The city of Cleveland, hit hard by the national foreclosure crisis has sued 21 banks claiming their subprime lending practices created a public nuisance that hurt property values and city tax collections.
The lawsuit was filed Thursday in Cuyahoga County Common Pleas Court, and seeks to recover hundreds of millions of dollars in damages, including lost taxes from devalued property and money spent demolishing and boarding up thousands of abandoned homes.
Cleveland Mayor Frank Jackson said that buying and selling of high interest mortgages by some of the nations' biggest banks had devastated city neighborhoods struggling to recover after the loss of manufacturing jobs. He said that the city has faced huge foreclosure-related costs, including police and fire protection for abandoned homes. The foreclosure crisis, apart from depressing property prices has also led to an increase in crime.The city claimed Cleveland housing prices remained relatively stable amid industrial lay offs as real estate values jumped elsewhere. It claims investment bankers pushed loans to investors at the expense of borrowers.
Cleveland is not the first city to sue lenders over recent mortgage troubles. On Tuesday, Baltimore sued Wells Fargo, alleging the bank intentionally sold high interest mortgages more to blacks than whites in violation of federal law.
Cleveland based its legal challenge on a state law that relates to public nuisances. The defendants include both Bank of America Corp. and Countrywide Financial. Deutsche Bank Trust Co. and Wells Fargo and Co. were named in the suit as foreclosing the largest number of homes over the past four years in Cleveland and surrounding Cuyahoga County.
A report commissioned last November by the US Conference of Mayors projected that 361 metropolitan areas would take an economic hit of $166 billion in 2008 because of the rise in foreclosures.
There are signs that other cities and states may follow. Ohio Attorney General is considering a state lawsuit against investment banks, but it is not likely to be submitted as a public nuisance case.