City attempting to seize underwater mortgages via eminent domain: constitutional objections, potential investor losses

By Paul J Hall, Isabelle Ord and Charles L Deem

The city of Richmond, California has commenced the process for taking by eminent domain hundreds of notes secured by mortgages on underwater residential properties owned by investors through residential mortgage backed securities (RMBS).

This is the first time a government entity has implemented a novel concept that some law professors and a for-profit company have been advocating and shopping to many local governments as a solution to the mortgage crisis.

Rather than waiting to defend individual eminent domain actions in state court, last week bank trustees of many RMBS sued in federal court in San Francisco to stop the city’s seizure programme…

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