Richmond gets radical, seizing foreclosed homes from banks

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The banks have neglected their foreclosed homes in Richmond far more than the city and its residents would.
Creative Commons/CoCoACCE

As a rule of thumb, we at the Guardian tend to believe that if the banking and real estate industries are against something, then we’re probably in support of it. But that’s not the only reason that I’m so intrigued about the possibilities of Richmond taking ownership of hundreds of foreclosed homes, using eminent domain laws as needed, to keep people from being evicted and rejuvenate the community.

Richmond officials want to take over 624 homes that are underwater in that foreclosure-plagued city, becoming the first city in the country to do so. San Bernardino had considered and rejected the idea earlier, largely because of opposition from banks and threats that they might stop lending in the city. But Richmond officials appear to be holding tough against such extortionary threats and moving forward.

KQED’s Forum did an interesting segment on the situation this morning, following up a report from Democracy Now! on Tuesday (KALW also did something on this last month), with the bankers and Realtors offering up all kinds of unfounded concerns and fear mongering to confuse the issue. Because this is a truly radical action that Richmond is considering, in the best sense of that term: banks and those who control property have too much power over our lives, and it’s about time a city takes some of that power back on behalf of its people.

This is like nationalizing the assets of corrupt capitalists who have gone too far in subverting the broad public interest, a populist shot over the bow of the people who consider themselves our economic masters, from Wall Street right down San Francisco’s Chamber of Commerce and Association of Realtors.  

As Richmond Mayor Gayle McLaughlin told Democracy Now: “The banks sold our community predatory loans, and now they have no solution that they’re presenting for this crisis. So we are stepping in to fix the situation. We’re stepping in by taking these troubled loans off the hands of the banks. And we’re paying them fair market value for these loans, and then we’re working with the homeowners to refinance and modify loans in line with current home values. So we call on the banks to voluntarily sell us these loans. And if they don’t cooperate, we will be considering eminent domain.”

Just think about the possibilities of this: cities could seize all their most distressed properties, then pay fair market value (which would be at fire sale prices for rundown homes in communities with high foreclosure rates), have the residents work with city officials to turn the area around and thus substantially increase the value of those homes, and eventually sell those homes at a profit, either to their current occupants or some other city residents (choosing buyers based on social considerations, not strictly financial ones). If it works on a small-scale, it could be ramped up to larger and larger scales, with cities selling bonds to buy real assets that would only go up in value as properties get more attention than these absentee bankers have been giving them.

If predatory entrepreneurs can buy these short-sale properties and flip them for a profit, why can cities do the same thing and do some good for their people in the process?

Comments

Or did they emerge from it eventually? Probably worth mentioning in your story.

As I recall, it was already the murder capital of the Bay Area - even worse than Oakland - and then they had to fire a lot of their police force, so that their cops hardly respond to anything any more.

And yet Richmond has the money to buy these homes? And remember, eminent domain still requires to pay the full market value of these homes,

There isn't enough money on the planet to nationalise housing, even assuming that anyone thought it was a good idea. But I suspect the banks secretly like this idea, for all their complaining. What will the city do when these homeowners still don't pay their mortgage? Either they will foreclose or they will just eat the loss on the taxpayers dime,

I'm glad I don't live in Richmond.

Posted by Guest on Aug. 08, 2013 @ 1:41 pm

There was a fantastic NY Times article on Richmond's program published on July 29; clearly the Guardian's crack news team is breaking stories faster than usual.

http://www.nytimes.com/2013/07/30/business/in-a-shift-eminent-domain-sav...

In all seriousness, the NYT story explains the economics, which actually appear to work. Many homeowners in Richmond are massively underwater; by using eminent domain (which requires only fair market value compensation) and then writing down the mortgage to about 30K above that value, the city actually stands to make money while keeping whole neighborhoods from becoming Detroit-style uninhabited wastelands, and the homeowners get to stay in their homes and actually start out with some equity.

The only losers are banks who would rather sit on uninhabited homes to choke supply, which raises the paper value of their housing assets, which they can then borrow against.

Posted by Guest on Aug. 08, 2013 @ 2:04 pm

We do, as the taxpayers bailing them out.

So what you are really saying is that you want the taxpayers to bail out the taxpayers?

I'd rather the city spend our money on vital public safety services and not on ideological-based social engineering.

Posted by Guest on Aug. 08, 2013 @ 9:41 pm

This is structured in a way that taxpayers will likely come out ahead. The losses will be eaten by the banks, exactly as it should be.

That said, I'd rather have the taxpayers bail out the taxpayers, than the taxpayers bail out the banks which is what we've been doing.

Posted by Greg on Aug. 09, 2013 @ 7:23 am

at an agreed price and, in fact, that can happen now under existing law. The problem here is fairly obvious and is the massive moral hazard with the misuse of eminent domain. If the city really will make a profit from this deal then they shouldn't be using eminent domain to get the assets on the cheap. They should buy the mortgages or homes on the open market - that I have no problem with.

That said, as noted, Richmond has massive problems with public safety and with a fiscal deficit. This is a distraction. Solve the real problems.

Posted by Guest on Aug. 09, 2013 @ 7:40 am

What the banks did to our communities is a moral hazard. The city is perfectly justified in using eminent domain. And, as noted, Chevron's negligence is a real problem that caused real physical and financial damage.

Posted by Guest on Aug. 09, 2013 @ 7:56 am

I do not think "moral hazard" means what you think it means.

Posted by Guest on Aug. 09, 2013 @ 8:11 am

but it is certainly a very far cry from what eminent domain was intended to do, and SCOTUS has been quite strict on municipalities abusing their position and power in this way in the past, so don't get your hopes up that you can achieve socialism in America by the back door.

And the banks did nothing to our communities. That's a myth. It was the greed of homebuyers that caused them to buy homes and take on mortgages that any reasonable person would have known were not viable. I know a few people who defaulted or were foreclosed on and, bluntly, they were all stupid.

Taxpayers should not be bailing out stupid people.

Posted by Guest on Aug. 09, 2013 @ 8:21 am

I have lived in Richmond for 15 years and the city does not have a deficit. The city budget is balanced and has been as long as I have been in town. The West Contra Costa Unified School District had a serious deficit problem but that was over 20 years ago.

As to public safety, violent crime is way down and continues to decrease. The city hired Chris Magnus to be Chief of Police about 7 years ago. He implemented an across the board community policing program and other reforms and they are working. It once was true that Richmond had a serious problem with violent crime but the worst of it was in the early 90s.

So please do not continue to spout your wrong information about Richmond.

Posted by ChrisDarling on Aug. 09, 2013 @ 7:34 pm

"In March 2010, Richmond, California The second California city in the top ten list of most dangerous cities in the United States ranks as number 3 in terms of auto theft and terms of murders."

Wikipedia

Posted by Guest on Aug. 09, 2013 @ 11:02 pm

Richmond isn't in foreclosure. Also, Oakland has a much higher homicide rate than Richmond, not to mention a higher crime rate. I just bought a home in Richmond because Oaktown is a hot mess, has no police force, crime is way up, etc. Have you read the papers lately about the random shooting victimes? People who say unfortunate things about Richmond tend to really not know the facts about the city.

Posted by Guest on Aug. 13, 2013 @ 9:39 am

I heard Green Party Richmond Mayor Gayle McLaughlin on KPFA the other day. Here's the mayor of a small town standing up to one of the richest and most powerful corporations in the world. She's leading the charge on the city's lawsuit to recover some of the damage that Chevron did to the community, knowing full well that every election they're going to try to destroy her with all their might. If that wasn't enough, she's standing up to the big banks by using the city's eminent domain powers to take over the mortgages of distressed properties, and then restructuring those loans to stabilize communities and keep people in their homes.

And she doesn't come off as a strident ideologue. She's a soft-spoken woman who simply cares about her community and is willing to do the right thing. Even if it pisses off the powerful. This is what leadership looks like. These are the kinds of creative solutions they talk about when they say politics is the art of the possible. Why can't all politics be like this?

Meanwhile... in my own hometown... Mayor Ed Lee is coming up with "creative" solutions like copying the retrograde stop and frisk program, giving away taxpayer money to corporations, letting a billionaire rape the city for his private yacht race, and most recently, making noises about taking away labor rights... Scott Walker style.

Posted by Greg on Aug. 08, 2013 @ 2:58 pm

The America's Cup was net positive for San Francisco.

The BART strike has exposed the farce that is organized labor. Janitors making $125k demanding 23% raises, give me a break.

Posted by Guest on Aug. 08, 2013 @ 3:12 pm

engaged in the time-honored tradition of distraction. Rather than deal with Richmond's real problems i.e. the insane rate of violent crime or their dire fiscal situation, she is instead engaged in vanity projects and snarky lawsuits, trying to get the voters to not notice how the city is falling apart.

If you think Richmond is a more desirable city than SF, I strongly suggest that you move there. There's a reason all those homes are underwater.

Posted by Guest on Aug. 08, 2013 @ 9:44 pm

Something you wouldn't know if it came up and bit you in the ass.

She is dealing with real problems. Dismissing 15,000 people being sickened is a slap in the face. 15,000 people being sickened is a real problem. It's also a crime. It's a violent crime. If someone sends me to the hospital, that sure as hell is a violent crime. That makes Chevron the biggest violent criminal in Richmond, and the mayor is showing some real leadership dealing with it.

It's also an economic crime. Richmond is the only city in the Bay Area that has seen a decrease in property values in the year since the fire. That may have something to do with why some of those homes are still under water. I sure as hell wouldn't want to live in the shadow of the refinery either. So that's a massive amount of economic damage that Chevron has inflicted on the city- intangible, but very real.

Posted by Greg on Aug. 08, 2013 @ 10:19 pm

real story here is Richmond being a disaster of a city anyway, with the highest murder rate per capita in the Bay Area.

If I were the Mayor of a city where I had no ideas for solving that, and had fired many of my police officers, then I'd be looking for distractions and scapegoats as well.

Posted by Guest on Aug. 08, 2013 @ 10:53 pm

Cup $125k Janitors positive farce net farce The exposed Cup $125k Cup, raises give, organized positive positive. Positive The The The, Janitors, $125k give net San strike Cup America's positive. Net Janitors break exposed.

Raises net, demanding exposed Cup demanding raises give, BART positive Cup farce San organized raises making Janitors.

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Posted by anon on Aug. 08, 2013 @ 5:02 pm
Posted by Guest on Aug. 08, 2013 @ 9:45 pm

LOL.

Good luck ever getting a mortgage in Richmond, ever again.

Posted by Guest on Aug. 09, 2013 @ 7:24 am

Glad I'm not a Richmond taxpayer.

And good luck anyone in Richmond trying to get a mortgage if this goes through. It will become a mortgage wasteland.

Posted by Guest on Aug. 09, 2013 @ 8:24 am

Sooo you are left wing radicals who prefer anarchy and communism instead of capitalism?

Posted by Guest on Jul. 16, 2014 @ 12:26 pm

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