FAIR HOUSING CLAIMS BY MUNICIPALITIES

On May 1, 2017 the Supreme Court (in a 5 – 3 decision, with Justice Gorsuch abstaining) ruled in the case of Bank of America v. City of Miami that municipalities have standing to file a civil damages action for a violation of the Fair Housing Act.

The City’s complaints charge that the Banks intentionally targeted predatory practices at African-American and Latino neighborhoods and residents, lending to minority borrowers on worse terms than equally creditworthy nonminority borrowers and inducing defaults by failing to extend refinancing and loan modifications to minority borrowers on fair terms. The City alleges that the Banks’ discriminatory conduct led to a disproportionate number of foreclosures and vacancies in majority-minority neighborhoods, which impaired the City’s effort to assure racial integration, diminished the City’s property-tax revenue, and increased demand for police, fire, and other municipal services.

The District Court dismissed the complaints on the grounds that (1) the harms alleged fell outside the zone of interests the FHA protects and (2) the complaints failed to show a sufficient causal connection between the City’s injuries and the Banks’ discriminatory conduct. The Eleventh Circuit reversed. The Supreme Court rules the City is an “aggrieved person” authorized to bring suit under the FHA.

Will we see more of these actions? Most likely. Municipalities will watch this case. If Miami recovers damages other cash-starved cities will view this as an opportunity to help refill their coffers. We expect that plaintiffs (big cities) will go after the deep pockets (large banks with many loans in the neighborhoods in question) initially to maximize the return on their investment (legal costs). This may drift down to smaller municipalities suing smaller financial institutions.

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