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
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
“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
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
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.