It took more than three years and three major edits, but Baltimore’s mortgage discrimination lawsuit against banking giant Wells Fargo has finally survived a defense motion to dismiss the case.
In an opinion published Friday by the U.S. District Court, the presiding federal judge credited the city with clearly stating, in the fourth version of its unusual suit, that Wells Fargo steered African-American borrowers who qualified for prime loans into more onerous subprime loans and targeted unqualified homeowners for refinance or home equity loans that caused them to lose their houses.
Prior versions of the complaint failed “to plausibly allege that the subject properties would not have been vacant but for Wells Fargo’s lending practices,” Judge J. Frederick Motz wrote. “The Third Amended Complaint fills in this gap, and I therefore hold that the City has standing to pursue its claims.”
Reached Monday morning, City Solicitor George A. Nilson called the ruling “a relief.” He jokingly compared the city to an “Olympic swimmer, poised on the starting block, waiting for the gun to go off” for so long that he has grown a beard.
“We’re happy that the gun has gone off finally,” Nilson said.
The San Francisco-based bank had argued that the city was engaging in guesswork and speculation about “phantom borrowers,” but Judge Motz found that argument and others “unpersuasive.” He invited the defendants — Wells Fargo Bank N.A. and Wells Fargo Financial Leasing Inc. — to assert those defenses in a motion for summary judgment.
A bank spokeswoman said Wells Fargo will “continue to defend ourselves vigorously.”
“Our lending decisions are based on transaction risk, without any bias, and we believe that consistently treating our customers fairly is the way to go,” said Vickee J. Adams, the spokeswoman. “And we’re going to continue to defend ourselves with that point.”
The city has claimed, since it first filed the suit in January 2008, that it suffered reduced property tax revenue and increased demand for municipal services, such as fire department and police assistance, because Wells Fargo targeted residents of Baltimore’s predominantly African-American neighborhoods for disadvantageous loans.
Last year, Judge Motz called the city’s claims too generalized and pointed to a host of socioeconomic factors that worsened the city’s condition. The city responded by identifying 190 properties on which subprime loans had been made, resulting in foreclosures.
Estimates put the number of vacant properties in the city at 30,000, with about a third of those owned by the city itself.
Adams, the Wells Fargo spokeswoman, pointed up the comparison between those figures and the vacancies allegedly caused by Wells Fargo and suggested that “city resources are being dedicated to something that is perhaps not as productive as other uses of those funds and energies.”
The bank has succeeded in limiting the pretrial discovery the city has been able to get and in limiting the allegations and damages the city could claim if the case makes it to trial, but last week’s decision begins a new chapter in the litigation.
Nilson said he would be meeting Monday afternoon with the city’s outside counsel from Relman, Dane & Colfax PLLC to discuss “next steps,” including discovery in the case.
“If it’s undertaken not in a scorched earth way but in a collaborative way and with goodwill on all sides — and those are a lot of ifs — it could be done in a year,” Nilson said of the discovery process, before acknowledging his estimate “is perhaps optimistic.”
“Less than six months would be surprising,” he said. “More than two years would be disappointing.”