12 million — hardly poverty stricken prices.

Furthermore, some of the homes are not even underwater on their mortgages, DellaPelle said. Underwater mortgages are present in practically every city and state across the country, yet no other city is trying to amend this with such a controversial program.

Part of the controversy could be with the eminent domain law itself.

DellaPelle said that besides the right to imprison people, eminent domain is one of the most awesome powers that the government has. Just as it can assist in building American cities, it can be equally as destructive.

“Some people believe eminent domain was never intended to try and save people’s ability to get themselves out of bad financial deals,” he said. “There is a very legitimate view that worry about whether this power is being extended too far, to a power it was never intended to have.”

If the Richmond plan passes, DellaPelle questions how far it could push in the future. Could the government seize other debts such as credit cards and student loans?

Opposition and Legal Recourse

Predicting a future outcome is unnecessary at this stage since the resistance to the Richmond plan has been so large.

The California Association of Realtors (CAR) released a statement to stating the organization opposes the use of eminent domain as proposed by MRP. The organization said the mortgage loan seizure fails the “public use” requirement of eminent domain.

“Seizing these mortgages will deter lending in those communities that implement eminent domain because future mortgage notes would be vulnerable to seizure,” the CAR statement said. “The result would be at best, an increase in the cost of funds and at worst, a prohibition of some of all government-backed loans in an area.”

The organization believes that only the MRP will benefit from this action.

“Richmond residents are left to deal with the high cost or lack of mortgages for years to come,” CAR said.

But CAR is not the only large organization opposing the Richmond plan.

Mortgage giants, Fannie Mae and Freddie Mac, in addition to several investment firms, have filed a lawsuit against the city. The plaintiff group claims that the Richmond plan is unconstitutional.

Unnecessary Outsourcing

Bonnie Russell, president of Personal Public Relations, is more worried about the company behind the plan, rather than the mortgage seizures themselves.

“What is stuck in my head is the number of people that didn’t want to talk about this company,” she said.

Russell said she has followed MRP for over a year and is not impressed with her findings, especially because of the company’s lack of two-way communication, unspecified plans and easily earned fame. They were a brand new company, and out of nowhere, appeared in the New York Times.

Even beyond the company’s secret nature, Russell questions why MRP is necessary in the city’s plans at all, and said there is too much outsourcing going on.

“The city does not have to go outside itself in order to help itself,” Russell said.


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