(Updates with bondholder’s statement in fourth paragraph.)
Sept. 16 (Bloomberg) -- BlackRock Inc.’s lawsuit with other bondholders to block Richmond, California, from seizing underwater home loans through eminent domain was dismissed by a federal judge in San Francisco.
U.S. District Judge Charles Breyer ruled today that the case had to be dismissed, rather than put on hold, because the claims depend on “future events that may never occur.”
Breyer told lawyers in court on Sept. 13 that bondholders’ request for an injunction blocking the city from continuing to pursue the plan was premature because city council members hadn’t voted on whether to go to state court to seize the loans.
Today’s ruling “addresses only the matter of timing before the courts,” John Ertman, a lawyer representing the bondholders, said in an e-mailed statement. “This is not a victory for the program and only postpones the day” that Richmond and Mortgage Resolution Partners LLC, a firm that will provide financing for the plan, “will have to defend this program in court,” he said.
Bank trustees for bondholders including Pacific Investment Management Co. and DoubleLine Capital LP sued last month alleging constitutional violations in Richmond’s plan use eminent domain to seize more than 600 loans on which the amount owed is more than the value of the property and refinance them to give homeowners built-in equity.
Richmond Mayor Gayle McLaughlin and lawyers for Mortgage Resolution Partners say the plan will prevent foreclosures and blight. Lawyers for the trustees allege that some of the targeted loans are still performing and the plan will harm investors and disrupt the U.S. housing market if it’s allowed to proceed and other communities follow suit.
The cases are Wells Fargo Bank v. City of Richmond, 13-03663, and Bank of New York Mellon v. City of Richmond, 13-03664, U.S. District Court, Northern District of California (San Francisco).
--Editors: Peter Blumberg, Michael Hytha