The city of Cleveland, an epicenter of the nation's home foreclosure crisis, has sued 21 banks and claimed their subprime lending practices created a public nuisance that hurt property values and city tax collections.
The lawsuit was filed Thursday in Cuyahoga County Common Pleas Court, and seeks to recover hundreds of millions of dollars in damages, including lost taxes from devalued property and money spent demolishing and boarding up thousands of abandoned houses.
Cleveland Mayor Frank Jackson said Friday that the buying and selling of high-interest mortgages by some of the nation's biggest banks had devastated city neighborhoods struggling to recover after the loss of manufacturing jobs.
"We have to hold accountable those who are responsible," Jackson said at a City Hall news conference.
Jackson compared the impact of the mortgage practices to the harm caused by drug dealing and said the motive was the same: profits.
The mayor said the city has faced skyrocketing foreclosure-related costs, including police and fire protection for abandoned homes, the expense of maintaining the properties and lost taxes.
The foreclosure crisis has been bad news for nearby homeowners and cities across the country because they lead to falling property values and increased crime.
Cleveland is not the first city to sue lenders over recent mortgage troubles. On Tuesday, Baltimore sued Wells Fargo, alleging the bank intentionally sold high-interest mortgages more to blacks than to whites in violation of federal law. The Baltimore suit alleged that Wells Fargo targeted black neighborhoods for high-risk and unfairly priced loans. Spokeswoman Debora Blume said in a statement that the company does not consider race when making loans.
Cleveland based its legal challenge on a state law that relates to public nuisances.
Jackson and Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy of selling mortgage-backed securities to investors. The practice, known as securitization, became popular during the housing boom earlier this decade.
Triozzi said the big banks were targeted because of the their practice of pushing subprime mortgages to fuel profitable bond sales.
The city said Cleveland housing prices remained relatively flat amid industrial layoffs as real estate values jumped elsewhere. The suit claimed that even though these issues were well documented, investment bankers pushed loans to investors at the expense of borrowers.
The list of defendants includes both banks involved in a $4.1 billion takeover announced Friday — Bank of America Corp. and Countrywide Financial, which will be bought by Bank of America. The acquisition will make Charlotte, N.C.-based Bank of America the nation's biggest mortgage lender and loan servicer.
Bank of America spokeswoman Shirley Norton said she couldn't comment on the lawsuit because she knew nothing about it.
A message and e-mail seeking comment were left at Countrywide offices Friday.
Deutsche Bank Trust Co. and Wells Fargo & Co. were named in the suit as foreclosing the largest number of homes over the past four years in Cleveland and surrounding Cuyahoga County. Deutsche Bank Trust was estimated to have 4,750 foreclosures in that period, and Wells Fargo had roughly 4,000, the lawsuit stated.
Deutsche doesn't comment on pending litigation, spokesman John Gallagher said Friday. A Wells Fargo spokeswoman said the bank could not provide an immediate comment.
"There is no doubt, in terms of the resources, there is going to be somewhat of a disparity _ a big disparity," said Joshua Cohen, the lawyer leading the lawsuit. "We're confident in our theory and what we have alleged. We knew exactly what we were taking on."
Ohio Attorney General Marc Dann is considering a state lawsuit against investment banks. Dann said a state filing is months away and probably wouldn't be submitted as a public nuisance case.
A report commissioned last November by the U.S. Conference of Mayors projected that 361 metropolitan areas would take an economic hit of $166 billion in 2008 because of the rise in foreclosures.