The California city of Richmond said Tuesday that it’s ready to take an extraordinary step in its bid to stop foreclosures — threatening to wrest mortgages from the investors who now control them.
As a first step, the San Francisco Bay city said it will work with an investment firm to try to purchase mortgages of underwater homeowners at a price well below their current balances. It would then try to get those loans restructured to make them affordable.
But if the holders of the loans, who are mostly investors, refuse to sell by Aug. 14, the city said it will invoke eminent domain to seize the mortgages so it has more control over the process of making them affordable.
Eminent domain is the legal principle that lets government entities purchase land or structures, usually from reluctant owners who don’t want to sell. It is typically invoked for public uses such as parks, roads or utilities — not mortgages.
In the case of Richmond, the city argues that eminent domain is in the public interest because it could let people stay in their homes and help keep neighborhoods, especially minority communities and low-income neighborhoods, from fraying.
“After years of waiting for a comprehensive fix, we’re stepping into the void with a local principal reduction program,” said Gayle McLaughlin, mayor of Richmond.
The idea is controversial and reflects the frustration, seven years after the housing market started to collapse, of homeowners and officials in areas that are still reeling.