A federal judge has denied Wells Fargo’s request for an injunction against the rollout of a California city’s controversial eminent domain plan for rescuing underwater borrowers, HousingWire reported Sept. 17.
U.S. District Court Judge Charles Breyer dismissed the case without prejudice because it wasn’t ready for court since it was predicated on events that have not yet occurred.
The city council of Richmond, Calif., voted two weeks ago to purchase underwater mortgages in the city from bondholders using the power of eminent domain and then modify those mortgages to help troubled borrowers.
Plaintiff Wells Fargo filed for a preliminary injunction against the city, indicating that if Richmond exercised eminent domain as planned, the move could cause a massive disruption in the nation’s mortgage finance system. Richmond filed a motion to dismiss Wells Fargo’s claims.
Wells Fargo can refile once Richmond actually moves forward with its eminent domain actions, HousingWire reported.
The mortgage industry has argued that if eminent domain proceeds, it could hurt future lending in the city because banks and investors would be worried about investing in mortgages that might be seized if they don’t perform well.
Richmond is the nation’s first city to proceed with an eminent domain plan for rescuing underwater borrowers.
John Ertman, a partner with Ropes & Gray, told HousingWire that the Sept. 16 court ruling only addressed the matter of timing and that the eminent domain issue will, inevitably, be taken up in court.
“This is an unprecedented application of eminent domain powers that we believe is facially unconstitutional,” he told HousingWire. “If implemented by the city, this eminent domain program will cause economic harm to millions of savers and retirees throughout the United States.”