Posted on January 14, 2010

City’s Wells Fargo Lawsuit Dismissed

Tricia Bishop, Baltimore Sun, January 7, 2010

A federal court judge on Wednesday dismissed Baltimore’s landmark lawsuit against Wells Fargo & Co., saying it was “not plausible” that the mortgage giant triggered millions of dollars in damages, as the city claimed, by causing increased foreclosures through racist, predatory lending.

“The alleged connection is even more implausible when considered against the background of other factors leading to the deterioration of the inner city,” U.S. District Judge J. Frederick Motz explained in a six-page memorandum opinion accompanying the dismissal order. He pointed specifically to Baltimore’s “extensive unemployment, lack of educational opportunity and choice, irresponsible parenting, disrespect for the law, widespread drug use, and violence.”


Comparable cases, seeking compensation for alleged foreclosure losses, in Cleveland and in Birmingham, Ala., were also dismissed in their districts.

Motz’s dismissal essentially said Baltimore did not have the proper “standing”–basically the right–to sue because it didn’t effectively show a causal connection for its wide-ranging claims, which alleged “tens of millions” of dollars in losses.

‘Reverse redlining’

Baltimore’s lawsuit was said to be the first of its kind when it was filed in January 2008. It, like others, claimed Wells Fargo targeted minority borrowers for bad loans–an illegal practice known as “reverse redlining”–which allegedly led to defaults and a disproportionately high rate of foreclosures and vacancies in black or Latino neighborhoods.


But city attorneys proffered affidavits of former Wells Fargo employees as evidence. And they promised to quantify the exact damages incurred. Through arguments, they claimed the reverse redlining was real and that it caused millions in losses through:

* More abandoned homes.

* Lower property values and tax revenue.

* A rise in criminal activity and law enforcement expenditures.

* An increase in social services fees and construction rehabilitation costs.

But the judge was skeptical of the scope of the city’s claims. Baltimore has as many as 30,000 vacant homes, according to the original complaint, but so far, the city has identified only 80 vacancies related to Wells Fargo in African-American neighborhoods.

“Thus, using the City’s own figures,” Motz wrote, “Wells Fargo is responsible for only a negligible portion of the City’s vacant housing stock.”


Wells Fargo has said there are too many possible factors to show what caused a vacancy, including the economy, unemployment or divorce.


More lawsuits filed

“From the beginning, we have consistently maintained that Baltimore’s economic problems could not be attributed to the negligible number of foreclosures Wells Fargo has done in Baltimore,” she said.

Judge Motz’s decision appears consistent with that belief, Heiden added, as do the decisions in Birmingham and Cleveland.

Still, the lawsuits keep coming. The state of Illinois filed a comparable case in July, and Memphis, Tenn., filed a suit last week.


Lawsuit chronology