Prof. Schechter opines on city's use of eminent domain to seize underwater mortgages
U.S. District Judge Charles Breyer is hearing arguments from both sides on whether to order the city to halt efforts to use eminent domain to take over loans. He will also consider the city’s request to find that the bondholders went to court prematurely and dismiss their claims because the city council hasn’t approved the plan.
A ruling favoring bondholders, who sued the city through their bank trustees, would dissuade other cities from following in Richmond’s footsteps, said Dan Schechter, a law professor at Loyola Law School, Los Angeles. A decision for Richmond won’t encourage other municipalities to follow suit because it wouldn’t deal directly with the merits of bondholders’ claims that the Richmond plan is unconstitutional, he said.
“The court will hold that no injunctive relief is available at this time. That doesn’t mean the bondholders are without remedy,” Schechter said by phone. “If no injunction is issued, it would preserve the status quo.”