Richmond, Calif., is poised to become the first U.S. city to try eminent domain as a means of stopping foreclosures. The results will be closely watched by Wall Street banks as well as a host of other cities nationwide that are considering adopting the same approach. Banks staunchly oppose the use of eminent domain to purchase mortgages and slash homeowner debt, cautioning that such a move will result in a wave of litigation and grind mortgage lending to a halt in any city that goes this route. Richmond Mayor Gayle McLaughlin, undaunted, states, "We're not willing to back down on this. They can put forward as much pressure as they would like, but I'm very committed to this program and I'm very committed to the well-being of our neighborhoods." Some 50 percent of all homeowners with mortgages in Richmond owe more -- in some cases three to four times more -- than their residence is presently worth. Earlier this week, city officials sent a round of letters to the owners and servicers of the loans, offering to purchase 626 underwater loans. Some of these owners are already behind on the payments, while others are considered to be at risk of default. More than 20 other local and state governments, including Newark and Seattle, are looking at the eminent domain strategy. Irvington, N.J., passed a resolution supporting its use earlier this month, while North Las Vegas is set to consider an eminent domain proposal by the end of this summer.
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