SAN FRANCISCO (CN) - It is premature to challenge a city's plan to help homeowners avoid foreclosure by using eminent domain and then refinancing the mortgages, a federal judge ruled.
Richmond, Calif., had sent letters just this past summer to the holders of 624 home mortgages that are underwater, asking them to sell the loans to the city or face eminent domain.
The Bank of New York Mellon, as trustee for the residential mortgage-backed securitization trusts that include the Richmond mortgages as issue, and Wilmington Trust sued the city for an injunction.
They claimed that the scheme would violate state and federal laws and the Constitution, including the takings, commerce and contracts clauses. Richmond's advisers at Mortgage Resolutions Partners were also named as defendants.
Just two months ago U.S. District Judge Charles Breyer dismissed a nearly identical case brought by Wells Fargo, and Richmond moved to dismiss the current complaint on the same grounds, arguing that the issue is not yet ripe.
Breyer agreed Wednesday finding the case premature since Richmond has not yet exercised eminent domain and might not do so in the future.
Pursuant to state law, the city cannot move forward with the plan without a supermajority vote from Richmond's City Council to use eminent domain. No such vote has taken place yet.
The Bank of New York Mellon argued that its complaint is ripe because "it involves 'an actual controversy' caused by defendants' 'active threat of an unconstitutional exercise of the city's eminent domain power,'" Breyer summarized. "Specifically, plaintiff contends that passage of the eminent domain program is a foregone conclusion such that the city council's required vote is a mere formality. Additionally, plaintiffs argue that the threat of eminent domain constitutes a significant economic hardship to the bank and its investors."
Breyer found that the litigation is too uncertain at this time, before the council votes to adopt the plan, to establish that the case is ripe for determination.
"If the courts were expected to intervene in every legislative proposal that had potential constitutional ramifications, their dockets would be filled with prospective litigation," the 10-page opinion states "This is exactly the purpose of the ripeness doctrine; where, as here, factual contingencies could arise that would make litigation unnecessary, it is not reasonable to expect the courts to devote their resources to resolve undefined and potentially non-existent constitutional conflicts."
The bank also argued that, even though the council has not adopted the eminent domain proposal, the plan is fit for determination because Richmond already issued letters to homeowners, the mayor is supportive of the plan, and MRP has raised $46 million in private financing.
Breyer found that the letters detailing events that would occur if the city chooses to adopt the proposal are not active threats. Therefore, the "case is not fit for review because of the existence of a controversy depends on a factual scenario that might never materialize," he said.
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