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CLIENT ADVISORY - January 14, 2008

The City of Cleveland Sues Wall Street Over Foreclosures

by Jennifer M. Monty, Esq.

Last Thursday, the City of Cleveland took an unprecedented action and sued 21 banks and corporations, for damages based on increased foreclosures within the City of Cleveland.  The lawsuit follows a similar suit filed by the City of Baltimore.  Cleveland sued "Wall Street" investment banks who bought sub-prime mortgages and used them as collateral in the sale of mortgage-backed securities.  

Under a theory of public nuisance, the lawsuit alleges that the defendants engaged in sub-prime lending practices.  The City of Cleveland claims that lenders improperly provided sub-prime loans to the residents of Cleveland, resulting in a foreclosure crisis.  Within the complaint, the City states that lenders should have been aware of Cleveland's declining economy, vacant properties, and low property values.  The complaint also states that lenders should have been wary to provide sub-prime loans to Cleveland residents based on the city's demographics, including a high concentration of lower-income families with below-average credit.   The City then claims that the banks should not have offered sub-prime loans to City of Cleveland residents.
 
Based on the rising numbers of properties in foreclosure, the City claims that it has been damaged by the cost of maintaining and demolishing foreclosed properties, lost tax revenues, and the depreciation of home values within the City of Cleveland.   Additionally, the City claims that vacant homes may result in increased expenditures for fire and police protection.  The City estimates that property values have depreciated by more than $462 million as a result of the foreclosure filings.

The complaint requests damages in excess of $25,000 from each named defendant, interest, attorneys' fees and costs.

You can read related articles from the following publications:

Wall Street Journal
Cleveland Plain Dealer
Associated Press on MSN Money

An Article in the Cleveland Plain Dealer on Sunday explains how this l awsuit could prompt other cities to pursue similar action. Read More.

If you have any questions on this information, please contact Jennifer M. Monty, Esq. an associate focused on litigation & defense within the Real Estate Default Group located in the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A. Jennifer can be reached at (216) 685-1136 or via e-mail at jmonty@weltman.com.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at www.realestatedefaultgroup.com for more information, company facts and attorney profiles. (c)2007