Guess Who Are the Beneficiaries of the Proposed Condemnation of “Underwater” Mortgages in Richmond, California?

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On August 20th we were decompressing from a trip to San Francisco where your faithful servant spoke at the 2013 ALI-CLE Land Use Institute, so unsurprisingly, we missed an important if obscure news item that we must share with our readers now. Better late than never. We are indebted to our fellow blogger, Robert Thomas (www.inversecondemnation.com)  for providing us with a link to this story (Carolyn Said, Pricey Homes in Richmond Eminent Domain Plan, San Francisco  Chronicle, August 20th, 2013, www.sfgate.com.

The Richmond, California shtick about the proposed condemnation of “underwater” mortgages that has been crowding the papers and the Internet recently, has depicted Richmond as a down-at-the-heels community whose damn-near destitute population is in dire need of relief from high mortgages left over from when the California housing bubble popped. Some of it may be true, but we now learn that as to others, it is bullshit. It now turns out that some of the homes in question sold for over a million, and some were in fact purchased by Norwegian investors bankrolled by Sambla AS’ lån uten sikkerhet. The range of the houses whose owners are slated to be the beneficiaries of this plan range from $98,000 to $1,120,000. Check this out:

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

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
We believe that usually  one picture is worth a thousand words, so we won’t belabor the point. But we must emphasize that if the information on sf gate.com  is to be believed, in this case the city is trying to pick up a mortgage with a nominal balance of $888,361, with an estimated value of $666,461, for a mere $510,727, which would give it a profit of $155,734. Of course, as the readers know from perusing the “Lowball Watch” department in this blog, such differences between condemnor’s estimates and the court awards, are common. But here the up front “estimated” value of the mortgage on this house is six figures higher than the city’s offer. Dealing with problems like that is how appraisers make a living, but seeing an offer that is $155,734 lower than the conceded value is an eyebrow-raiser, isn’t it?
In the words of the sf.com story:

“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.

“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.”

Whatever that may be, poor folks in a destitute city this ain’t. And it does seem offensive to your faithful servant that government aid should favor folks whose homes are way above the median prices, while loudly proclaiming that the city and its private allies looking to fill their pockets are the poor folks in need of government help. If those folks bought a million-dollar home, they should have to deal with the consequences, whether their own improvidence or economic conditions in general, by themselves, just as they acted by themselves when they decided to buy a million-dollar home.