New Filings Reinforce the Need to Stop Eminent Domain Mortgage Seizure Scheme in Richmond, CA

by Ropes & Gray LLP
Contact

Materials illustrate the damage the scheme would inflict on millions of savers and retirees and the Richmond and U.S. housing markets

San Francisco, CA – Important new documents were filed today in the lawsuit to prevent alternative
investment firm Mortgage Resolution Partners (MRP) from proceeding with the City of Richmond,
California to seize mortgage loans through the use of eminent domain.

Today’s filings were made in direct response to MRP’s false claims that this issue is not sufficiently ripe
for the Court’s consideration. The documents show that the actions of MRP and Richmond are well underway and put every-day savers at risk of suffering irreparable harm.

“The evidence – including MRP and Richmond’s own statements, emails and memoranda – illustrate
that this case is very real, and very ripe. MRP already has taken substantial steps in implementing its
loan seizure scheme in accordance with a pre-determined plan – it has targeted specific loans, made
offers to acquire those loans under threat of eminent domain seizure, and is now preparing to
effectuate such seizures by initiating state court condemnation proceedings,” said John Ertman, Partner
at Ropes & Gray LLP on behalf of the directing certificate holder group. “MRP and Richmond have flatly
rejected all requests to suspend activity until the Court reviews the significant constitutional challenges.
The law is well-settled that injunctive relief can be considered before millions of savers suffer
irreparable harm.”

If successful, MRP’s loan seizure program would remove predominantly-performing mortgage loans
from residential mortgage-backed securities (RMBS) trusts, forcing a loss on millions of savers and
retirees nationwide.

“MRP is renting local government power to take money out of the pockets of savers and retirees across
the U.S. and line their own pockets; they are disingenuously trying to avoid the Court’s consideration of
the illegality of the seizure scheme,” Ertman added.

Today’s filings further prove:

(1) that the majority of the loans targeted by MRP are not in danger of default

(2) if implemented, the program forces real losses on millions of savers and retirees, and

(3) the City of Richmond’s housing market will suffer from lower home values and higher lending rates.

Positive equity, not in risk of default

Contrary to MRP claims, the Program primarily targets performing loans, many of which are not “under
water.” From the Reply Declaration of Phillip R. Burnaman, II:

“Most strikingly, current data regarding the Target Loans indicates that many are not underwater at all.
Indeed, while the decline in home prices from their peak in 2005 has created a substantial number of
mortgage loans with negative homeowner equity, I calculate that roughly 31% of the Target Loans have
loan-to-value (“LTVs”) below 100%, indicating that the homeowners are not “underwater,” but have
substantive equity in their homes...”

“In addition, 43% of the Target Loans are underwater but are current on their payments – i.e., they are
performing loans, and based on current house price trends, I would estimate that 45% of this group will
reach a positive equity position or be “above water” over the next two years.” See Exhibit A here.

“Contrary to the stated mission of the Seizure Program to rescue “underwater” borrowers, there is no
apparent basis to include these loans in the Program to prevent them from defaulting, even allowing for
the Defendants’ incorrect assumption that underwater loans are necessarily subject to a high default
rate.”

Mr. Burnaman’s Reply Declaration also speaks directly to the threat posed by the scheme:

“…the eminent domain seizure of mortgage loans by the City of Richmond will cause a serious and
immediate threat to the U.S. mortgage market… The Seizure Program will cause injury to PLS trusts and
consequently their certificate holders, who include individual savers and investors in pension and
retirement plans. The injury to citizens of Richmond and the State of California who are employed in the
housing and mortgage industry is equally significant and is potentially severe. The benefits of the
Seizure Program would be realized by a few and the costs would be borne by many.”

The Richmond seizure program violates multiple provisions of the U.S. Constitution, the California
Constitution and California statues:

1. The program targets for seizure mortgage loans for a private, rather than public, use, in violation of
the Takings Clause of the U.S. Constitution, the California Constitution and California eminent domain
law.

2. The program illegally reaches out beyond Richmond’s geographic borders to seize mortgage loans
located outside of Richmond, in violation of the due process requirements of the U.S. Constitution, the
California Constitution and California eminent domain law.

3. The program seeks to regulate interstate commerce, in violation of the Commerce Clause of the U.S.
Constitution, by rewriting the mortgage loan contracts between local residents and out-of-Richmond
and out-of-state creditors, with the resulting harm to the national mortgage and housing industry’s
vastly outweighing the minimal purported local benefits of the program.

4. The program nullifies the debts of local citizens at the expense of out-of-state creditors without any
legitimate public purpose, in violation of the Contract Clause of the U.S. Constitution.

More information on the lawsuit can be found here.

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Written by:

Ropes & Gray LLP
Contact
more
less

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.