Minnesota Law Suit Could Set Foreclosure Precedent
Earlier this year, Foreclosure-Fighter reported on a lawsuit being brought by Baltimore's mayor against mortgage lender Wells Fargo Bank. The Baltimore lawsuit alleges predatory lending targeting racial minorities and seeks damages caused by loss of tax revenue from so many foreclosures.
Perhaps not surprisingly, other cities are following suit. According to the Minneapolis Star-Tribune, the Hawthorne neighborhood of Minneapolis is suing mortgage lender CitiMortgage for reasons relating to alleged predatory lending in that neighborhood.
The suit, which reportedly claims that CitiMortgage engaged in "negligent and improvident lending practices", seeks damages, a monitored alarm system for the house in question and adherence to the city's housing code.
So what spurred the people of Hawthorne, Minnesota to action?
Evidently, the city sought to buy a house in the Hawthorne neighborhood that had been vacant for some time; it planned to use the house in a city-supported redevelopment program. After having the house appraised, the city offered CitiMortgage $137,500, sources indicate.
But CitiMortgage denied the offer and instead sold the house to an unknown buyer for $235,000 - an inflated price that Hawthorne officials are apparently citing as an example of careless lending practices. Despite terms of the mortgage that reportedly require the property owner to live on the premises, the house remained vacant.
Late last year, CitiMortgage foreclosed on the house, according to sources. The lender regained the house at auction, but it has remained vacant all the while.
The citizens of Hawthorne apparently grew irritated by the eyesore that the vacant property has become: several 911 calls have attracted police to the house; fires have been started; and its unkempt lawn has earned it tags for lawn mowing and trash violations.
Now, the lawsuit being brought against CitiMortgage is expected to test the limits of some laws and legal precedents currently determining the way mortgage lending is handled.
In the past, courts have ruled that lenders can be held liable for offering credit cards or loans to individuals who are considered mentally incompetent; basically, precedents have held lenders responsible for who gets their loans. But that's the basic interpretation. Legal matters are by nature much more complex.
This case seeks to extend that lender liability to mortgages and foreclosure proceedings.
Reports indicate that lawyers for Hawthorne plan to show how CitiMortgage's careless lending practices led to increased foreclosure rates, the loss of homes by individuals and families, a tightened credit market and serious losses on Wall Street.
This same carelessness, alleges the suit, was evident in the Hawthorne situation: if CitiMortgage had done proper research about the buyer of its property, it would have concluded that the buyer was unlikely to repay the mortgage, and would have loaned money elsewhere.
Legal experts have acknowledged that this is an "aggressive"; legal strategy, but that it could set a precedent if the court rules in favor of Hawthorne. And the city's odds of winning are better than they would have been a few years ago - since then, the public perspective on lending has changed significantly.
Cases like the Baltimore lawsuit against Wells Fargo and the Ohio judge's decision that a lender didn't have the legal right to foreclose on several properties are beginning to add up around the country. Sooner or later, a serious change could take place.