While many of us were away from the office over the holidays (some of us trapped in snow storms in West Texas, but that's a story for another day and another blog), the Memphis and Shelby County governments were finalizing some last-minute business.
Last week, Memphis and Shelby County filed a federal lawsuit against Wells Fargo under the Fair Housing Act.
This is something local elected officials and attorneys have been talking about for some time in response to the credit crunch and the rise in area foreclosures.
More than a year ago, then-Shelby County mayor A C Wharton said the lawyer in him was about to come out:
"We're going to sue somebody if I have anything to say about it. ... I'm for whatever it takes."
At issue is whether mortgage companies tried to ensnare certain home buyers in exploitative loans.
From a November 2008 Flyer cover story:
The city of Baltimore also has a case pending in which it sued Wells Fargo, alleging that lenders participated in reverse red-lining.
"Two factors they relied heavily on there — a high degree of racial segregation in housing and a historical lack of access to traditional banks — I think exist in Memphis," Memphis Area Legal Services' Webb Brewer says. "We feel like we could make a very strong case in Memphis for disproportional bad terms for African-American borrowers."
Under the Baltimore case, as well as similar cases in Cleveland and San Diego, or a case brought by Shelby County, the jurisdiction would have to quantify the economic damage and prove that damage is attributable to the banks.
In Memphis and Shelby County, where the tax base rests on home values, the economic impact could be frightening. The county will be undergoing a property reappraisal next year, and it's expected that many homeowners will challenge the reappraisal.
In Baltimore, the city alleges that reverse redlining, or targeting black neighborhoods for bad loans, cost the city millions of dollars. During a recent hearing on Well Fargo's motion to dismiss, the federal judge on the case said he might limit the damages to the cost of dealing with only the 150 homes Wells Fargo foreclosed on, not the overall blight of the neighborhood (which foreclosed homes often contribute to) or the cost of increased services for those neighborhoods.
From an article in the Baltimore Sun:
John P. Relman, an attorney for the city, said it was the city's burden to show the widespread drain on property tax revenues caused by Wells Fargo's "illegal activity" and that it would be inappropriate to limit the lawsuit at this stage.
"If they did something illegal, which reverse redlining is," Relman said, "it's plausible that they are responsible for the consequences of their conduct."
To bolster its claims, the city has submitted sworn statements from two former Wells Fargo loan officers, who said bank employees targeted predominantly black ZIP codes for subprime loans that were referred to as "ghetto loans." The lawsuits filed against lenders by other cities did not offer such specific evidence, Relman said.
Similar cases in Cleveland and Birmingham have been dismissed.