Plan to save underwater borrowers draws court action from lending giants

by Adam Smith08 Aug 2013

An eminent domain play to save underwater borrowers isn't sitting well with a some of the nation's large investors and lenders.

A group of bond investors including PIMCO and BlackRock are seeking a court order to block an eminent domain bid by the city of Richmond, Calif., Bloomberg has reported. MPA previously reported that the city has proposed a partnership with Mortgage Resolution Partners (MRP), a private backer which will provide the money required to buy underwater mortgages from the current holders. Should note holders refuse to sell, the city would invoke eminent domain to sieze the properties.

But a complaint filed by the mortgage bond trustees, including Wells Fargo and Deutsche Bank, has deemed the plan unconstitutional, Bloomberg reported. Investors claimed the plan was unconstitutional because it only targeted certain loans, namely underwater mortgages. And because bond holders say the city would under-pay for the mortgage notes, the complaint has claimed that it violates California and U.S. constitutional safeguards against impairing private contracts and taking private property for public use without just compensation.

Richmond Mayor Gayle McLaughlin told Bloomberg she continued to stand by the controversial plan.

“We feel comfortable with the legality of this,” she said.


  • by Jim in CT | 8/8/2013 10:49:36 AM

    Having seen in person how Deutsche Bank (among others) manages REO (in a word, 'neglect') it's not hard to see how city takeover of underwater mortgages could be construed as in the public interest and thus eligible for an eminent domain action. 2 late for Detroit, but it's a creative approach. The chickens are starting to come home to roost on all the atrocious loss mitigation practices.

  • by Bayview Mortgage Inc. | 8/9/2013 12:32:53 AM

    Fixing a realestate deal is illegal. When a bank or its investor bids on its property at a foreclosure sale to bid the price up. This action is price fixing. thus is illegal. The banks should work with the states before the courts deem all past foreclosure sales to be null and void due to price fixing by the banks and big investors.


Is TILA-RESPA a good or bad thing long term?