DS News spoke with an industry real estate law firm in Florida to discuss Bank of America v. Miami which poses the question, “Can financial institutions be sued by Municipalities under the Fair Housing Act?”
What is the question being posed in the case Miami v. Bank of America?
Starting in 2013, the city of Miami brought claims against Bank of America, Wells Fargo, and a few other banks in separate cases. The city of Miami claimed that these banks were engaging in two distinct practices that were problematic. The first being redlining and the second being reverse redlining. The city claimed that they could have a cause of action under the Fair Housing Act because they were an "aggrieved person." This term is used to describe who can bring a claim there under. The banks argued in each of these cases that the city was not an "aggrieved person." The city's claim is that they lost tax revenue because of these practices. Because of this the city claims that subsequently there would be one foreclosure after another due to these practices and that would in turn decrease home price. The decrease home prices would then cause blight and this blight would ultimately decrease home values to such an extent that tax revenue off of those home values would itself decrease. The city claimed that it was harmed because it lost that tax revenue. That harm, the city claims, made it an aggrieved person under the Fair Housing Act.
So the question in the case is really who can bring a claim under the Fair Housing Act and under what circumstances. There are three different legal precepts that are important here. The first is constitutional article 3 standing. The second is Statutory Standing and the third is a question of proximate cause.
Article 3 Standing involves three different precepts. The first is the person who wants to assert a claim has to have suffered an injury in fact. That injury has to be concrete and particularized as well as actually or imminent. Secondly, there must be a causal connection which is fairly traceable to the conduct of the person that they are asserting the claim between the conduct itself and the harm suffered. Third, a revolution of their dispute would have to be likely to redress the harm that was done.
With the question of Statutory Standing, the district court in the City v. Bank of America case said that the city would need to have Statutory Standing, but the 11th Circuit Court of Appeals said no, in fact Statutory Standing really just means who have to be able to state a course of action under the statute. This statute defines the person or type of person who is able to assert such a cause of action as an aggrieved person. They said that based upon a number of court cases, the definition of an aggrieved person is very broad and the city made this argument and the 11th Circuit Court of Appeals agreed. The banks argued that no it is not that broad. There needs to be as there is with just about any statute a plaintiff with the city that falls within the zone of interest that the statute intended to cover and the banks argued that the Fair Housing Act did not intend to benefit municipalities who lost tax revenue because of unfair housing. Instead, there are a number of traditional types of plaintiffs with Fair Housing claims whose claims would fall under the zone of interest that the Fair Housing Act intended to remediate. This is related to proximate cause which is another legal precept because you need to have a harm that is sufficiently close in connection with the conduct of the statute. An indirect injury is okay and the court has stated that the Fair Housing Act itself is often treated like a torte claim which means that the harm has to have been "foreseeable". So instead of an analysis as to whether the city and the city's claim fall within the zone of interests that are articulated under the statute or implied, they simply have to have a claim that is foreseeable. So that means there would have to be a way that the bank could know that its practices could make the city an aggrieved person. The city's claim is that the banks did have foreseeable consequences to the city because they had access to analytical tools and reports that said that these actions would likely lead to loss of tax revenue for the city.
The 11th Circuit Court of Appeals said yes, you have satisfied the pleading requirement for proximate cause and also said that you have satisfied the pleading requirements for Article 3 standings. They finally said that in that you've satisfied both of those and because the Fair Housing Act in the use of the term "aggrieved person" is sufficiently broad, to extend to the edges of Article 3 Standing inquires, you've also stated that the city is an aggrieved person.
What implications will this case have on servicers?
There are a couple of implications that are possible. The first is that if the city is ultimately able to sustain its Fair Housing claim without having to prove that there was a zone of interest calculation that the city met, then other parties will be able to sue servicers and banks based upon Fair Housing claims. It wouldn't then simply be someone who has actually suffered the discrimination or someone that is fighting the discrimination, but it would instead be anyone that is tangentially effected by the discrimination. This means that servicers and banks would be open to lawsuits from a greater variety of plaintiffs with respect to the same loan, mortgage, and property.
It would also mean that there maybe increased class actions against banks and servicers and increased exposure.
On the other hand, if all of those potential parties are plaintiffs it may limit the ability of some of them to file class actions because there is a commonality element to the aggrieved parties in the class action. If you have different types of parties who would have suffered different types of injuries from the same conduct, it is sometime difficult to certify a class. It may make certification more difficult to occur.
Additionally, a municipality is a larger entity than will likely bring in a Fair Housing claim. This Fair Housing claim is a little more high tech than what would usually be seen. If that is the way that they are typically litigated because now bigger entities are bringing Fair Housing claims, it may actually lower the scope of Fair Housing claims that actually succeed. Plaintiffs in Fair Housing cases at the federal level will potentially in the judge's eyes be held to a higher standard because the courts are used to these bigger entities litigating these cases because these entities can afford more and better attorneys.