In the eminent domain battle between municipalities and mortgage-backed securities investors, the municipalities have gained two more allies.
A complaint was filed Thursday in U.S. District Court for the Northern District of California against the Federal Housing Finance Agency.
The federal lawsuit, filed under the Freedom of Information Act, seeks to force FHFA to provide details about its relationship with the financial industry and its efforts to block municipalities from using eminent domain to prevent foreclosures.
FHFA reportedly ignored a FOIA request submitted in October.
The action was announced by the American Civil Liberties Union and the Center for Popular Democracy.
In a statement, the groups noted that many borrowers remain at risk of foreclosure because of negative equity — though it is unclear why negative equity in and of itself would place a borrower at risk of foreclosure.
The groups claim that communities with large black and Latino populations — such as Richmond, Calif., and Irvington, N.J. — are among the hardest hit.
Richmond is already moving forward with a plan to use eminent domain to force investors to write down the balances on performing loans. In addition to reducing the amount of debt owed by borrowers, the plan would line the pockets of the city and Mortgage Resolution Partners at the expense of investors.
“For years, communities of color across the nation were targeted by banks peddling subprime toxic mortgages, greatly contributing to the current foreclosure crisis,” ACLU of New Jersey Executive Director Udi Ofer said in the announcement. “Now communities are responding by considering novel approaches to help save their neighborhoods. Municipalities should be able to consider all of their options.”