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Supreme Court clears way for cities to sue banks over foreclosure crisis

The Supreme Court expanded the reach of federal housing law Monday, ruling that cities — including Los Angeles — can sue major banks for discriminatory lending practices that hurt low-income neighborhoods during the Great Recession. Decided by a 5-3 decision, major banks who have participated in discriminatory lending practices which caused significant harm to low-income neighborhoods through and after the foreclosure crisis are now at risk. This was not possible before because banks claimed the Fair Housing Act only protected sole individuals from racial discrimination, not entire cities.

Miami’s Lawsuit

The decision cleared the way for the city of Miami to sue Bank of America over allegations that the bank “intentionally targeted predatory practices at African-American and Latino neighborhoods,” which in turn led to foreclosures and vacancies that sharply reduced property tax revenues and caused a cascade of harm to cities well beyond the originally targeted neighborhoods. To sue the banks, the cities must prove that there is a direct relationship between the “alleged injurious conduct and the injuries asserted”.

Miami, along with many other cities are now taking the novel approach against financial institutions under the Fair Housing Act to recover the loss as a result of greater demand for services and a lower tax revenue after the housing collapse.

The Banks’ Counter

The banks countered the decision by stating that the Congress did not intend the law to be used for these purposes. In its brief, the Bank of America told the court, “Municipal suits like this one were unheard of until recently, when enterprising contingency-fee counsel began pushing them”. Neal Katyal, the lawyer for the banks said that if the banks were to be sued based on the present scenario, where the process begins with a discriminatory loan and leads to defaults, increased vacancies, foreclosures, lost property, urban blight and reduced property taxes, then similar complaints can also be filed by around 19,300 cities of the US.

Implications for Homeowners

This ruling will help the homeowners who have suffered foreclosures and subprime mortgages and so on. This also implies that banks participating in predatory lending practices toward minorities will be held accountable for their unlawful actions, leading to better regulations of the lending practices.

It is important for homeowners or potential homeowners to know their rights before, after, and during the homeownership process. Mortgage servicing is a complicated system and defaulting on a home without the proper legal representation can lead to lenders taking advantage of homeowners, knowingly pushing them out of their homes.

 

Kenneth Jost - Editor

Kenneth Jost – Editor

 

“The nation’s big banks got by mostly scot-free for the harm they did to the nation’s economy and in particular the housing market leading up to the Great Recession of 2007-08. But the Supreme Court cleared the way last week [May 1] for the nation’s cities to hold the banks at least somewhat accountable for the particular harm they did to minority home-buyers and the boarded-up minority neighborhoods left behind after waves of foreclosures.”

 

 

 

 

 

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