The vacant, run-down rowhouse at 1615 N. Smallwood St. has for years been a stain on an otherwise lively, well-kept West Baltimore block.
Its green awning collapsed from the winter snow and still hangs crumpled from the house's façade. In the summertime, transients gather on the front porch to play cards and smoke marijuana, neighbors say.
Baltimore's top city lawyers want someone to answer for blighted properties like this one, and to pay for the specific damages they inflict on communities, including the cost of emergency services, cleaning and boarding up the houses, and lost property tax revenues.
Specifically, they want California-based bank Wells Fargo & Co., which made thousands of subprime home loans in Baltimore and other cities throughout the real estate boom years, to take the blame.
The city first filed suit against Wells Fargo in 2008, lodging primarily a civil rights case that accused the bank of violating the Fair Housing Act by targeting black churches and low-income, minority neighborhoods with dishonest loans that borrowers could not afford. A judge dismissed that case as "implausible."
Now the city's attorneys have filed a new complaint focusing on the alleged damages caused by houses like the one on Smallwood Street — one of 33,000 Baltimore properties left vacant by the foreclosure crisis.
City Solicitor George Nilson said the total value of damages sought by the city will approach $20 million. Affidavits filed early in the case alleged "tens of millions" of dollars in losses from Wells Fargo's lending practices, and a report released in June 2009 estimated that the annual cost per block for police and fire services increased $1,472 for every vacant property on that block.
Still, lawyers for the city say that despite the new focus on exactly how the city was damaged, the core of their case is still about racial discrimination.
"Ultimately, the amount of damages in this case is far less significant than whether or not a jury says, ‘You're right, Wells Fargo targeted an African-American community with predatory loans, and they did it for reasons of greed,' " said John P. Relman, a Washington-based lawyer working with the city on the case. "If a jury says that, that will be a watershed. … That would be an incredible indictment of a major financial institution. Nothing like that has been done before. That's what this is really about."
Wells Fargo disagrees. The bank has accused the city, which faces a budget crisis, of suing as a means of generating revenue to fill the gaps.
Andrew L. Sandler, a partner at BuckleySandler LLP, the firm representing the bank, pointed out that Relman has also filed what he called a "copycat suit" in a federal district court in Tennessee, alleging more discriminatory lending practices in Memphis and in the surrounding county.
"One year, they file a suit saying that the lender didn't make enough loans in minority communities: redlining. The next year, they file a suit saying that they made too many loans in minority communities: reverse red-lining," Sandler said. "This is just a commercial enterprise for these lawyers. … The same lawyers have been shopping the same complaint to various municipalities for two years."
Teri Schrettenbrunner, a spokeswoman for the bank's mortgage-lending arm, took a more conciliatory tone.
"Wells Fargo believes collaborative problem-solving, not divisive litigation, is the key to reversing the national problem of home foreclosures. We stand by our fair and responsible lending practices, and demonstrate them every day through our work with homeowners and communities across the country," she said last week.
The house at 1615 N. Smallwood is one of more than 250 properties identified in the new complaint as blighted houses that fell into disrepair because of unnecessary foreclosures resulting from dishonest loans.
Each address listed comes with a description of the woes the house has allegedly inflicted on the community: vermin, repeated visits by police and firefighters, and sometimes up to a half-dozen visits by housing code inspectors per year are recorded for most houses on the list.
For Annette V. Ingram, a mother of three who lives across the street from 1615 N. Smallwood, the vacant house is more than just an eyesore.
Last summer, when she was trying to refinance the mortgage on her house, which she bought for $122,000 in 2008, lenders told her that the prices of comparable houses in the neighborhood had been driven down by a high number of vacants. She said she was rejected by three lenders, who refused to lend more than $100,000.
"I had a hard time," she said, sitting on her porch one evening last week with her 14-year-old son. "Even after I pay my mortgage, I still have to eat. I still have to pay my car note. … I think the biggest problem [in the city] is the vacant houses. Once they get that cleared up, we'll be OK."
Less than a mile from Ingram's house, on tree-lined Woodyear Street, Wells Fargo foreclosed last year on one of the houses in the Nehemiah community, a $25 million affordable-housing project built by James Rouse's Enterprise Foundation in the early 1990s.
The owner of the house owed $73,754.99, according to court records, and now the property is boarded up and strewn with trash, in an otherwise clean, well-maintained block.
"In a neighborhood like this, where everyone owns homes, when people come and visit, it's the first thing they see," said Baker Parham, who has lived next door to the now-vacant home at 1218 Woodyear for 16 years. He said the house has been empty for more than a year and that drug dealers operate out of it.
"The whole neighborhood, nobody's happy about it," he said.
If the city's complaint survives Wells Fargo's attempts to have it dismissed, which the city anticipates are forthcoming, it could put the issue in the hands of a jury.
Lawyers for the city do not seem interested in making nice. Suzanne Sangree, a city lawyer taking a leadership role in litigating the case, referred to the case against Wells Fargo as "combat litigation" that requires an army of lawyers and long hours of work.
One of the main points made by the amended complaint is the issue of how to calculate how much the city should seek in damages.
Michael Braverman, deputy commissioner for permits and code enforcement in the Department of Housing and Community Development, said the city spends about $5 million a year demolishing vacant properties and about $3 million cleaning them and covering windows and doors with plywood boards. The agency would like to do more, he said, but the needed capital funds are not available.
About 75 percent of the agency's litigation costs are spent prosecuting code violations on vacant buildings, which prompt about 40,000 visits from housing staff each year, he said.
"Demolition is part of the program of activities that's required to address the vacant building problem. It is hugely expensive. And it's a drop in the bucket," Braverman said. "As the capital dollars are diminishing, there are a certain number of [houses] that are blighting and aren't likely to be demolished or redeveloped anytime soon."
The city's new complaint also includes declarations from 11 homeowners who live next to Wells Fargo foreclosure properties. They contend that the vacant houses have led to a series of neighborhood nightmares, including fires set by squatters, pit bulls running wild in front yards and one case of a cockroach from a vacant house becoming lodged in a child's ear.
But even if the city is able to pin the costs of these problems on Wells Fargo, city lawyers say it will be harder to prove the city's claim that Wells Fargo foreclosures have depressed the value of real estate in certain neighborhoods, thus leading to reduced property tax revenue for the city. Nilson said the claim of lost property tax revenue has been "diminished" in this new version of the suit.
Sandler, the lawyer for Wells Fargo, said the new complaint "does not demonstrate in any way that Wells was responsible for the vacancies, and it just talks about general damages." Even if these properties were Wells Fargo foreclosures, that doesn't mean the lender is responsible for them being vacant, he said.
"They've just said that at some point Wells Fargo foreclosed on the property, then at some other time the property was vacant, and then somehow the problems of a particular block must be because of Wells Fargo loans?" Sandler said. "There's nothing here. They're just looking to fish. They just want to go fishing to see if maybe they can come up with something."
Still, Nilson said he is convinced the case will go forward. He is encouraged, he said, by the progress of a large antitrust lawsuit in federal court in New York in which several municipalities, including Baltimore, are taking on some of the largest banks in the world. That suit, which alleges that 16 financial institutions, including Bank of America, Morgan Stanley and Wachovia, colluded to fix the prices of municipal bond derivatives, survived a motion to dismiss last week.
Back in West Baltimore, Annette Ingram has finally managed to lock in at a lower rate on her mortgage, despite the ugly vacant house across the street. Last fall, she said, she was able to reduce the interest rate on her 30-year loan from 6.25 percent to 5.3 percent.
Now, making payments is much easier, and she has money left over for her car payments and food for her family.
The only unexpected part of her situation is that she is benefiting from the stability of the very bank that the city says has destabilized her neighborhood.
The bank that purchased her loan and allowed her to refinance? Wells Fargo.