Wells Wins Another Round in Baltimore Mortgage Case

Baltimore has suffered another setback in its case against Wells Fargo & Co. in which it argues that the bank's lending practices led to foreclosures that have hurt the city.

A U.S. district judge dismissed the suit a second time earlier this week, questioning whether the properties could have become vacant in any event or if the borrowers defaulted on the loans specifically as a result of the Wells Fargo mortgages that were made. The judge left open the possibility that Baltimore could re-file by Oct. 22 after conducting further research.

Jeff Taft, a partner at the law firm Mayer Brown LLP in Washington, said the ruling diminishes the chances for similar cases against other banks. "Everybody thought at one point that there might be a lot of these lawsuits," he said. "But the lack of success by those who have brought the lawsuits and the difficulties in making a strong legal case has likely prevented others from bringing similar lawsuits."

Other cities have tried their hand at pinning the blame on banks for their economic troubles. In 2008, Cleveland filed a public nuisance lawsuit against several of the nation's biggest banks for creating blight. Birmingham, Ala., like Baltimore, filed a suit claiming banks caused a foreclosure epidemic by violating the Fair Housing Act. Both cases were dismissed last year. Cleveland later appealed the ruling, but was unsuccessful. 

Judge J. Frederick Motz of Maryland first dismissed the Baltimore case in January, saying the city's troubles were more likely a result of "extensive unemployment, lack of educational opportunity and choice, irresponsible parenting, disrespect for the law, widespread drug use and violence."

The judge allowed the city to file a narrower complaint alleging the San Francisco bank was responsible for more specific foreclosure-related costs.

But Motz found fault in the amended complaint as well.

"He has basically said 'you did what I asked you to do the last time … but you need to review the facts and determine whether you can make appropriate factual allegations on this new point,'" said George Nilson, Baltimore's city solicitor.

Upon review, if it's determined that the facts support the city's claims, Baltimore plans to re-file the suit, Nilson said.

"We're not just filing suit because there's a foreclosure problem and a subprime problem out there," he said. "We filed suit against Wells Fargo specifically based on their numbers and information we have about their behavior."

Cara Heiden, co-president of Wells Fargo Home Mortgage, said in a press release Tuesday: "We have contended from the beginning that the challenges Baltimore faces cannot be attributed to the small number of loans Wells Fargo foreclosed in the city."