Can Cities Go After Banks for the Foreclosure Crisis?
Who Can Go After Banks for the Foreclosure Crisis?
Cities are arguing that they, too, were damaged by risky loans, and that they should be able to take the lenders to court to regain their losses.
In the wake of the housing crisis, surprisingly few people or institutions have been held accountable for the risky lending practices that nearly wrecked the U.S. economy. That’s partly because the people who were most damaged by the foreclosure crisis—the people who lost their homes—don’t have the resources to bring lawsuits.
But the families who lost their homes weren’t the only ones hurt by the foreclosure crisis. So there’s an argument to be made that they shouldn’t be the only ones who can go after the lenders. Cities, for example, lost tax revenue when homes sat vacant, and saw property values within their boundaries decrease when vacant and boarded-up homes sat empty. Cities had to pay for police and fire protection to keep those homes from being vandalized and to respond to reported break-ins and criminal activity at the houses.
So should cities be able to sue the banks, too?
That’s the question making its way through courts across the country after municipalities including Los Angeles, Miami, Oakland, and Providence all filed lawsuits against lenders under the Fair Housing Act. The lawsuits, which the banks are fighting to have dismissed, argue that the lending practices of these banks harmed the cities too. When lenders targeted minorities for risky loans, knowing that the borrowers would likely lose their homes, they knowingly deprived cities of tax revenue while making them shoulder the expenses of blocks of foreclosures, the lawsuits allege. Oakland, for instance, argues in its complaint against Wells Fargo that the city “has suffered economic injury based upon reduced property tax revenues resulting from (a) the decreased value of the vacant properties themselves, and (b) the decreased value of properties surrounding the vacant properties.” Last month a judge declined to dismiss the suit.