The Star-Ledger - December 5, 2013, by Eunice Lee - The American Civil Liberties Union of New Jersey and the Brooklyn-based Center for Popular Democracy filed suit today against the Federal Housing Finance Agency in a growing battle for towns seeking to use eminent domain to seize underwater mortgages.

Last month, Irvington's mayor announced plans to conduct a legal study of using eminent domain to help residents facing more than 1,700 homes foreclosures.

If town officials decide to proceed, Irvington would become the second town in the nation, after Richmond, Calif., to employ a tactic that's drawn fire from Wall Street, according to Executive Director Udi Ofer of the ACLU of New Jersey, which endorsed Irvington's announcement.

The 17-page suit, filed today in the U.S. District Court for the Northern District of California, demands that the FHFA disclose details about its relationship with banks and other financial institutions. The agency has threatened legal action against Richmond and other cities planning to use the eminent domain tactic and may deny credit to locals seeking mortgages, the suit says.

Corinne Russell, an FHFA spokeswoman, declined comment on the lawsuit saying the agency does not discuss pending legal matters.

The novel approach, dubbed as "friendly condemnations," allows municipalities to use the power of eminent domain to seize mortgages, rather than homes, where homeowners owe more than the current value of the house.

Using money from private investors, Ofer said towns would pay the mortgage holders' fair market value and then restructure mortgages into lower principal payments that are more favorable for homeowners. About 700 to 1,000 homes in Irvington could potentially benefit from eminent domain takeovers, according to Irvington Mayor Wayne Smith.

On Wednesday, Newark's city council voted unanimously for the city to conduct legal research and policy analysis as a step towards adopting the eminent domain strategy.

Filed under the Freedom of Information Act, which compels the government to provide copies of federal records, the lawsuit argues that the federal agency is trying to block municipalities from using eminent domain to prevent foreclosures. The FHFA regulates the mortgage giants Fannie Mae and Freddie Mac. The lending agencies control most mortgages in the U.S.

The suit says the FHFA never responded to an Oct. 1 FOIA request seeking information between the federal agency and members of the financial industry, including the Securities Industry and Financial Markets Association, American Securitization Forum, American Bankers Association and the Association of Institutional Investors.

The lack of response to the FOIA request prompted the lawsuit, which was filed by the Center for Popular Democracy and ACLU, as well as chapters in New Jersey and California. Those chapters filed on behalf of: New Jersey Communities United, New York Communities for Change, Alliance for Californians for Community Empowerment, the Housing and Economic Rights Advocates, Urban Revival Inc., The Colorado Foreclosure Resistance Coalition and the Home Defenders League.

The FOIA request also targets "correspondence, phone messages, emails, calendar entries, and notes or memoranda" between leaders of the Federal Housing and Finance Agency and representatives of several banks including Wells Fargo, Deustche Bank, Bank of America, Chase Citigroup and Ally Bank.

On July 31, the city of Richmond offered to purchase 624 underwater mortgages. In August, the suit says several banks filed suit against Richmond and the FHFA released a statement citing "serious concerns on the use of eminent domain to restructure existing financial contracts."

Also, the financial industry and powerful lobbying groups have "vigorously opposed" the use of eminent domain, according to the suit.

The suit says that publicly revealing "the priorities and opinions of high-ranking FHFA officials, and the nature and substance of their exchanges with the financial industry" is an urgent concern.

Other cities considering the use of eminent domain to address foreclosures include San Francisco, El Monte, Calif., Seattle and Yonkers, N.Y.

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