The City of Richmond, California, has taken the lead in the fight against Wall Street banks in order to protect homeowners who have mortgages under water. Through the legal concept of "eminent domain," the city intends to use its power to force banks to the negotiating table. Eminent domain is a State power that permits compulsory expropriation of private property for public interests. The City of Richmond, California, proposed a re-negotiation of mortgages to some of the largest banks in the nation with the threat that the city will exercise its power of "eminent domain" to repossess the properties and sell them back to their owners at current residential market prices if the banks do not re-negotiate the mortgages. Banks, in turn, responded with a lawsuit against the City of Richmond, California, complaining that the proposal is a Constitutional violation of the Commerce Clause because the action benefits residents of Richmond, CA, at the expense of investors outside the State, reported the Wall Street Journal Online.
The Bank's legal action didn't work, however. On September 12, 2013, the Federal Court in San Francisco rejected the banks' complaint, leaving banks to decide whether to negotiate with the city or appeal the decision of the Court. (Reported by The Press-Enterprise at www.pe.com and San Francisco BayView at www.sfbayview.com).
This is very good news for homeowners who are angered that their mortgages are valued much higher than the value of their properties in the residential real estate market. But what the City of Richmond's action shows is that this solution requires political activism, including action by savvy politicians at the local level. Owners should work with their local representatives to take community action in the same manner as it happened in the City of Richmond, California.