Big bank lawsuit tossed as underwater mortgage plan moves ahead

by MPA18 Sep 2013

A federal judge on Monday threw out a lawsuit filed by big banks against a city that is pursuing a controversial plan to help underwater homeowners.

The city council of Richmond, Calif., voted last week to move forward with a plan in which the city, in partnership with the private firm Mortgage Resolution Partners, would buy underwater mortgages, seizing the properties through eminent domain should the note-holders refuse to sell.

The plan has drawn fire from industry groups and government regulators, however. A group of investors including PIMCO and BlackRock last month sought a court order to block the plan. Mortgage bond trustees, including Wells Fargo and Deutsche Bank, filed a lawsuit questioning the plan’s constitutionality. 

U.S. District Court Judge Charles Breyer, however, questioned the timing of the suit last week, saying he doubted Wells Fargo and Deutsche Bank had a case before the city had actually used eminent domain to seize a mortgage. On Monday, Breyer dismissed the case entirely, according to a Reuters report.
"Ripeness of these claims does not rest on contingent future events certain to occur, but rather on future events that may never occur," Breyer wrote in his ruling.

Even if Richmond’s plan survives legal scrutiny, however, it may still face an insurmountable obstacle. Forbes reported last week that California law requires a supermajority of the city council to vote yes on each and every eminent domain seizure. In Richmond, a supermajority is five votes. Last week’s decision to move forward with the plan passed 4-3.


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