Bank of America denied motion to dismiss 'redlining' suit brought by Cook County

Jonathan Bilyk Mar. 30, 2015, 6:14am

A federal judge has cleared Cook County to continue to press its case against Bank of America over the county’s allegations the lender discriminated against racial and ethnic minority borrowers through predatory lending practices in which it doled out home mortgage loans subject to higher interest rates and other more expensive terms for borrowers of color than for white borrowers, devastating the county’s neighborhoods and its tax base through the resultant foreclosures.

On March 19, U.S. District Court Judge Elaine E. Bucklo brushed aside Bank of America’s request to dismiss the county’s case.

While Cook County may still have work to do in winning on the merits of its case at trial, the judge said the bank was either incorrect or premature in asking the court to dismiss the county’s complaint based on what the bank maintained was a lack of real injury to the county and a lack of evidence presented by the county thus far to demonstrate the bank actually engaged in the predatory lending practices, producing a “disparate impact” among African-American and Hispanic homebuyers in Cook County.

Bucklo’s ruling comes about a year since Cook County first brought the action against Bank of America.

The case is substantially similar to others the county has brought both before and since against other lenders, including Wells Fargo and HSBC.

In this case, Cook County contends Bank of America, together with its subsidiaries Countrywide and Merrill Lynch, engaged in a practice known as “reverse redlining.”

Under the discriminatory practice known as redlining, lenders would typically deny most racial and ethnic minority borrowers the opportunity to obtain loans to buy homes in certain areas.

However, under reverse redlining, the lenders agree to give minority borrowers, such as blacks or Hispanics, loans – but at rates and under terms more onerous than those given to white borrowers with similar financial standing.

The county contends that such predatory practices then help fuel a wave of foreclosures, as the loans “strip equity from minority homeowners,” who then fail to make the more expensive monthly payments and slip into default. That, in turn, leaves vacant homes scattered throughout neighborhoods, depressing home values and costing local governments, including the county, potentially billions of dollars in costs associated with lost property tax revenue and services related to the foreclosures and vacant properties.

The county, for instance, contends Bank of America and its subsidiaries wrote 95,000 mortgages from 2004-2008, and, of those, about 60 percent have slipped into either delinquency, default or foreclosure.

The county claims each foreclosure cost taxpayers an average of $19,000 in costs, not including lost tax revenue from reductions to the local tax base.

In rejecting Bank of America’s motion, Bucklo said the bank’s arguments in support of its dismissal request “come from a familiar and largely unsuccessful playbook” used by lenders facing similar litigation over predatory and discriminatory home mortgage lending practices throughout the country.

Bucklo said, as the county asserts the predatory lending practices may still be ongoing, it is not barred by any time constraints.

Further, she said the county has demonstrated the potential harm it has suffered, likely at least partially as a result of the loan defaults arising from the bank’s alleged reverse redlining lending practices.

And, she said, the county has also demonstrated potential disparate impact among the minorities protected by the Fair Housing Act who were allegedly targeted by the lenders.

“In other words, the County has identified the type of discrimination that allegedly occurred (so-called ‘reverse redlining’); by whom (defendants); and when (from 2004, when the earliest discriminatory loans in Cook County were originated, into the loan’s servicing period),” Bucklo wrote. “These allegations are sufficient to state a plausible disparate treatment claim.”

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