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The city of Richmond, California, has plans to become the first city in the country to use eminent domain to stop home foreclosures.
Eminent domain is typically used to force homeowners to sell their property to make way for a new sports stadium or highway, for example.
But earlier this week, Richmond announced it had sent letters to banks and mortgage holders, threatening to use eminent domain to seize more than 600 underwater mortgages if lenders don’t agree to sell them the loans by mid-August.
The idea comes from the San Francisco-based private equity firm Mortgage Resolution Partners, which is helping Richmond. The firm is also working with cities and towns across the country that are considering this approach.
Wall Street banks strongly oppose the plan, threatening lawsuits if it goes through. Critics in the banking industry argue that using eminent domain in this way could hurt the housing market.