City, Wells Fargo to go another round

Posted: 8:06 pm Tue, September 14, 2010
By Barbara Grzincic
Daily Record Managing Editor/Law

The city of Baltimore will get one more chance to hold a mortgage lender liable for causing vacancies that decrease the tax base and increase the cost of municipal services.

Saying the city “has cured the fundamental flaw” that led him to dismiss an earlier complaint, Judge J. Frederick Motz said the city must yet again sharpen its claims against Wells Fargo Bank N.A.

Motz reluctantly gave the city until Oct. 22 to file its third amended complaint in U.S. District Court.

Earlier this year, Motz called the city’s claims too generalized and pointed to a host of socio-economic factors that worsened the city’s condition.

The city responded by identifying 190 properties on which subprime loans had been made, resulting in foreclosures.

Wells Fargo, which denies the city’s allegations, asked the court to dismiss that complaint, too. Motz heard argument on the bank’s motion to dismiss on Sept. 8 and issued an informal two-page opinion and order on Tuesday.

The judge acknowledged that the city had responded to his prior concerns “by focusing upon ‘property specific,’ rather than generalized damages.”

However, it did not go quite far enough, he ruled.

Motz said the city can proceed with its reverse-redlining claims, which allege that Wells Fargo steered borrowers who were eligible for prime loans into more expensive subprime loans they could not afford.

However, the city also alleges that Wells Fargo made subprime loans to borrowers who were not eligible for any loan at all.

The city needs to drop those claims unless it can show that the properties were occupied “before the sale facilitated by the ‘bad’ Wells Fargo loans, and … would have remained occupied during the period for which the City claims damages,” Motz wrote.

“[I]t may well be that the damages (if any) that the City might eventually be awarded would be extremely limited,” the judge warned. “However, my analysis of the issues persuades me that theoretically the City does have viable claims if it can prove property-specific injuries inflicted upon it at properties that would not have been vacant but for improper loans made by Wells Fargo.”