A San Francisco Bay Area city voted Wednesday to try to expand a first-in-the-nation plan to use its power of eminent domain to seize hundreds of mortgages that exceed the value of homes.
The Richmond City Council voted 4-3 to set up a joint powers authority to bring more cities into the plan, according to reports in local media.
Mayor Gayle McLaughlin says the city of El Monte in Southern California has expressed interest, and she believes other cities will follow.
Under the plan, Richmond would use eminent domain to seize so-called underwater mortgages. It would then offer the bank fair market value for it and give the homeowner a new loan that would lower monthly payments and improve their chances of staying.
Banks have filed lawsuits to stop Richmond from going ahead with the strategy, and investors have shied away from purchasing city bonds since the eminent domain plan began garnering national attention.
More than 200 speakers jammed City Hall to debate the plan, delaying the vote until after 1 a.m. Wednesday.
Critics fear the city will lose its legal battle with the banks and face millions of dollars in damages if it adopts the unprecedented plan to forcefully take mortgages from financial institutions and pay them far less than is owed.
The city faces an uphill battle to implement the plan. It would take votes from five council members to grant the city the eminent powers it needs to seize the loans. Supporters mustered only four votes for the action on Wednesday.
However, the council also voted 5-2 to reject a proposal to kill the plan altogether.
“Waiting for the next wave of foreclosures is the real risk,” said McLaughlin, an outspoken proponent of the plan. “It's time for us to take a stand.”