Judge considers restricting Wells Fargo lawsuit

AP News
Posted: Dec 14, 2009 3:54 PM

A federal judge suggested Monday that he might restrict the scope of a first-of-its kind lawsuit filed by the city of Baltimore against mortgage giant Wells Fargo Bank N.A.

The city accuses Wells Fargo of engaging in illegal "reverse redlining" _ targeting black neighborhoods for bad loans that resulted in mass foreclosures. The resulting drain on city services cost tens of millions of dollars, the lawsuit alleges.

Lawyers for Wells Fargo filed a motion to dismiss the lawsuit in September, arguing that the city lacked standing to file the complaint. Baltimore was the first municipality to sue a lender in the wake of the subprime mortgage crisis. Similar lawsuits were later filed in Cleveland and Birmingham, Ala., but those complaints have been dismissed by federal judges.

During a hearing Monday on the motion to dismiss, U.S. District Judge J. Frederick Motz described the condition of Baltimore's impoverished, predominantly black neighborhoods as "shocking, disturbing, despicable." But he suggested it was implausible to hold Wells Fargo responsible for "the deterioration of the inner city."

Baltimore has an estimated 30,000 vacant properties, but attorneys for the city have found about 150 homes that were vacant as a result of foreclosures by Wells Fargo. Motz said he would consider limiting the damages sought by the city to the costs of dealing with those properties.

"The general damages, I have problems with," Motz said. "If in fact the case needs to be cut down, I'll cut it down."

Motz did not indicate when he would rule on the motion.

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.

Wells Fargo attorney Andrew L. Sandler said Wells Fargo would prove at trial "that these disgruntled ex-employees offered false evidence." But the lawsuit should be thrown out even under the assumption that the employees' statements are true, he said.

The city's attorneys are "trying to take a set of problems that the city of Baltimore needs to deal with and blame them on one particular lender," Sandler said.