U.S. District Judge Otis Wright II says that a lawsuit by the city of Los Angeles, which seeks to hold Wells Fargo & Co. (WFC) liable for foreclosures that occurred when the U.S. housing market collapsed, may proceed. Although Wright did not rule on the merits of the city’s claims, he said that L.A.’s allegations that the bank used “predatory loans” to target minority lenders were legally sufficient at this point.
The California city has filed separate cases against Wells Fargo, Bank of America Corp. (BAC) and Citigroup Inc. (C) accusing the mortgage lenders of engaging in discriminatory practices going as far back as at least 2004. L.A. says that the banks placed minority borrowers in loans that were out of their budget, raising the number of foreclosures in the city’s neighborhoods.
According to the city, local homeowners have lost around $78.8 billion in home value because of foreclosures that occurred between 2008 and 2012. Property tax revenue that was lost because of this was reportedly $481 million. Now, Los Angeles wants to hold the banks liable for the increase in municipal services and the tax revenue that was lost due to the foreclosures.
L.A. had also sued Deutsche Bank AG (DB) in the role of the foreclosed properties’ owner. Last year, the lender settled with the city. It said that securitization trusts and services would pay the city $10 million.
Already, Bank of America and Wells Fargo have paid a combined total of over $500 million in of the largest residential cases. The US government claims that borrowers who had loans that came from Countrywide and Wells Fargo were likelier to be paired subprime loans if they were Hispanics or Blacks
Earlier this year, Illinois’s Cook County sued HSBC Holdings Plc. (HSBA) for allegedly targeting minority borrowers in the Chicago area through costly home loans. The populous county wants unspecified punitive and compensatory damages for costs to police to keep up deteriorating areas and because of lost tax revenue on properties that became vacant.
Also the US cities of Memphis, Tennessee, and Baltimore, Cleveland have filed claims contending that banks made loans to unqualified minority borrowers or gave them high-interest subprime mortgages even though they qualified for prime loans. These cities brought their cases under the Housing Act.
Wells Fargo Can’t Shake L.A. Lawsuit Over Predatory Loans, Bloomberg, May 28, 2014
Judge denies Wells Fargo’s bid to dismiss L.A. predatory lending suit, Reuters, May 28, 2014
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