Fulton, DeKalb, and Cobb counties in Atlanta, Ga., have brought claims against a British bank alleging that the bank engaged in lending practices damaging their property tax by encouraging minority homeowners into loans that they could not afford. The counties claim the bank implemented a reverse redlining scheme that targeted minority neighborhoods and stripped the equity from the properties the bank financed. Judge Steve Jones of the Northern District of Georgia, by denying a motion to dismiss, has allowed the $100 million suit to proceed. The Atlanta counties claim that the London-based HSBC North America Holdings Inc. and its United States subsidiaries did employ unfair and predatory lending practices toward minorities.

The counties filed suit last year claiming that the housing foreclosure crisis that led to the housing market failure in 2008 was a “foreseeable and inevitable result” because the lending practices engaged in by the HBSC led to loans that were “destined to fail.” The counties claim the loans were destined for failure because of the HBSC’s target toward low-income, minority communities who could not afford the loans. As a result, the loans brought about an “unprecedented number” of loan defaults and covered metro Atlanta with foreclosures and home vacancies, leaving those neighborhoods subject to vandalism and other criminal activity.  The Atlanta-area counties are claiming damages due to increased code inspections, repairing or tearing down abandoned properties, increased police and fire protection, the loss of recording fees, and the loss of property tax revenues.

When a bank engages in reverse-redlining, they refuse to extend credit to borrowers because of their race or the neighborhoods where they live. In this case, the Atlanta counties claim a reverse-redlining scheme, meaning that the mortgage and financial companies targeted certain neighborhoods and targeted certain individuals based on their race. Some of the unfair practices engaged in by these companies were “exorbitant interest rates, equity stripping, acquiring property through default, repeated foreclosures, and loan servicing procedures involving excessive fees.”

HSBC targeted minorities in the Atlanta-area counties and offered FHA loans in the highest foreclosure risk areas of the counties.  For example, in DeKalb County alone, nearly 70 percent of FHA loans were made to minority borrowers, many of whom were located in the highest foreclosure risk areas according to census tracts. Cobb County experienced 63 percent of FHA loans to minority borrowers in the highest foreclosure risk areas while Fulton County had 48 percent between 2004 and 2007.

James Evangelista, the lawyer representing the counties, as well as county officials, were obviously quite pleased with the results thus far in this case. Their focus is on holding the financial institutions accountable for their discriminatory practices. They believe that homeownership is a “key thread” to our communities and that it forms the basis of the American dream. When financial institutions engage in this type of practice they are depriving individuals of homeownership. The Fair Housing Act provides a remedy for the communities to recover damages.

The bank attempted to have the case dismissed, claiming that the practices engaged in by the HBSC were a part of their general practice and that the communities failed to show they had suffered harm associated with the foreclosures in the area. The federal judge disagreed, stating that the claims and findings in the financial industry “raise the pleadings above the speculative level.” The judge found the counties had engaged in policies and practices leading to an unfair impact on minorities, holding that the data relating to HSBC’s lending practices was sufficient for the case to proceed.

This report is based on DeKalb County v. HSBC North America Holdings, Inc., and an article from the Daily Report Online, Oct. 15, 2013. http://www.dailyreportonline.com/PubArticleDRO.jsp?id=1202623539729&slreturn=20130931142735

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