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VOL. 123 | NO. 245 | Tuesday, December 16, 2008

Commission to Discuss Lender Suit

By Andy Meek

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LET’S DO THIS: Robert Lipscomb, center, director of the city of Memphis Division of Housing and Community Development, has been one of the most vocal advocates for filing a class action lawsuit on behalf of the city and county against predatory lenders. -- PHOTO BY BILL DRIES

Tennessee attorney general Bob Cooper came to Memphis last month, and in an afternoon meeting Nov. 19 with Shelby County Mayor A C Wharton Jr. the topic of discussion was a major piece of litigation the county is close to filing.

The attorney general’s private visit, which was relayed to The Daily News by a county official, came as local elected leaders had spent weeks preparing to file a lawsuit against mortgage companies that may have contributed to the local foreclosure problem.

As The Daily News first reported last month, many of the top officials in local government have been brought into the loop at some point about the potential suit, which will move a step closer to official action this week.

The Shelby County Board of Commissioners will talk for the first time in a committee session Wednesday about whether to authorize the county attorney to pursue the mortgage-lender litigation.

A cursory comparison of other cities that have taken major lending companies to court over the same issue shows why.

Fighting back

The city of Baltimore, which filed a federal lawsuit in January arguing Wells Fargo Bank had engaged in predatory lending there, expects to see more than 4,000 foreclosures this year, according to news accounts. That city’s federal lawsuit, which was filed in the U.S. District Court’s Baltimore Division and which remains pending, claims 33,000 homes were the subject of foreclosure filings there since 2000.

Fewer than 900 miles away in Shelby County, the foreclosure problem is much worse. Action being taken to address it likely will be much broader in scope.

“There exists a (disproportionately) high rate of foreclosures in Shelby County, inclusive of its larger Memphis African-American communities, that were caused substantially by financial institutions’ unlawful, irresponsible, unfair, deceptive and discriminatory lending practices,” the county commission’s resolution reads.

It goes on to explain that any court action that would be filed “should seek a declaratory judgment and injunctive relief of all types including stopping foreclosures, as well as damages to local governments relative to these predatory lending practices in Memphis and Shelby County.”

Context clues

Not long after the Baltimore suit was filed, the city of Cleveland sued almost two dozen banks, including Bank of America, Countrywide and Citigroup, in the wake of a spike in foreclosures. That lawsuit, however, used the state of Ohio’s public nuisance law as a basis for the action.

A small circle of attorneys, elected leaders and public officials in Memphis and Shelby County have for several weeks kept these and similar lawsuits in the backs of their minds. They privately have admitted they liked the idea behind the Baltimore suit, which argued Wells Fargo had practiced reverse redlining in the city. That practice involves steering only high-cost loans to minority neighborhoods.

“The conditions that made those suits successful abound here to an (equal or greater) extent … than was the case in those locales,” Wharton told The Daily News. “Specifically, high poverty rates, low financial literacy and the same offending financial institutions are the elements found in those lawsuits that have been successful.”

Whereas the Baltimore suit had one major defendant, officials have told The Daily News any local lawsuit likely will target a handful of companies. As discussions about the potential suit were in the early stages, companies being mentioned privately as warranting scrutiny included Countrywide, Ameriquest and Wachovia, among others, although no companies are being named publicly yet.

The Memphis area also has a larger foreclosure problem than Baltimore. Through Oct. 31, Shelby County has seen 5,328 foreclosures, according to real estate information company Chandler Reports, www.chandlerreports.com. That’s up 8.6 percent from the 4,906 foreclosures in the same year-to-date period in 2007.

In the eight years between 2000 and 2008 during which Baltimore saw about 33,000 home foreclosures, Shelby County has seen more than 58,000, according to figures from city of Memphis Housing and Community Development director Robert Lipscomb.

The high cost of foreclosure

County commissioners Wednesday will be presented with a resolution sponsored by commissioner J.W. Gibson authorizing the county to participate with the city of Memphis and the state of Tennessee in pursuing a lawsuit.

The attorney general during his visit with Wharton did not make a commitment about joining the lawsuit, although local officials would like him to. Memphis Mayor Willie Herenton and Wharton have publicly and privately signaled their approval of pursuing any such court action against predatory lenders.

The County Commission resolution says the attorney general has been invited to participate, along with the city of Memphis.

The Baltimore lawsuit cites figures from a Chicago study of foreclosures that show the total cost to a local government can run as high as $34,199 per foreclosure. Using that figure as a benchmark, the foreclosure crisis has collectively cost Memphis and Shelby County governments almost $2 billion over the past eight years.

Chandler Reports is a division of The Daily News Publishing Co.

PROPERTY SALES 83 405 4,276
MORTGAGES 104 424 4,814
BUILDING PERMITS 148 883 10,151
BANKRUPTCIES 53 264 3,149