SAN FRANCISCO -- A federal judge has dismissed a mortgage industry lawsuit that sought to derail Richmond's unprecedented plan to use eminent domain to seize underwater mortgages and refinance them to help homeowners avoid foreclosure.
U.S. District Court Senior Judge Charles Breyer ruled Monday that the case was not yet ripe to be heard because the city has not decided to act.
Breyer opted to dismiss the case rather than put it on hold until the City Council votes to use eminent domain, which would require a supermajority, per state law.
"Ripeness of these claims does not rest on contingent future events certain to occur but rather on future events that may never occur," Breyer wrote. "Plaintiffs are not, for example, challenging a proposal of the City Council that may or may not raise constitutional concerns depending on the contours of the final version -- put simply, there may never be a 'final version.'"
The lawsuit seeking a preliminary injunction was filed by Wells Fargo, Deutsche Bank AG and The Bank of New York Mellon on behalf of investors against Richmond and its investment firm partner, Mortgage Resolution Partners.
Monday's ruling came as little surprise following a Thursday hearing at which Breyer repeatedly brushed aside arguments by the investors' attorneys that eminent domain action was imminent.
Attorneys representing the city and its partners compared the suit to "challenging immigration reform long before Congress adopts it."
Reeling from foreclosures and with the city saying 51 percent of its residents owe more than their homes are worth, Richmond voted in April to enter a tentative agreement with MRP to explore the unprecedented plan of using eminent domain to seize mortgages and refinance them at current market rates. But final action requires five of the council's seven votes, which could be a tall order considering that only four of seven voted last week to continue to study the plan.
Plan supporters rejoiced Monday.
"Now that the court has dismissed Wall Street's frivolous lawsuit, we can get about the business of saving homes," Amy Schur, a campaign director for the national Home Defenders League, wrote in an email. "We expect more cities to now follow Richmond's lead and take steps to enact this local principal-reduction program."
John Ertman, an attorney for the plaintiffs, said in a statement: "Today's ruling addresses only the matter of timing before the courts. This is not a victory for the program and only postpones the day that Richmond and MRP will have to defend this program in court."Contact Robert Rogers at 510-262-2726 or email@example.com. Follow him at Twitter.com/roberthrogers.