3 Georgia counties sue British bank

Lawsuit claims HSBC aggressively pushed irresponsible loans

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ATLANTA — Three Atlanta-area counties have filed a lawsuit claiming British bank HSBC cost them hundreds of millions of dollars in extra expenses and damage to their tax bases by aggressively signing minorities to housing loans that were likely to fail.

The counties’ failure or success with the relatively novel strategy could help determine whether other local governments try to hold big banks accountable for losses in tax revenue based on what they claim are discriminatory or predatory lending practices.

Similar lawsuits resulted in settlements this year worth millions of dollars for communities in Maryland and Tennessee.

Fulton, DeKalb and Cobb counties say the foreclosure crisis was the “foreseeable and inevitable result” of big banks, such as HSBC and its American subsidiaries, aggressively pushing irresponsible loans or loans that were destined to fail.

“It’s not only the personal damage that was done to people in our communities,” said DeKalb County Commissioner Jeff Rader. “That has a ripple effect on our tax digest and the demand for public services in these areas.”

The suit, filed in October, says the banks violated the Fair Housing Act, which provides protections against housing or renting policies or practices, including lending, that discriminate on the basis of race, color, national origin, religion, sex, family status or handicap.

THE COUNTIES SAY their tax digests – which represent the value of all property subject to tax – have declined from a high in 2009. Fulton’s tax digest has dropped about 12 percent, from $32.7 billion to $28.7 billion; DeKalb’s has dropped about 20 percent, from $22 billion to $17.5 billion; and Cobb’s has dropped about 15 percent, from $25.5 billion to $21.3 billion, the lawsuit says. The losses reduce their ability to provide critical services in their communities, the lawsuit says.

Vacant or abandoned homes that are in or near foreclosure create additional costs for the counties, the lawsuit says. Their housing code and legal departments have to investigate and respond to code violations, including having to board up, tear down or repair unsafe homes.

They have to deal with public health concerns, such as pest infestations, ruptured water pipes, garbage piles and unkempt yards. Fire and police departments have to respond to health and safety threats.
The lawsuit says predatory lending practices include: targeting vulnerable borrowers for mortgage loans with unfavorable terms; directing credit-worthy borrowers to more costly loans; putting unreasonable terms, excessive fees or pre-payment penalties into mortgage loans; basing loan values on inflated or fraudulent appraisals; and refinancing a loan without benefit to the borrower.

The counties are asking the court to order the bank to stop its behavior and to take steps to prevent similar lending in the future. They are also seeking financial compensation for the damages they’ve suffered and punitive damages to punish the bank for its “willful, wanton and reckless conduct.” The counties say the financial injury they’ve suffered is in the hundreds of millions of dollars.

SIMILAR SUITS WERE filed against Wells Fargo by the city of Memphis and surrounding Shelby County in Tennessee in 2009 and by the city of Baltimore in 2008. Those suits were settled earlier this year.

Both settlements included $3 million to the local governments for economic development or housing programs and $4.5 million in down payment assistance to homeowners, as well as a lending goal of $425 million for residents over the subsequent five years, according to media accounts.

As in those cases, the lawsuit filed by the Georgia counties says the bank, in this case HSBC, targeted communities with high percentages of Fair Housing Act-protected minority residents, particularly blacks and Hispanics.

“Communities with high concentrations of such potential borrowers, and the potential borrowers themselves, were targeted because of the traditional lack of access to competitive credit choices in these communities and the resulting willingness of FHA protected minority borrowers to accept credit on uncompetitive rates,” the suit says.

The lawsuit says minority borrowers were disproportionately targeted with high-cost loans between 2004 and 2007.

Before the beginning of the subprime lending boom in 2003, annual foreclosure rates in metro Atlanta averaged below 1 percent, but U.S. Department of Housing and Urban Development data show that the estimated foreclosure rates for each of the three counties now average more than 9 percent and are as high as 18 percent in the communities with the highest percentages of minority borrowers, the lawsuit says.

It is the alleged targeting of minority communities that entitles the counties to seek action against HSBC for loss of tax income and other expenses, the lawsuit says.

“If you can show that you yourself have suffered harm by an illegal act under the Fair Housing Act, even if you are not the target, even if you are not the intended victim, you can still sue to stop the behavior and to recover any damages that you can prove you suffered because of the violation of the Fair Housing Act,” said Steve Dane, a lawyer whose firm was involved in the Memphis and Baltimore lawsuits.

The costs incurred by counties because of high rates of foreclosure are reflected in court records and related fees for each home, and police and fire departments can calculate the costs of responding to a given address, Dane said. He said it takes a lot of time and effort to gather the necessary records to prove the harm.

Another discouraging factor could be a lack of political will, said Lisa Rice, vice president of the National Fair Housing Alliance.

“Politicians may not want to go up against the banks,” she said, adding that there will likely be other local governments that give this a try but she doubts the number will be high.

But Jaime Dodge, an assistant law professor at the University of Georgia, says she thinks more cases are likely, at least in the short term as municipal governments continue to feel the squeeze of a tight economy and seek ways to refill their coffers. They may try to test federal courts in different parts of the country, she said. Successes in multiple jurisdictions could lead to more attempts, but if courts start knocking the suits down that would likely discourage them, she said.

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Riverman1 12/25/12 - 08:39 am
Maybe Ludowici can sue and

Maybe Ludowici can sue and get some money, too?

prov227 12/25/12 - 10:39 am
Wonder ...

if the politicians who run these counties were the same ones heralding the real estate boom going on in their counties in 2005 - 2007 and planning how to spend their new found property taxes as quickly as possible?

OpenCurtain 12/25/12 - 11:46 am
The FED's say do it and the Federally Regulated Banks had to.

The FED's required Banks to make increased home loans to low income families or partnerships.

The problem is and will always be, a culture of Ownership and Community vs. We Live here for now.

Washington DC is to blame and
there are 3 ways to look at it.

1. The Liberal Touchy-Feely crowd wanted to immediately equal home ownership and without regard to affordability or the massive ramifications and impact to the economy. In order to be able to say "Look what we did" for the votes and political support.

2. Or, it was a deliberate plan to tank the economy screw 40 million middle class and upper class Home Owners out of their retirement investments and home equity. Again with the goal of leveling the playing field.

3. A mixture of both 1 & 2.

We all agree the loan process requirements were designed by Washington DC.

This is where the blame squarely lays.

But how do you send a political group or party to court or jail?

JRC2024 12/25/12 - 11:49 am
I thought the banks were

I thought the banks were forced to make loans to people who really did not have the ability to pay under the Fair Housing Act started by Jimmy Carter. Let's not forget that the banks have lost millions also. Investors have been getting these houses at below market prices and the banks have been writing off the losses on the loans. BAD DEAL FOR ALL CONCERNED. This is what happens when you try and make everyone equal. Never works and never will.

soapy_725 12/25/12 - 12:39 pm
Ludowici can hide another police cruiser along.....

the main drag. What a town!!!!

soapy_725 12/25/12 - 12:46 pm
And when those homes are foreclosed,

Fannie, Freddie and HUD (who underwrite all home loans ) become the default owners of the land. Banks cannot do anything without HUD forms completed. The acquisition of land in America by the federal government may be the biggest scam. We hear about land out west being taken under the guise of preservation. Uncle Sam just prints more money and buys more land. A finite commodity. Obama has revealed his ability to create more earth.

OpenCurtain 12/25/12 - 07:26 pm
This Pipe Dream concept that all people are created equal

honestly stops at the point of conception. After "Creation" and if the baby survives the possibility of Abortion? Then many outside issues come into play.

We must except that some people will behave differently based on instilled morals, ethics, imprinted Type A or B or C personalities, culture, raised environment, genes and DNA makeup.

Pushing to "generally" level the playing field by laws, when so much is stacked against the concept by nature is kind of foolish.

Establishing fair and honest standards that must be met by all, works best.

When the standard are lowered that protect the system, everyone else gets hurt.

Face It
Some people in the society just want more, without putting forth the effort others have too, to earn it. When this happens they don't appreciate what they have because it was easily obtained, with no learning process called effort.

This goes for people that wanted houses and could not afford them.

The politicians using a house as a carrot on stick and string for a Vote or to play PC Social Equality.

The Banks that made the loans knowing they were bad risks, then quickly disguised the viability of the loans and sold them off to unsuspecting investors.

There is plenty of blame to go around.

But YES the source (the CAUSE) is Washington DC for lowering the Housing Loan requirements in order to play PC Socialist with peoples lives.

So when We see Government suing the Banks, we have to ask isn't Government a co-defendant?

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