Richmond wins the first battles in its war against big banks on behalf of underwater homeowners
It will be a long war, but for now, Richmond is winning.
Two battles in the start of the city of Richmond's war on foreclosures were fought and won in the past week. A US District Court of Appeals judge dismissed Wells Fargo's lawsuit against Richmond's controversial plan to use eminent domain to save residents with underwater mortgages (see "Not for sale," Sept. 3). And Mayor Gayle McLaughlin successfully fought off legislation at the Richmond City Council to torpedo the plan before it started.
"I'm willing to go as high as the Supreme Court to settle this on behalf of our community," McLaughlin told us. These are the first fledgling steps in that long fight, a fight McLaughlin calls a just cause.
Half of all mortgages in Richmond are underwater, and as homes get foreclosed upon, the problems stack up: blighted neighborhoods, declining property tax revenues, public employee layoffs, rising crime, and homeless families. To stem the tide of foreclosures, Richmond teamed with Mortgage Resolution Partners (MRP) to attempt to buy the loans of 624 underwater mortgages and allow the owners to keep their homes.
Richmond's government sent out offers, and it is still waiting to hear back from the owners of the loans.
The controversy comes when the banks that hold the loans refuse to sell. In that case, Richmond would invoke the power of eminent domain to seize the mortgage loans.
Wells Fargo said in its lawsuit that this is a plan to line the pockets of MRP and the city of Richmond, a greedy and unconstitutional land grab. Eminent domain has never been used for this purpose, but as the judge noted in the lawsuit's first hearing Sept. 12 in San Francisco, the plan has yet to be acted on.
"Okay, let's end the suspense, I don't believe (the case) is ripe for determination," Judge Charles Breyer told the attorneys from Wells Fargo. "There are a series of steps that can or cannot take place.... If they do take place, that's the time for the court to take a look at it."
Breyer noted that if and when Richmond wanted to use eminent domain to seize mortgage loans, the council would need to file a resolution of necessity through state court. At that point, he could act.
On Sept. 16, the case was dismissed. Too little has happened, and it is entirely too early to make any decisions, Breyer said.
Stacey Leyton, a lawyer representing Richmond in the lawsuit, explained the judge's decision plainly: "Courts are not supposed to review legislative actions before the (legislative body) has decided which action to take."
The Guardian reached out to Wells Fargo but we were told that it had nothing to say beyond its court filings, and referred us to the investors in the loans, of which Wells Fargo is a trustee.
But why is Wells Fargo pushing so fast for the courts to intervene? The eminent domain plan could mean a possible loss of revenue for Wells Fargo and the investors it represents, sending chills down the spine of Wall Street, a representative of MRP said.
MRP founder John Vlahoplus told us the eminent domain tactic is powerful because for Wells Fargo, legally challenging every municipality in the United States is much tougher than paying off a few fat cats in Congress.
So the stakes are high: if Richmond wins the eminent domain battle, cities across the country could use the tactic to rescue underwater mortgages, and the families that would otherwise lose their homes, swinging the balance of power from Wall Street toward cities.
Score one for Richmond, and zip for Wells Fargo, so far.
But the real drama happened closer to home. Before Richmond could fight the enemies from without, it fought the enemies within.
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