Judge Tells Cleveland Not only “No,” but “Heck No?”

Federal Judge Sara Lioi used 36 pages to painstakingly and systematically dismiss the city’s 16-month-old lawsuit against 21 investment banks in her decision in City of Cleveland v. Ameriquest Mortgage, Inc. et al., No. 1:08 cv 139 (N. D. Ohio, May 15, 2009)
(read the opinion here). The City of Cleveland’s (the “City”) lawsuit claimed that these banks’ subprime lending practices created a public nuisance under Ohio law that was scarring neighborhoods and draining the City’s tax base. The complaint alleged that the banks (which had not originated the mortgages) facilitated the making of loans to subprime borrowers in Cleveland who could not afford the debt. After the borrowers defaulted, the lenders foreclosed. The City sought to hold the banks liable for its burdens and costs in maintaining the foreclosed properties.

Normally, when judges grant dispositive motions, they do so narrowly, focusing on what they believe is the strongest reason that reaches the desired result and ignoring all other arguments. This judge, however, chose to opine on every reason available to dismiss the City’s case, any of which, standing alone, would have sufficed. Clearly, the judge does not want to revisit this case. Ultimately the Court granted the Defendants’ motions to dismiss on four grounds:  Read More »

A New Approach to the Subprime Public Nuisance

At the close of 2008, the Cleveland Housing Renewal Project Inc., a private, non-profit housing advocacy group, tried a new legal tack to deal with the havoc the subprime housing fiasco is causing Cleveland, Ohio. It asked Cleveland’s housing court to declare that business practices used by some banks when selling foreclosed properties are creating a public nuisance in violation of the law. The suit asks the court to abate the nuisance by ordering the banks to either fix up the foreclosed houses before selling them or to demolish them entirely.  Read More »

Unexpected Sources of Insurance

The public nuisance theory is already expanding into the subprime mortgage context. Earlier this year, the City of Cleveland sued 21 financial institutions, including Ameriquest, Bank of America, Citigroup, and J.P. Morgan Chase, among others, alleging that the defendants’ “sub-prime lending abuses” created a foreclosure crisis that has imposed “tangible costs” on the city, including increased fire and police expenditures associated with vacant properties, demolition costs, and lost tax revenue. The city claims the foreclosures constitute a “public nuisance” and seeks compensation from the banks for the city’s losses.  Read More »