CHICAGO (Reuters) - The city of Cleveland has sued 21 banks involved in the subprime mortgage market, seeking monetary damages due to a huge spike in foreclosures, Mayor Frank Jackson said on Friday.
The lawsuit, filed in Cuyahoga County Common Pleas Court on Thursday, claims the banks created a foreclosure crisis by being purveyors of subprime mortgages, leaving the city to “clean up the resulting mess,” sustaining hundreds of millions of dollars in damages.
“Cities can rebound, however it is extremely costly to do so given that declining tax revenues are part of the fallout of foreclosures,” Jackson said in a statement.
Banks sued were Bank of America (BAC.N), Citigroup (C.N), Credit Suisse, Deutsche Bank Trust Co, J.P. Morgan Chase (JPM.N), Merrill Lynch MER.N, Bear Stearns, Ameriquest Mortgage Co, Washington Mutual (WM.N), Countrywide Financial CFC.N, Morgan Stanley (MS.N), Well Fargo (WFC.N), Fremont General Corp, GMAC-RFC, Goldman Sachs, Greenwich Capital Markets, HSBC Holdings, IndyMac Bancorp, Lehman Brothers, Novastar Financial and Option One Mortgage Corp.
The lawsuit uses Ohio’s public nuisance law as a vehicle for seeking damages. The law allows recovery for circumstances created by a defendant that interfere with the public’s rights and interests, according to the mayor’s statement.
“The unscrupulous lending practices that are part of the subprime market have devastated Cleveland neighborhoods, which clearly demonstrate a public nuisance,” the statement said.
The lawsuit points to a steep increase in foreclosures in Cleveland, to more than 7,500 in 2007 from less than 120 in 2002. Cleveland had the 10th-highest foreclosure rate among U.S. metropolitan areas in October, according to RealtyTrac.
Cleveland’s action follows Baltimore’s filing of a lawsuit earlier this week against Wells Fargo. That lawsuit, in U.S. District Court, alleged Wells Fargo was liable for millions of dollars in damages under the Federal Fair Housing Act for targeting minorities with bad loans and discriminatory and unfair terms that resulted in foreclosures.
A spokeswoman for Wells Fargo was not immediately available to comment.
Some defendants in the Cleveland lawsuit had mixed reactions.
“We believe the allegations against us are without merit and plan to contest the suit vigorously,” Citigroup said in a statement.
“We share their concern about foreclosures,” said J.P. Morgan Chase spokesman Tom Kelly. “And we are working with borrowers to keep them in their homes whenever possible.”
A Bear Stearns spokeswoman declined to comment.
A 2005 study found cities face foreclosure-related costs from increased police and fire presence, building inspections, legal fees, record keeping and the maintenance or even demolition of homes. In addition, the study commissioned by the Homeownership Preservation Foundation found cities also faced losing property tax revenue.
David Bizar, a lawyer in Hartford, Connecticut, who represents banks in suits brought by consumers facing foreclosure, said he believes Cleveland’s suit stands little chance but understands the political pressure that generated it.
“Constituents are likely pounding on (the mayor’s) door, saying ‘Look at our neighborhood, it’s being decimated,”‘ he said.
(Additional reporting by Andrew Stern in Chicago)
Reporting by Karen Pierog; Editing by Dan Grebler