Manatt Partner Comments on California City's Plan to Seize Underwater Mortgages

"Eminent Domain Plan to Seize Underwater Mortgages Could Sink City"
The Street

August 20, 2013 - Manatt's Edward Burg, a partner in the firm's Litigation Division, spoke to The Street about Richmond, California's plan to seize underwater mortgage loans from investors.

The Street reports that the City of Richmond is determined to seize the loans using its right of eminent domain. Major investors holding the mortgage loans in question, which include Fannie Mae and Freddie Mac, have challenged the constitutionality of the proposal, which has little chance of success in court and may have serious repercussions for the City. Federal agencies, such as the Federal Housing Finance Agency, have also raised concerns. Legal experts told the publication that the plan, though creative, is ill-advised.

"There are a lot of assumptions in this plan that just won't work," said Burg, who regularly represents property owners in eminent domain cases in California. "They are taking way too much risk for too few benefits. This is an uncertain area."

Burg told The Street that the proponents of the plan ignore the fact that most borrowers who are underwater on their mortgages continue to pay their loans because they simply have to. They need housing and rents are rising sharply, and walking away from a mortgage is easier said than done.

Read the article here.