Pricey homes in Richmond's eminent domain plan

Point Richmond: Sold for $1.195 million. Loan balance: $888,361. City's offer: $510,727. Estimated value: $666,461. Point Richmond: Sold for $1.195 million. Loan balance: $888,361. City's offer: $510,727. Estimated value: $666,461. Photo: Brant Ward, The Chronicle Photo: Brant Ward, The Chronicle Image 1 of / 10 Caption Close Pricey homes in Richmond's eminent domain plan 1 / 10 Back to Gallery

Richmond's controversial plan to seize underwater mortgages through eminent domain includes loans for at least two homes purchased for over $1 million as well as other high-end properties - a revelation that appears to undermine the city's argument that the plan would combat blight.

The city is pursuing mortgages with balances ranging from $98,000 to $1.12 million, according to data collected by Marc Joffe, an analyst who received the property addresses, loan balances, offer amounts and other information through a California public records request and shared them with The Chronicle.

Richmond threatened last month to become the first city in the country to invoke eminent domain for underwater mortgages when it sent letters to 32 banks and other entities asking to purchase 624 home loans at a discount to current property values. If the institutions declined, the city said it would consider forcibly acquiring the mortgages through eminent domain. It would then help the homeowners refinance into smaller, more-affordable loans.

Eminent domain is the seizure of private property for a public purpose. City leaders argued that the public purpose is to keep families in their homes and prevent blight and the destabilizing impact of foreclosures. Banks say the plan is unconstitutional and would drive up lending costs in Richmond.

The data show the targeted loan balances are fairly high. A total of 121 loans are for over $500,000, with 43 above $600,000. The average loan balance is $387,800; the median is $378,920.

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Richmond's offers, which are closer to what it considers current market value, include 30 for more than $400,000 and 108 for above $300,000. The average offer is $202,678; the median is $179,900.

Undercuts argument

"Richmond is framing this issue as trying to protect down-and-out people struggling to get by against the rich banks," Joffe said. "It undercuts their argument" to have higher-end homes and loans involved. "You think they'd be careful enough to select properties of people who were really needy." If the homes in upscale areas went into foreclosure, they'd be quickly purchased, Joffe said, rather than sit vacant and contribute to blight.

More Information For maps of the mortgages by loan size, how much Richmond offered, and what percentage of the balance it's offering, click here.

Joffe, a Walnut Creek resident who consults for New York's PF2 Securities Evaluations, which offers advice on structured-finance valuations and lawsuits, said he has no financial relationship with any of the entities that control the mortgages.

Steven Gluckstern, chairman of Mortgage Resolution Partners, the private San Francisco company that is providing Richmond with financial backing, technical advice and legal resources, said the location of the homes and their prior values aren't relevant.

"We don't discriminate against anyone in this program," he said. "We don't pick and choose who's entitled to their property and who isn't. The criteria for which loans were chosen is how much underwater they are and the propensity to default."

A final cut

Patrick Lynch, Richmond's housing director, said that the city sent out the letters before performing due diligence on the properties selected by MRP, but that the city would vet the choices before it would proceed with eminent domain seizures. It is quite possible that the homes in nicer areas would not make the final cut, he said.

Richmond "would look at a number of indicators," he said. "I think one of those indicators may be the assessed property valuation, not only for that house, but for the surrounding street and neighborhood. We as a city have a sense of blight different than an appraiser, so how many houses on that street are foreclosed or underwater could be an indicator, as well as the overall health of the neighborhood."

A map of the homes targeted so far shows them evenly dispersed throughout Richmond. Nine are in Point Richmond, the city's most expensive neighborhood; 14 are in neighboring Brickyard Cove, an upscale waterfront condo community. Forty-three are in Marina Bay, another waterfront condo community.

Others are in areas that are clearly blighted, with 30 in the crime-ridden Iron Triangle and many in north and east Richmond. But a large share are in well-maintained neighborhoods such as Richmond Annex, Hilltop and El Sobrante.

Helping the whole

Gluckstern said the goal is to help Richmond in the aggregate, so it makes sense that the properties and their locations are diverse.

"A foreclosure in a pricey area hurts all the homeowners in that area," he said. "This isn't about one at a time, but achieving a large-scale solution to a problem that vexes the community. There wasn't any requirement about what your house looked like or if you were a yuppie."

The majority of the loans - 444 - are current on payments, while 180 are delinquent. The homeowners were not informed that their loans are in the pool; they will be given a choice later about whether to refinance, Gluckstern said. However, common sense indicates that any homeowner, struggling or not, would readily agree to lower their mortgage debt.

Richmond's home values fell so low during the housing downturn that it has seen little benefit from the recent rebound. A spot check of addresses on the list, including those in the upscale areas, showed that all are substantially underwater.

Highs and lows

Other points from the data:

-- The three most expensive mortgages are $1.122 million, $962,307 and $888,000. All are linked to homes in Point Richmond. The city's offers for those three loans were $679,834, $543,608 and $510,727, respectively - ranging from 56 percent to 61 percent of the loan balances. The most expensive home was purchased for $1.4 million.

-- The city's offers for home loans ranged from $13,523 to $679,834. The lowest offer is associated with a four-bedroom house in the lower-income Parchester Village enclave with an outstanding loan balance of $205,958. The $13,523 offer is 7 percent of that balance due. Public records show the loan is in default; real estate service Zillow values the house at $147,000. It's unclear why the offer on that particular house was so low.

-- The city previously said the total market value of the 624 homes is $177.16 million. Its offers total $126.67 million, meaning it's seeking a discount of 28.5 percent of the homes' value. Previously it had said that the average discount to home value would be 20 percent. The discount allows room to cover expenses and generate a profit for investors and the city. MRP says the discount is about what the banks would lose if the homes went into foreclosure.

-- The city's offers range from 94 percent of the outstanding loan balance down to 7 percent. It tended to offer a higher percentage in the higher-cost areas.

-- Many of the homes were refinanced years after purchase for much higher amounts. Richmond and MRP have said that such cash-out refinances will be included.

Richmond's offer letters set a deadline of Aug. 13. Gluckstern said no bank had accepted any offer, and MRP and the city are currently weighing their next steps.

A coalition of banks and mortgage-securities firms filed suit in federal court this month seeking to block the eminent domain plan as harmful to pension funds and others who invest in private-label mortgage-backed securities - the type of financial instrument in which the mortgages are held.