City of LA Sues Another Lender

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MORTGAGE EXPERT
12 · 09 · 13

For the third time in two days, the city of Los Angeles has sued a large mortgage lender over allegations that discriminatory practices led to a wave of foreclosures.

The first two lawsuits were filed on Thursday against Citigroup Inc. and Wells Fargo & Co. by Los Angeles City Attorney Mike Feuer.

According to the complaints filed in federal court, Citi and Wells Fargo “engaged in a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing terms or conditions on a discriminatory and legally prohibited basis.”

The lawsuit seeks to recover lost property tax revenues it claims were lost as a result of reduced values resulting from the alleged discrimination. It also seeks the increased cost to the city for services on the foreclosed properties.

What’s interesting about this approach is that the city of Los Angeles and its counterparts across the country experienced increased property taxes beginning in 2004 when expanded subprime lending increased the pool of homebuyers and, in turn, raised property values.  

So it’s likely that the alleged lost revenues are based on a decline from a period when values were inflated from the very lending practices being condemned by the city.

On Friday, another complaint was filed by the city against Bank of America Corp. and subsidiary Countrywide Financial Corp.

As was the case with the other two lawsuits, Los Angeles is being represented by Hagens Berman Sobol Shapiro LLP — a firm that has been behind numerous recent lawsuits against mortgage lenders alleging botched loan modifications or investors fraud.

The city alleges that BofA, Citi and Wells Fargo have been violating the Fair Housing Act of 1968 since at least 2004. Both intentional discrimination and disparate impact discrimination are alleged.

“In order to maximize profits at the expense of the city of Los Angeles and minority borrowers, BofA adapted its unlawful discrimination to changing market conditions,” the complaint alleges. “This unlawful pattern and practice conduct is continuing through the present and has not terminated. Therefore, the operative statute of limitations governing actions brought pursuant to the federal Fair Housing Act has not commenced to run.”

BofA allegedly used traditional redlining and reverse redlining. The city claims BofA is among many banks that have been redlining since the late 1990s.

“Between 1996-2006, one category of discriminatory loan products — subprime loans — grew throughout the country from $97 billion to $640 billion,” the city claims. “These loans were frequently targeted to minorities. Upon information and belief, the lack of accessible credit resulting from BofA’s previous pattern and practice of redlining in the minority communities in Los Angeles created conditions whereby the bank could easily target and exploit underserved minority communities which, due to traditional redlining, had been denied credit.”

Around 2007, Los Angeles claims that BofA again adapted to market conditions and stopped extending credit to minorities.

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