Wells Fargo Wins Dismissal of Baltimore's Suit Over Subprime Foreclosures

Wells Fargo & Co. for the second time won dismissal of a lawsuit by Baltimore claiming its lending practices discriminated against black borrowers and led to foreclosures that harmed the city.

U.S. District Judge J. Frederick Motz today dismissed the city’s amended complaint, saying it failed to establish a causal connection between decreases in property tax revenue and its allegation that Wells Fargo steered borrowers who were qualified for prime loans to more expensive subprime loans.

Motz allowed the city until Oct. 22 to file a third amended complaint to address this issue.

“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,” Motz said. “It is in the interest of justice that the city be granted leave to file a third amended complaint.”

Wells Fargo said in a statement that the challenges Baltimore faces can’t be attributed to the small number of loans in the city foreclosed on by the bank.

John Relman, a Washington lawyer representing the city, didn’t immediately return a call seeking comment after regular business hours.

‘Reverse Redlining’

Baltimore sued Wells Fargo in 2008, accusing it of “reverse redlining” by targeting black borrowers though loans they couldn’t afford. That led to foreclosures, a drop in city tax revenue and increased costs for police to fight crime in neighborhoods with vacant homes, the city said.

Similar cases brought against lenders in Birmingham, Alabama, and Cleveland also have been thrown out, the San Francisco-based bank said in January when the original Baltimore complaint was dismissed.

The case is Mayor and City Council of Baltimore v. Wells Fargo Bank N.A., 08-00062, U.S. District Court, District of Maryland (Baltimore).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

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