The city of Richmond, Calif., was the first municipality to approve the use of eminent domain to acquire underwater mortgages in an effort to reduce foreclosures. But because the city council has been unable to muster the supermajority five out of seven votes necessary to actually use eminent domain, it will need to partner with another community to form a joint powers authority and carry out the plan. To date, it has not had any takers.
There are two major reasons why other municipalities are likely hesitant to partner with the city of Richmond and Mortgage Resolution Partners, a private company which developed the eminent domain program. The first is the threat of litigation from the banks and trusts that hold the rights to underwater mortgages. The second is the threat of the withdrawal of support from the Federal Housing Finance Agency, the bedrock of residential mortgage lending in America.
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