A federal judge in San Francisco on Monday dismissed a mortgage industry lawsuit led by Wells Fargo Bank that tried to block the plan by the city of Richmond, Calif., to use eminent domain to seize underwater mortgages, according to the court order.
U.S. District Judge Charles R. Breyer ruled the lawsuit was not yet ready to be decided in a court. He dismissed the case rather than hold it in abeyance.
Bill Lindsay, Richmond city manager; Patrick Lynch, housing director; and Peter Ragone, spokesman, were unavailable for comment at press time.
“Today's ruling addresses only the matter of timing before the courts. This is not a victory for the program and only postpones the day that Richmond and MRP (Mortgage Resolution Partners) will have to defend this program in court,” said John Ertman, partner at law firm Ropes & Gray, on behalf of the directing certificate-holder group in a written statement. “This is an unprecedented application of eminent domain powers that we believe is facially unconstitutional. … We stand ready to act at the appropriate time to prevent this unconstitutional investment scheme from unfolding in Richmond or elsewhere.”
Under the city's proposal, investment firm Mortgage Resolution Partners plans to pool investors that would pay off the holders of the underwater mortgages at close to appraised value and, at the same time, offer homeowners new mortgages at lower amounts.
“For many months, banks have made outrageous legal claims about proposals for cities to acquire mortgage loans,” said Steven Gluckstern, chairman of Mortgage Resolution Partners, in a written statement. “It is offensive that the banks have wasted the assets of American pension funds and other investors pursuing this frivolous litigation. The banks should now reimburse the trusts that own the mortgages for all costs of this ill-conceived litigation so that American savers do not bear the cost of the banks pursuing their own special interests at the expense of investors, borrowers and America's cities.”