Cleveland Wins the First Round in Fight to Stop Banks From Dumping Their Trash
Late last year, TWI wrote about a landmark lawsuit in Cleveland, in which housing lawyers were trying to stop banks from dumping their rundown and neglected bank-owned homes on the city. The lawyers, working on behalf of a local nonprofit, had momentum at first, securing a temporary restraining order for two weeks that temporarily stopped banks from unloading their Real Estate Owned (REO) properties at fire sale prices. The suit contended that business practice violated local public nuisance laws because it dragged down property values for everyone.
The suit named Wells Fargo and Deutsche Bank as the biggest foreclosers in Cleveland – explaining that they sell REOs in bulk, at pennies on the dollar, to speculators and flippers, who often abandon the properties. But those practices are commonly used by other banks as well. If the suit succeeds, other localities could tackle the REO problem by going citing banks as a public nuisance.
The banks immediately fought back and in January got the cases moved to federal court, where the nonprofit would face a far more costly battle. Housing court judges also tend to be more familiar with the problem of neglected bank-owned properties. It looked like the lawsuits might be doomed.
But there’s been a big development, according to Kermit Lind, a Cleveland State University housing professor and one of the lawyers for Cleveland Housing Renewal Project, Inc., the nonprofit filing the suit. Federal court judges recently sent both cases back to housing court, at the request of the nonprofit’s lawyers. That means if housing court concludes that Wells Fargo and Deutsche Bank are violating public nuisance laws by neglecting their REO inventories, the sales could be stopped. The banks would have to either fix up the properties before selling them, or demolish them — anything to stave off the death spiral of plummeting property values. If the banks are smart, they’ll find a way to hand them over to community groups that will find a way to reuse them.
Keep your eyes on this case. If the Cleveland folks are successful, as TWI noted, their tactics could set a standard for other communities. It’s also a sign that cities are figuring out ways to fight back and are no longer willing to stand aside as banks dump their trash and walk away.
TWI is on Twitter. Follow Mary Kane’s ongoing coverage of the housing crisis here.