Eminent Domain In The Mortgage Arena Gets A Court Test

I promise that this will be the last of the Richmond, California posts for awhile or until there's another development in the court case, but the example of political hubris merits at least some passing snark.

After writing my last post on the subject, the city was sued (paid subscription required) by some of the largest banks in the country as trustees of mortgage-backed securities trusts owned by the likes of Black Rock, Fannie Mae and Freddie Mac. In other words, entities with the financial resources to burn your house down with legal fees and costs.

The lawsuit alleges that the proposed use of eminent domain is unconstitutional because it benefits a small group of Richmond citizens at the expense of out-of-state investors, violating the law on interstate commerce. The lawsuit also argues that loans aren't being seized for a valid public purpose—a key criterion for a city that invokes eminent domain.

"Mortgage Resolution Partners has led the city of Richmond into an unprecedented use of eminent domain seizure that is unconstitutional, harmful to homeowners and taxpayers, and unfair to millions of individual savers and investors," said John Ertman, a partner at Ropes & Gray in New York.

The concoctors of the scheme, an Ivy League (albeit, the back door to the bargain basement of the Ivy League) university professor and MRP, the gang of ex-Clinton administration sharks who stand to profit well from this scheme, pooh-poohed the lawsuit.

An MRP representative said it was confident its proposal is "entirely within the law." "No investor in any trust will be made worse off by the sale of any loan," said a company spokesman.

[...]

Legal advocates of the eminent-domain plan have said that constitutional challenges aren't likely to hold up in court. The loan strategy wouldn't burden interstate commerce "because it doesn't prevent credit from flowing in any particular way," said Robert Hockett, a Cornell University law professor who advocates for using eminent domain to seize underwater mortgages.

"This is a bluff," said Mr. Hockett. "It's meant to scare city officials into saying, 'Oh, who are we to argue with the big guns.' "

Mr. Hockett isn't footing the legal bills of the city, so his bloviating from the ivory tower might ring hollow to some. Then again, a crackpot Ivy League professor-cum-Cherokee-princess concocted out of whole cloth the idea for another mammoth federal government bureaucracy designed to ensure that consumers too stupid to make their own decisions about financial products were wet-nursed from cradle to grave, and that hare-brained bureau is now "The Law of the Land" (as its creator so inaccurately put it recently). Therefore, never underestimate the damage an intellectual with no business sense can inflict on this country, especially when aided by "liberal" bureaucrats and pols who've sold out to the dark side.

The mayor of Richmond also ejaculated a breath-taking font of bravado.

Gayle McLaughlin, the mayor of Richmond, Calif., says she’s not deterred from moving ahead with the city’s plan to forcibly purchase mortgages from bondholders using the city’s power of eminent domain despite a court challenge and the possibility of additional action by a federal regulator.

“We feel strongly that we’re on legal ground,” she said in an interview with Developments. “We’re not afraid of going into the courtroom. We believe our legal reasoning will prevail.”

As any combat veteran will tell you, only the abysmally stupid or certifiably insane are not afraid of firepower on the other side of the line. One of the commenters to the linked article responded appropriately.

Note to stupid leftist mayor McLaughlin: Your hubris is not a winning legal strategy.

The lack of so many Democrats supporting you should tell you something, but if you want to self-immolate for the sake of ‘making a statement’, I will enjoy the show. Pass the popcorn!

As long as we continue in the smack-talking stage, we'll pass on giving the matter further attention. On the other hand, it will be interesting to see how this plays out. If Richmond wins in court, the next battle is going to be seeing how the federal government forces lenders to loan in Richmond without imposing a risk premium on the loans. I'm sure we can all think of many social engineering solutions to that conundrum, can't we?