Representatives of bond-holders in Richmond, California are taking the town hall to court to try to stop a plan to replace their mortgages with smaller loans in cases where residential properties are worth less than the loan. Ropes & Grey is acting for the bond-holders. The lawsuit, filed in San Francisco, estimates that losses could amount to $200 million in Richmond and to 'billions of dollars', if the scheme were rolled out across the US. The plan, says the complaint, also 'violates the United States Constitution'. This is because a government power, known as 'eminent domain', which is normally used to force home-owners to sell up to enable railway lines to be built is proposed to be used in this situation to replace their mortgages and give them more affordable debts.
Lawyers attacked
Mortgage Resolution Partners, the investment group working with the city of Richmond on the scheme, attacked the lawsuit and the use of lawyers to bring it. The company is quoted in the Financial Times as saying: 'Sadly, the financial institutions that brought us this crisis are yet again part of the problem rather than part of the solution. They are siphoning off Americans’ savings to pay law firms and other unnecessary costs rather than realising fair value for their trust investors and allowing Richmond to get on with protecting itself and its residents.'
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