RICHMOND -- The city's quest to become the first in the nation to seize underwater mortgages through eminent domain will likely rest on the ability of backers to sway one councilman whose support for the concept is offset by his concerns over the legal and financial risks facing Richmond.

Despite a City Council vote early Wednesday to move ahead with the effort, one of the plan's supporters acknowledged afterward that the odds against it are growing longer because of the resistance of Councilman Jim Rogers, who initially supported the idea and holds the critical fifth vote needed to invoke eminent domain.

"It's good that we didn't stop last night, that we are moving forward," Councilman Tom Butt said. "But it's going to be tough."

After hours of heated debate, the City Council voted 4-3 to continue its partnership with a San Francisco investment firm on crafting a plan to potentially seize underwater mortgages and refinance them at terms the homeowners can afford.

But invoking eminent domain requires a supermajority vote by the council, or five of seven council members, per state law. That means proponents would need to sway one of the three councilmen who dissented Wednesday -- raising the specter that the council victory supporters scored may be more of a last gasp than a step forward.

Councilmen Nat Bates and Corky Boozé have made clear they want the plan to die, leaving Rogers as the only "no" vote that proponents can hope to flip. But to do that, they must convince him that the city bears no risks in implementing the plan with investment firm Mortgage Resolution Partners.


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"I need to see MRP with full financial responsibility over this, with no risk to the city's taxpayers," Rogers said Wednesday. "I don't care what form the protection takes, but they have to work it out and prove to me that they have it."

During the council meeting hours earlier, Rogers told his council colleagues and more than 400 residents in attendance that "a 1 percent chance of bankruptcy with this program is a deal breaker for me." Rogers floated a resolution at the meeting to move forward only if the city were fully protected against a potentially costly Wall Street lawsuit, but it failed by a 5-2 vote.

Critics of the plan said the city faces dire legal and financial consequences if it proceeds.

"Unless Rogers has a change of heart, this eminent domain is a dead issue," Bates said. "But we need to kill it before it does any more financial damage to our city."

Banks are suing the city in federal court to halt the plan, and investors have shunned Richmond's municipal bonds in recent weeks.

But Mayor Gayle McLaughlin was undeterred. The council majority supported her proposal to continue crafting a plan with MRP and form a Joint Powers Authority to administer the program and draw in more cities as partners.

"Waiting for the next wave of foreclosures is the real risk," McLaughlin said during the meeting. "It's time for us to take a stand."

Richmond residents and homeowners attend a City Council meeting at Richmond Memorial Auditorium on Sept. 10, 2013. The council decided to become the first
Richmond residents and homeowners attend a City Council meeting at Richmond Memorial Auditorium on Sept. 10, 2013. The council decided to become the first city in the country to use eminent domain to seize underwater mortgages. (Ray Chavez/Staff)

Richmond has threatened to invoke eminent domain if security trusts for more than 620 delinquent and performing underwater mortgages reject offers made by the city to buy the loans at deep discounts pegged to the properties' current appraised prices. The city would work with MRP to refinance the mortgages and reduce their principal.

Bates proposed to kill the plan, saying the risks to the city's economy were too great, but his proposal was rejected 5-2.

McLaughlin said she hoped other cities would join the Joint Powers Authority. City Manager Bill Lindsay, who brought the eminent domain plan to the council earlier this year, said it's crucial that the city not face Wall Street alone.

"I would put myself in the go-forward-cautiously camp," Lindsay said. "But there is concern about being the single entity going forward ... economic sanctions can be used against one city effectively."

MRP has unsuccessfully sought to partner with several other cities in the past year.

Opponents, led by Wall Street banks and the mortgage industry, hoped to halt the plan with a combination of marketing efforts, appeals to council members and in court. Banks acting as trustees for mortgage-bond investors sued in federal court, arguing that the city's plan is unconstitutional. Mortgage industry representatives say the plan would cause credit to dry up in the city and drive down rebounding home values.

Although MRP has agreed to pay all legal expenses incurred by the city in defending legal challenges to eminent domain seizures, the firm has not been able to secure insurance for the city against a legal judgment.

Lindsay acknowledged at Tuesday's meeting that if Richmond goes forward with the plan, the council "needs to be concerned about the effect on the city's ability to access the credit markets."

On Thursday, U.S. District Judge Charles Breyer will hear banks' lawsuit seeking a temporary injunction against the plan. An amicus brief filed Monday by nonprofit legal and civil-rights groups in support of the city argues that if the mortgage industry shuns Richmond borrowers, it would violate fair-lending laws.

Rogers said MRP decided weeks ago to not purchase insurance for the city because of steep costs. Internal emails among city staff last month indicated that MRP was unable to secure insurance because of widespread media coverage of the risky, unprecedented plan.

"They changed their game plan, and that's a big deal to me," Rogers said at the meeting. "The empire has struck back, and if we lose a big judgment in court, who it's really going to hurt is our low-income residents."