A city’s unique way to make banks pay for the foreclosure crisis

Miami is suing big banks for alleged discriminatory lending.

CREDIT: AP Photo/Lynne Sladky
CREDIT: AP Photo/Lynne Sladky

The foreclosure crisis hit the country almost a decade ago, throwing millions of people from their homes, crashing the housing market, and destroying many city and state budgets in the process. While the banks that doled out the loans that caused the crisis have mostly regained their financial standing, many of the neighborhoods hit hardest are still climbing back.

Now the city of Miami, one of the places hit hardest by the crisis, is trying to recoup some of what it says it lost at banks’ hands. The city’s case against three big banks has made it all the way to the Supreme Court, which heard oral arguments last Tuesday.

Miami has filed a lawsuit under the Fair Housing Act, which bans housing discrimination, contending that Bank of America and Wells Fargo engaged in what has been dubbed “reverse redlining” — giving people of color loans on less favorable terms than white people. In court documents, Miami uses a regression analysis to show that black and Hispanic borrowers were much more likely to get a subprime loan than similar white residents. A loan made in a predominantly minority neighborhood, it finds, was nearly six times more likely to result in foreclosure than one made in a white neighborhood.

When the housing market collapsed, the lawsuit contends, those loans went sour faster, and people of color were less likely to be offered affordable refinancing options.


This was a pattern documented across the country in the wake of the crisis: banks targeted communities of color with subprime loans that came packed with higher interest rates and other predatory terms, and then when the market collapsed, people of color experienced higher foreclosure rates.

Miami’s foreclosure crisis was severe, and high foreclosure rates continue to affect the city’s residents today. At the peak of the crisis in 2009, the area had nearly 173,000 homes in the process of foreclosure; even last year South Florida was the fifth-highest region for foreclosures.

City of Miami v. Bank of America
City of Miami v. Bank of America

Miami claims that while it was not the direct victim of the banks’ discriminatory practices — those would be the borrowers themselves — it was directly harmed because they reduced its tax base as people stopped paying as much in property taxes, while at the same time they increased the need for the city to spend money on services to respond to vacant properties and blight as the foreclosure crisis took hold. It says it can document millions of dollars it lost through depressed revenue and higher spending.

That, the city contends, gives it the standing to sue the banks for discriminatory lending practices under the Fair Housing Act, claiming that it was directly harmed.

“It created a budgetary crisis for us,” said Francis Suarez, a city commissioner. The city claims that it nearly had to declare bankruptcy, and it was forced to turn to an emergency law so that it could impose a hiring freeze and salary reduction for city employees.


The banks, for their part, have argued that the city shouldn’t be allowed to bring its lawsuit because it wasn’t the direct victim of any potential discrimination.

“We stand behind our record as a fair and responsible lender, and will continue to focus on helping customers succeed financially and expanding homeownership in Florida and across the United States,” Tom Goyda, senior vice president of communications at Wells Fargo, said in a statement. “As we have said since the lawsuit was filed, it is unfortunate that the city has opted for this route instead of ongoing collaboration with us to bring continued support to customers.” Bank of America could not be reached for comment.

But Miami argues that it is also suing to benefit the residents who were victims of these lending schemes themselves as a way to redress discrimination. “We have a responsibility on behalf of our residents… to hold these large institutions responsible for their practices that harm our residents,” Suarez said.

And they argue they have plenty of legal standing to bring the case under the Fair Housing Act. “This is a bedrock principle of jurisprudence,” said Morgan Williams, general counsel at the National Fair Housing Alliance, which has supported Miami’s lawsuit. “This is the status quo and law of the land.”

“There has been little effort to hold them accountable.”

For the city to prevail and continue its lawsuit, it will have to convince the Supreme Court justices that it has standing to bring its case under the Fair Housing Act as an “aggrieved person” and that the banks’ discriminatory lending was the cause of its financial suffering. While a decision won’t come out until the spring, it seems that the city may well prevail.


Any monetary damages gained through the suit, Suarez said, would be used to maintain infrastructure that has gone neglected during the budget crisis and give tax relief to struggling residents. “There’s a variety of ways that our city and our city residents will benefit directly if we win the lawsuit,” he said. “Hopefully it will get us one step closer to redressing the harms that were done.”

If Miami succeeds, other cities may want to look into whether they could bring similar claims to hold banks accountable and get compensation for potential damage they suffered. “Any actions that can be taken to redress that harm… that’s steps that should be taken,” Williams said.

And the backers of the lawsuit argue that is particularly important because not enough has been done to hold banks accountable for their role in the foreclosure crisis. While banks have been made to pay up in high-profile settlements with the government, the fine print meant that the amounts banks actually had to pay were much smaller than the headlines. They also didn’t have to admit wrongdoing and few individuals were held accountable. Meanwhile, it is difficult and costly for the individual borrowers who may have been harmed to bring lawsuits themselves.

“There has been little effort to hold them accountable,” said Lisa Rice, executive vice president at the National Fair Housing Alliance. “It would be a blow to the trust that the public has in our justice system if the Supreme Court does not send a strong message that at least the people who have been harmed by these toxic mortgages will have their day in court. They need to have their day in court.”