Federal Judge Dismisses Lawsuit Challenging Richmond, CA’s Plan to Condemn Underwater Mortgages, on Procedural Grounds

Federal District Judge Charles Breyer recently dismissed a lawsuit by mortgage lenders challenging the constitutionality of the City of Richmond’s plan to condemn over 600 underwater mortgages, while paying compensation far below market level. Judge Breyer dismissed the case on procedural grounds, because it is not yet “ripe” due to the fact that the city has not yet made a “final” decision to go ahead with the condemnations. Needless to say, this is mostly likely not going to be the end of the legal battle over this plan. When and if the City actually does move forward with the condemnations, the issue will indeed be ripe for adjudication and the holders of the mortgages will be able to attack the various constitutional defects in the plan. I discussed some of them in this USA Today op ed. See also this article by Richard Epstein, which covers a wider range of issues than I did. However, I am far less optimistic than Epstein that the plan will be invalidated on “public use” grounds, so long as Kelo v. City of New London remains in force. I do, however, believe that there is a very strong argument that the plan is unconstitutional under current precedent, because the compensation the city proposes to pay is far below fair market value.