Payback Time: Cleveland sues banks over the foreclosure crisis, but takes a legal road less traveled

January 16, 2008
Vacant homes left to scavengers and arsonists. Police and firefighters increasingly called to the scene. Property after property in need of demolition. The whole region seemingly in decline. For months some have been wondering what legal remedies there might be for cities suffering the fallout from skyrocketing rates of home foreclosures. Last week, Cleveland and Baltimore became the first to take the question to court.
      Both cities want banks to pay for damages caused by widespread - and arguably preventable - foreclosures. But while Baltimore has sued one major mortgage lender under a well-established federal fair housing law for discrimination in lending, Cleveland has waded into uncharted waters. Citing state public nuisance statutes, Cleveland has targeted 21 Wall Street investment banks for fueling an explosion of subprime loan products that, given Cleveland's dim economic profile, city officials say, were bound to fail -and these banks knew it.
     It's a gutsy move, and unprecedented. Cities have used similar state public nuisance laws in the past, in cases involving lead paint exposure and the gun industry (where gun manufacturers were sued for making weapons available to criminals and minors). But Cleveland is the first to make public nuisance claims against certain subprime mortgage lending practices - something not as obviously harmful as lead or firearms. As a result, the odds of success are impossible to predict.