Supreme Court paves the way for cities to sue banks under FHA

By Dee Thompson | May 10, 2017

WASHINGTON (Legal Newsline) – The U.S. Supreme Court on May 1 issued an opinion allowing the city of Miami to proceed as a homeowner under the FHA program and sue Bank of America and Wells Fargo Bank for alleged discriminatory loan practices.

The city of Miami originally filed suit against the banks arguing that, under the Fair Housing Act, the banks made loans with unfair terms to African-American and Hispanic customers who couldn’t repay the loans from 2004 to 2012. 

The home loans offered to those customers were allegedly riskier and more prone to resulting in default. Therefore their homes were foreclosed upon, leaving neighborhoods (in which most of the homeowners were minorities) blighted. The city was allegedly deprived of tax revenue on the homes.

The Supreme Court decision explained: “The city alleges that the banks’ discriminatory conduct led to a disproportionate number of foreclosures and vacancies in majority-minority neighborhoods, which impaired the city’s effort to assure racial integration, diminished the city’s property-tax revenue, and increased demand for police, fire and other municipal services.”

The FHA prohibits, among other things, racial discrimination in connection with real-estate transactions, and allows any person who feels aggrieved to file a civil damages action for a violation of the act. The opinion says the district court dismissed the complaints on the grounds that (1) the harms alleged fell outside the zone of interests the FHA protects and (2) the complaints failed to show a sufficient causal connection between the city’s injuries and the Banks’ discriminatory conduct.” 

The Supreme Court found that although Miami is not a person, it can still be construed as an “aggrieved person” under the FHA.

The Supreme Court decision remanded the case back to the U.S. Court of Appeals for the 11th Circuit for damages to be decided. 

Philip R. Stein, an attorney with the Miami firm of Bilzin Sumberg Baena Price & Axelrod LLP, said it was a "novel question" whether people other than borrowers can be plaintiffs under the FHA.

“The interesting aspect of the case, to me, is that it was kind of a mixed bag," he added. "On one hand, the zone of interest that’s protected by the statute was recognized to be much broader than anyone had previously thought it was. 

"So the city of Miami was allowed to go after these banks. On the other hand, the 11th Circuit Court of Appeals had sketched out what seemed to be a much easier path to proving the city’s case than what the Supreme Court seems to permit. In other words, the Supreme Court seems to suggest that a much more restrictive and difficult showing of a causal link between banks’ misconduct and the city’s injuries needs to be established.”

He feels it’s possible that this Supreme Court decision could result in new lawsuits brought by other cities facing the same situation as Miami. 

“If a city has been considering this kind of case against banks, it might be worth it to pursue this kind of claim, to recoup some of the losses from diminution in property values and foreclosures and a real erosion of the tax base," he said. 

"Now there’s at least a limited green light from the highest court in the land to pursue this kind of action, and a little bit of a roadmap as to how to do it.”

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