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U.S. Supreme Court Finds that the City of Miami Can Sue Mortgage Lenders for Predatory Lending Practices under the Fair Housing Act

Posted By USFN, Tuesday, June 27, 2017
Updated: Monday, June 12, 2017

June 27, 2017

by Jennifer K. Cruseturner
McCarthy & Holthus, LLP – USFN Member (Washington)

On May 1, 2017, the U.S. Supreme Court decided (5-3) in Bank of America Corp. v. City of Miami, Florida, together with Wells Fargo & Co. v. City of Miami, Florida, that the City of Miami is an “aggrieved person” under the Fair Housing Act of 1968 (FHA or Act). As an “aggrieved person,” the city can sue under the Act for claims of financial injury, allegedly resulting from discriminatory lending practices of financial institutions. The Supreme Court also held that the Eleventh Circuit erred in determining Miami’s complaints against the banks met the FHA’s proximate-cause requirement based solely on the finding that Miami’s alleged financial injuries were the foreseeable result of the banks’ purported misconduct.

District Court — This recent Supreme Court opinion stemmed from the 2013 lawsuits filed by the City of Miami in the U.S. District Court for the Southern District of Florida against Bank of America and Wells Fargo. Miami alleged that the lenders discriminatorily imposed more onerous conditions on loans made to minority borrowers than to similarly situated non-minority borrowers, and that the claimed discriminatory practices led to higher rates of loan default and foreclosure among minority borrowers as compared to otherwise similarly situated non-minority borrowers. The suits further alleged that the discriminatory practices of the banks adversely affected the racial composition of the city and caused higher rates of foreclosure in minority neighborhoods, which led to lower property values, diminished tax revenues, and an increased demand for municipal services.

The district court dismissed Miami’s complaints, finding: (1) that Miami could not sue under the FHA, as their harms were economic and not discriminatory; and (2) that Miami had failed to show sufficient causal connection between the injuries suffered and the banks’ conduct. Miami appealed the district court’s ruling to the Court of Appeals for the Eleventh Circuit.

Eleventh Circuit — The appellate court reversed the district court’s ruling of dismissal, determining that Miami could sue the banks under the FHA, and that Miami had plausibly alleged that its financial injuries were the foreseeable result of the banks’ alleged misconduct. The banks petitioned the Supreme Court to review the findings of the Court of Appeals. The Supreme Court granted the request for review, bringing us to the case at hand.

U.S. Supreme Court — In the opinion of the Court, authored by Justice Breyer, the Supreme Court held that Miami could sue under the FHA as an “aggrieved person” because the city’s injuries fell within the realm of injuries that the FHA was designed to avoid; nonetheless, the Court vacated the decision of the Court of Appeals — finding that foreseeability of the injury alone is not sufficient to establish proximate cause under the FHA. While the Supreme Court held that proximate cause under the FHA requires some direct relation between the injury asserted and the discriminatory conduct alleged, it declined to specifically set forth the precise boundaries of proximate cause under the FHA. The case was remanded to the lower court for it to decide how the standards of proximate cause apply to Miami’s claims against the banks.

In an opinion authored by Justice Thomas (which concurred in part and dissented in part), three justices disagreed that Miami could sue the banks under the FHA — stating that Miami’s injuries were so marginally related to the purposes of the FHA that they fell outside of the zone of interest that the Act was designed to protect. The dissent further stated that Miami had failed to demonstrate proximate cause under the FHA. The dissenting justices would have reversed the Court of Appeals’ decision outright, noting that there was nothing in the FHA to suggest that “[c]ongress was concerned about decreased property values, foreclosures and urban blight, much less about strains on municipal budgets that might follow.”

The Supreme Court’s ruling is not an outright victory for either side. Municipalities can bring suit against banks under the FHA, but this opinion by no means guarantees a victory for the municipality. Still, the Court’s ruling should be viewed cautiously by financial institutions with a high volume of stagnant REO properties. Litigation of this nature can present a strong reputational risk, even if the bank is ultimately successful in defending the claims.

© Copyright 2017 USFN. All rights reserved.
June e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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