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View Diary: Can a Small California City Take on Wall Street - And Survive? (298 comments)

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  •  The Courts will have to be involved. Here's why. (6+ / 0-)

    First, the court is not hearing it YET because it.s not yet ripe. The principle is that Courts don't give advisory opinions -- they don't tell governments, if you do xyz, it will or will not violate the law.

    But eminent domain is a process that must go through the courts.  In order to seize someone's property, the entity doing the seizing MUST file a proceeding in Court and serve the owner of the property it is trying to seize.  Eminent domain is ultimately accomplished by Court judgment.  So, if Richmond goes through with this, the Courts MUST ultimately weigh in on it.

    •  Obviously they would have to be involved. (3+ / 0-)
      Recommended by:
      jpmassar, Tonedevil, Mr Robert

      My point was that your claim that it couldn't possibly be done is one that has yet to be tested in court.

      •  You misunderstand me. (5+ / 0-)

        I'm not saying "it can't possibly be done."  I'm saying that I don't know of any state law that allows someone to seize anything other than real estate type property -- the land.  I'm saying that (1) it definitely is something that the Courts would have to address; and (2) if the Courts interpret California law to allow government to seize contract rights, that would expand the power of all governments in California to seize contract rights.  Courts don't interpret a law -- like eminent domain law -- just for one instance.  

        I'm saying it will -- and should -- definitely be litigated, as far as I know, it's not the way the law has been interpreted before.

        •  Its doable (5+ / 0-)

          If the city ceases the property and pays off the bank at FMV, then turns around and sells it back to the occupant with a 30 year fixed mortgage then it works.  You are not taking a contract, you are taking the property and reselling it.  

          My biggest problem with the plan is that I would be starting with abandoned properties and auctioning them off on the courthouse steps to buyers who promise to repair them and live in them for 5 years.  That would be a much easier legal lift (as I understand it) than Richmond's current plan and would lay the groundwork for loan modification via eminent domain.  

          I'm a 4 Freedoms Democrat.

          by DavidMS on Sun Sep 15, 2013 at 10:26:10 AM PDT

          [ Parent ]

        •  Banks threaten it but would be stupid to do it. (2+ / 0-)
          Recommended by:
          jpmassar, AllisonInSeattle

          Why?  The discovery process.

          A lawsuit would entail trying to establish just who owns the mortgage or mortgages in question.  And as the diarist shows, many if not most of these loans have been shopped around so much that it will soon be found that the banks have been collecting servicing fees on mortgages they don't actually own.

          And that's just the tip of a really stinky iceberg.

          Visit http://theuptake.org/ for Minnesota news as it happens.

          by Phoenix Woman on Sun Sep 15, 2013 at 12:26:47 PM PDT

          [ Parent ]

          •  You have it backwards. (4+ / 0-)
            Recommended by:
            Sparhawk, jpmassar, VClib, Justanothernyer

            Read the eminent domain process.  The party TAKING the property must find the owner and make an offer to buy the property BEFORE that party can bring a court action to ake the property.

            There's a simple explanation here.  The whole process starts with the government contacting the property owner.  Every state law is like that -- the government must contact the property owner, and make an offer to buy the property at FMV, BEFORE the government can institute the eminent domain procedure.  

            So, it's the government that has to contact the owner, not the other way around.  If you are going to seize a mortgage, the government has to contact the owner of the mortgage.  In other words, it's one more obstacle for the government.  

            •  Not really. (3+ / 0-)
              Recommended by:
              jpmassar, WheninRome, raines

              From http://firedoglake.com/...

              If the banks and investment community were unsettled by the threat of eminent domain, they’re going to love what happens next: discovery.

              That one little word is the key to this whole fight, from the standpoint of Richmond. That’s the process by which Richmond’s lawyers can demand that the banks and investment firms turn over evidence and submit their officers and employees for questions under oath. In other words, they have to open their books.

              That’s not going to make the banks happy at all.

              For starters, I’d expect Richmond to force the bondholders to prove they have standing, by requiring them to provide proof that they hold the mortgage. They’ll demand that they turn over the whole MERS chain of ownership, and demand that each step in the ownership chain be proven. (Got any robosigned documents in those files?) But that’s just for starters.

              The overall structure of Richmond’s eminent domain argument is pretty straightforward:


              (1) These overinflated mortgages have caused significant portions of the city to become potentially blighted and pose serious problems to the city if the banks foreclose on them — or even if they merely threaten to foreclose — and the owners of the property move out. [See "Detroit"]


              (2) The homeowners have tried repeatedly — without success — to rework the mortgages, both with the banks who service the loans and through various federal programs, but the incentives to the servicer banks are to prolong the process, not to refinance/rework the loan, and so they delay and deny relief, while investors in RMBSs are similarly disinclined to take a haircut on their paper profits.


              (3) The City of Richmond, therefore, is left as the agent of last resort, and is taking this action to preserve the city itself.

              This is where things the lawyers for Richmond will have fun as they conduct their discovery. The banks, Freddie, and Fannie want their money on these loans, but they also want to keep their records to themselves. Forcing them to choose between the loans and their shoddy bookkeeping is a nice legal lever. Initially, I’d bet that they’d come to an agreement to rework a certain amount of these loans, in exchange for no discovery. On second thought, however, they’d be worried that if one city can get them to do this, there’d be a whole line of cities following in their wake.

              Can you say “pick your poison”?

              Visit http://theuptake.org/ for Minnesota news as it happens.

              by Phoenix Woman on Sun Sep 15, 2013 at 06:09:05 PM PDT

              [ Parent ]

              •  Discovery is what happens (1+ / 0-)
                Recommended by:
                VClib

                AFTER a lawsuit is filed.  Read the eminent domain law.  BEFORE the lawsuit is filed, the government has to find the owner of the property that it wants to take and make the owner of the property an offer to buy the property at Fair market value.  Then, if the owner doesn't take the offer. the government files suit in court against the owner.  THEN and only then, do you get discovery.  

                You don't get discovery until AFTER you file suit, and you have to file suit against the owner of the property you are going to take.  

                So yes, AFTER the government files suit against the entity that owns the mortgage, THEN it gets discovery.   But the government has to (1) make the owner an offer, and then (2) file suit before it gets to discovery.  

                That's basic, basic stuff that not just lawyers but legal secretaries and paralegals know.  

                •  There's already a lawsuit. (0+ / 0-)

                  So if it is allowed to go forward presumably Richmond could/would demand such documents from the suing parties, which are the banks.

                  •  And the judge said it's premature (1+ / 0-)
                    Recommended by:
                    VClib

                    because the City has not begun its own eminent domain proceedings.  See here.  The judge is either going to dismiss it or stay it.  

                    And that lawsuit, as far as I can tell, addressed a purely legal issue -- whether the City can use eminent domain to seize mortgages, rather than real property.  That issue is what lawyers call an issue of law -- it requires interpretation of a statute, not discovery about the specifics of individual mortgages.

                    •  Richmond has contacted the loan holders. (3+ / 0-)
                      Recommended by:
                      coffeetalk, jpmassar, raines

                      There seems to be a misunderstanding by the persons criticizing the City of Richmond over this.  

                      Once again, Richmond not only knows who owns the 624 underwater loans it's targeted for eminent domain, but it has already contacted the owners of the mortgages -- the trusts to which the banks have sold the mortgages -- and offered to purchase the mortgages.

                      As it stands now, the trusts/banks have thus far refused the offers, because they are far below the value on the books for the loans. They are not, however, out of line with the market value of the properties.

                      Again, Richmond made these offers, knowing that this was the first step in any eminent domain process.

                      Visit http://theuptake.org/ for Minnesota news as it happens.

                      by Phoenix Woman on Sun Sep 15, 2013 at 08:03:12 PM PDT

                      [ Parent ]

                  •  That's a Different Lawsuit (1+ / 0-)
                    Recommended by:
                    jpmassar

                    The pending lawsuit by the banks is a preemptive strike trying to prevent Richmond from even making the formal offers to take pursuant to eminent domain (informal offers are not offers under eminent domain law.)  They have been told it's not ripe.  It remains to be seen whether it will be dismissed (it should be given the ripeness finding). Either way, it's going up on appeal.

                    But without a stay, that won't delay Richmond in proceeding.  What will is the fact that this litigation is going to scorched earth and Richmond may well end up bankrupt over it.  Someone mentioned "hundreds of thousands of dollars".  That's been spent already, and then some.  This litigation will cost in the 10s of millions by the time it is over.  

                    [BTW, the banks are also trying to do an end run directly to SCOTUS on this case, recognizing that they are in serious short-term trouble as long as they remain in California courts, given the case law here.  We will see if the Court will choose to exercise original jurisdiction--extraordinarily rare--or not.  But folks should know that the fight is proceeding on multiple fronts as it relates to the Richmond situation.]

                •  Upon transfer and recordation (2+ / 0-)
                  Recommended by:
                  jpmassar, raines

                  all the pertinent info should be in the land records office.

                  If these instruments have been sliced and diced and moved around, oh well, TFB.........

                  Live by the MERS, die by the MERS. I can't even imagine all the fees and taxes that haven't been paid on these chimera transfers.

                  Didn't do the file, then you don't have ownership.

                •  Richmond knows who owns the 624 loans. (1+ / 0-)
                  Recommended by:
                  raines

                  They have in fact contacted the owners of the loans, who happen to be the trusts to which the banks have sold the mortgages, and offered to purchase the mortgages.

                  The trusts/banks have thus far refused the offers, because they are far below the value on the books for the loans. They are not, however, out of line with the market value of the properties, a fact the banks don't want to admit.   (Gotta reinflate the bubble, you know.)

                  The City of Richmond made these offers, knowing full well that this was the first step in any eminent domain process.

                  Visit http://theuptake.org/ for Minnesota news as it happens.

                  by Phoenix Woman on Sun Sep 15, 2013 at 08:00:01 PM PDT

                  [ Parent ]

              •  Coffeetalk (2+ / 0-)
                Recommended by:
                coffeetalk, jpmassar

                Is correct about the procedures for eminent domain.  I began my career as a lawyer doing eminent domain and the City MUST make a FMV offer prior to filing litigation and effectuating the taking.  HOWEVER, in California once that litigation is filed by the City, the taking can proceed even if litigation about fair market value (which is really, frankly, the most serious issue in the Richmond case; the other question is public purpose, which Richmond has strong arguments about but they are not bulletproof) goes on for decades.

                •  Oh, that's very interesting! (1+ / 0-)
                  Recommended by:
                  shanikka

                  The question I guess would be would Richmond want to proceed if the question of what it had to pay for FMV was still undecided (and could potentially range a lot higher than  what they thought was fair)

                  •  I Have to Believe (1+ / 0-)
                    Recommended by:
                    jpmassar

                    That Richmond has been counseled about the significant risks of proceeding including the fact that a court ultimately sets FMV in an eminent domain action if there is a dispute.  Other than that I honestly don't know.

                    •  Presumably Richmond could simply say (0+ / 0-)

                      "No, that's too high.  Keep your mortgage." if the judge or jury ruled FMV too high? OTOH, what about the court costs? Would Richmond have to pay the other side's court costs if they did that?

                      And it seems like court costs for both sides would overwhelm the usual difference in FMV estimates between the plaintiffs and the defendants.

                      •  Ayup - Unfortunately (1+ / 0-)
                        Recommended by:
                        jpmassar

                        Re: Attorney's fees and costs - absolutely yes Richmond would have to pay them, if the court finds that the government's offer of FMV was unreasonable.  (Lots of case law establishing what that is, and it's not as big of a difference between the offer and what a court finds is true FMV as you might think.) A voluntary dismissal in the scenario you describe would be construed as losing on the merits, thus entitling the plaintiffs to costs as well. The question of attorney's fees would need to be litigated--in some dismissal situations attorney fees are granted, in others they are not.

            •  Plus, Richmond knows who owns the loans. (1+ / 0-)
              Recommended by:
              jpmassar

              Again, Richmond not only knows who owns the 624 underwater loans it's targeted for eminent domain, but it has already contacted the owners of the mortgages -- the trusts to which the banks have sold the mortgages -- and offered to purchase the mortgages.

              The trusts/banks have, thus far, refused the offers, because they are far below the value that's on the books for the loans. They are not, however, out of line with the market value of the properties.  (The banks, however, don't want to admit that the valuation is so incredibly out of whack.)

              As noted earlier, Richmond made these offers, knowing that this was the first step in any eminent domain process.

              Visit http://theuptake.org/ for Minnesota news as it happens.

              by Phoenix Woman on Sun Sep 15, 2013 at 07:56:38 PM PDT

              [ Parent ]

        •  As Noted Above (1+ / 0-)
          Recommended by:
          jpmassar

          Both federal and California law expressly permit the seizing of intangible property through eminent domain (see my cites, above.)  And have for more than 100 years.

          Just because something is not often done doesn't mean it can't be done.  It can, and has been, with the blessing of the US Supreme Court itself.

          •  I appreciate the cite to the Oakland (2+ / 0-)
            Recommended by:
            jpmassar, VClib

            Raiders case.  Here's my question -- I understand seizing intangible rights when they are related to real property located within the jurisdiction of the City.  But how do you determine that?  What about if I work in Richmond and my company develops and patents a cure for cancer? Can the city seize the intangible rights of any entity that is found within its borders?  Can it seize the trading operations of Goldman Saks?  

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