Earlier this year in May, the U.S. Supreme Court handed down a decision in Bank of America v. City of Miami. It is yet another fallout issue from the banking, lending and foreclosure crisis of a few years ago.
The City of Miami filed suit against B of A and Wells Fargo alleging they violated the Fair Housing Act (FHA). The item in question is whether the banks indulged in racial discrimination in their lending practices between 2004 and 2012. The City maintains the banks targeted predatory lending practices in the form of higher home loan rates, fees and terms to people purchasing a home in primarily African-American and Latino neighborhoods. The City argues this resulted in defaults in these neighborhoods, particularly when the banks refused to modify or refinance the loans.
This disproportionate number of foreclosures and vacancies reduced the City’s effort to assure rational integration and diminished the City’s property tax revenue, while increasing the City’s cost for police and fire services.
One of the interesting things that came out of this case is the Supreme Court holding that the City is an aggrieved party and can bring suit under FHA and that the City was injured.
It will be interesting to see cities file lawsuits against banks for property tax losses due to loan failures. More interesting to see is how this type of litigation affects the lending industry overall. Will small banks cease home loan lending? Will fees to borrowers go up? Will some larger banks no longer make loans in some areas?
Justice Thomas wrote the dissenting opinion and was joined by Justices Kennedy and Alito. Justice Thomas opinion BofA v Miami
It is a very interesting read, so take a moment to read this. Justice Thomas begins by noting the City does not contend the banks discriminated against it and the City is not suing on behalf of its residents. Justice Thomas’ opinion explains why he thinks the City’s injuries fall outside the “zone of interests” protected by the FHA law.