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SCOTUS to Consider City of Miami’s Predatory Lending Lawsuit Against Banks

Posted in Residential Real Estate Lending

In a case that will have a direct impact on creditors, the U.S. Supreme Court has agreed to hear an appeal involving the City of Miami’s claims in three related cases that it suffered damages through alleged discriminatory lending practices of residential mortgage lenders including Bank of America, Wells Fargo, and Citigroup. The Court’s final decision in this appeal will likely define the reach of the Fair Housing Act.

In Bank of America Corp. et al. v. City of Miami, the City of Miami (the “City”) alleged that the banks engaged in a pattern of discriminatory lending in the residential housing market which resulted in the City suffering economic harm. The City brought suit under the Fair Housing Act (the “FHA”) which outlaws discrimination in housing. The FHA, 42 U.S.C. § 3601 et seq., makes it unlawful to refuse to sell or to rent a dwelling to any person, or to refuse to engage in a residential real estate transaction with any individual on the basis of race, color, religion, sex, handicap, familial status or national origin.

Specifically, the City alleged that it incurred money damages from an inordinate number of foreclosures for mortgages on homes in blighted neighborhoods, leading to decreased property values, decreased tax revenues, and an increase in the cost of city services such as police. The City claimed that Bank of America “targeted black and Latino customers in Miami for predatory loans that carried more risk, steeper fees, and higher costs than those offered to identically situated white customers, and created internal incentive structures that encouraged employees to provide these type of loans.”[1]

The Eleventh Circuit overturned the district court’s decision to dismiss the lawsuits, holding that the term “aggrieved person,” as defined in the FHA, encompasses the City’s claim. The ultimate question the Supreme Court must address is who may sue under the Fair Housing Act and for what types of harm. If you recall, we commented last year on the landmark decision Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., in which the Supreme Court embraced a broad interpretation of discrimination claims under the FHA. In that ruling, the Supreme Court held that parties claiming a violation of the FHA need not prove intentional discrimination to prevail so long as a claimant can show that a practice or policy results in a disproportionately negative effect on housing opportunities, the claimant may obtain relief under the FHA.

[1] City of Miami v. Bank of Am. Corp., 800 F.3d 1262, 1266 (11th Cir. 2015), cert. granted sub nom. Bank of Am. Corp. v. City of Miami, Fla., No. 15-1111, 2016 WL 853246 (U.S. June 28, 2016).