Legal Threat Over City's Eminent Domain Plan
August 8, 2013
Mortgage giant Freddie Mac is threatening legal action against the city of Richmond, Calif., which is planning to use eminent domain to seize underwater mortgages.
Officials in Richmond, a San Francisco suburb, reportedly have been offering to buy troubled loans from mortgage companies at prices below the properties' market value. The city's plan is to then write down the loan balances for the home owners and refinance the loans into government-backed mortgages.
However, the city has said that if the mortgage companies refuse to sell the loans, it will seize them through eminent domain. Richmond officials have identified 624 mortgages — 180 of which are delinquent — that they want to condemn through eminent domain, The Wall Street Journal reports.
Proponents of the plan argue that it will help residents curb loan debt and avoid foreclosure. Other cities across the country have been considering plans similar to Richmond's.
But Freddie Mac is issuing a warning to Richmond officials to tread carefully.
“Our sense is that so-called voluntary loan sales would not be very voluntary. They are loan sales under pressure,” William McDavid, general counsel of Freddie Mac, said on a recent conference call. “We would consider taking legal action” if Freddie Mac receives the backing of its federal regulator, the Federal Housing Finance Agency.
Source: “Freddie Mac Considers Legal Action to Block Eminent Domain Plan,” The Wall Street Journal (Aug. 7, 2013)
Updated: May 22, 2020