Alert August 25, 2009

Federal District Court Dismisses for Lack of Standing “Reverse-Redlining” Suit Brought by City Government Against Mortgage Lenders

A federal court in Alabama recently dismissed for lack of standing claims brought by the City of Birmingham against various lenders, including Countrywide and CitiGroup, alleging “reverse redlining.” The city claimed the lenders improperly placed minority borrowers in subprime mortgage loans, which allegedly harmed the city in the form of increased foreclosures, decreased property values, reduced property tax revenues, and increased public spending on crime prevention. The court granted the lenders’ motion to dismiss, finding that the city could only connect the alleged lending practices to its claimed injuries with “a series of speculative inferences.” The court noted that “a myriad of factors” other than the allegedly improper lending practices may have caused the city’s alleged injuries, such as rising unemployment in the region and the general weakening of the economy. The court held that the city’s claimed injuries were so “tenuously connected” to the challenged lending practices that the city lacked standing to bring suit. Goodwin Procter partners Jim McGarry and Tom Hefferon represented Countrywide. Click here for City of Birmingham v. Citigroup Inc., et al., Case No. CV-09-BE-467-S (N.D. Ala. Aug. 19, 2009).