RICHMOND, Calif. (AP) — A working class San Francisco Bay Area city is considering invoking eminent domain to condemn and seize hundreds of underwater mortgages to help troubled homeowners. The controversial move would be the first of its kind in the country.
In a letter sent to investors Monday, Richmond officials said the city would invoke eminent domain if investors rejected its offer to buy 626 underwater mortgages, the San Francisco Chronicle reported.
Eminent domain is generally used to seize private property for public use, such as buying property for a freeway.
Richmond also sees it as a tool to prevent foreclosures and help its residents. Several other cities around the country are considering similar moves.
"After years of waiting on the banks to offer up a more comprehensive fix or the federal government, we're stepping into the void to make it happen ourselves," Richmond Mayor Gayle McLaughlin told reporters Tuesday.
Richmond would help struggling homeowners refinance into new mortgages in line with the home's current worth.
Zillow.com says 47 percent of mortgages in the city are underwater.
The proposed move has drawn significant opposition from some banks and investors who say seizing the mortgages would violate property rights. Opponents also said such action would make borrowing more expensive for everyone in the community, and in some instances, deter banks from offering mortgages in the city.
"We think it is unconstitutional, illegal and very bad policy," said Chris Killian, managing director of the Securities and Financial Markets Association, a trade group representing banks, securities firms and others.
San Bernardino County and two of its cities backed away from a similar scheme earlier this year after opposition from mortgage and investment industry groups.
The Federal Housing Finance Agency said last year it has "significant concerns" with the proposed use of eminent domain by local governments to keep homeowners saddled by large mortgage payments from losing their homes. The agency considered blocking cities' ability to do so.