Baltimore is defending its practice of selling houses that have tax liens for unpaid water bills and other municipal fees, denying accusations by a major national bank that the city is responsible for a recent increase in mortgage foreclosures.
The city defended the city's tax-sale practices in federal court filings this week as part of a groundbreaking lawsuit filed by Baltimore against Wells Fargo Bank.
The city alleges in U.S. District Court that the bank exploited African-American families in Baltimore by offering them higher-interest loans than they offered white buyers, stripping them of equity through refinancings and charging them excessive points and fees.
In March, the bank sought to dismiss Baltimore's lawsuit by alleging that the city, through its tax lien program, takes "foreclosure actions" against many more homeowners than the bank does - about 19,000 from 2000 to last year.
In a memorandum filed in U.S. District Court in Baltimore late Tuesday, attorneys for the city argue that Wells Fargo's dismissal motion should be denied and that the bank's conclusion that City Hall is responsible for Baltimore's urban ills is "palpably false."
"Defendants would have the court believe that Baltimore has intentionally 'unleashed' on its residents a program of tax lien sales that causes thousands of foreclosures for nothing more than a small unpaid water bill and the like," city attorneys said in opposing the bank's request. "Maryland law mandates that Baltimore conduct these sales."
City Solicitor George A. Nilson said the city's annual tax lien sale is in no way "voluntary" and explained that the bank's 19,000 figure includes all people who entered the "tax lien process," not those who actually lost their homes because of unpaid bills.
He called Wells Fargo's argument "irrelevant" and said the bank's attorneys are playing a blame game that will get them nowhere in court.
"The whole issue of our tax sale process has nothing to do with this lawsuit," Nilson said. "It's always easier to point the finger at the party that has accused you of doing something wrong, but that is not a legal defense."
A spokesman for the bank said the city is trying to make it a "scapegoat for broad social problems that have plagued Baltimore for decades."
"We have stated all along that we believe this lawsuit has no merit, that we will vigorously defend it and that we believe we will prevail," said Kevin M. Waetke, a spokesman for the bank.
City officials said they are emboldened by recent discussions they have had with other cities considering similar legal action to recoup revenue lost in a flood of foreclosures.
"The argument that Wells Fargo is putting forward is a smokescreen," said Sterling Clifford, a spokesman for Mayor Sheila Dixon. "Wells Fargo is being sued because they engaged in illegal lending practices."
Since 2000, more than 33,000 Baltimore homes have been subjected to foreclosure filings.
Wells Fargo, one of the two largest mortgage lenders in the city since 2004, made 1,285 loans a year totaling more than $600 million from 2004 to 2006, according to the city's initial lawsuit. City officials say that most of the company's loans resulted in foreclosures, many of them in black neighborhoods.
In the bank's March filing, lawyers argue that the financial institution is being unfairly maligned. It says the city's complaint "alleges - in conclusory and illogical fashion - that it was at least 313 foreclosures over seven years by Wells Fargo that caused the city 'tens of millions of dollars' in damages."
Relying heavily on articles, editorials, graphics and video footage from The Sun about tax lien sales, ground rent and other housing issues in Baltimore, attorneys argue that it is the city that is to blame for recent foreclosures.
The motion says that the city's allegations "fail to discuss its own tax lien sales, which have resulted in 19,000 foreclosure actions being filed against city homeowners ... particularly harming homeowners in minority neighborhoods that are among the city's poorest."
Wells Fargo lawyers argue that more than half of the 2006 tax lien sales in Baltimore "involved properties in census tracts that are more than 80 percent African American." They say that "the city's tax lien sales ... have disproportionately injured minority homeowners in the city's poorest neighborhoods."
City officials said bank representatives were mischaracterizing their actions.
"This is a tactic to smear the city," said Bradley H. Blower, an attorney with Relman & Dane, a Washington law firm that contracted with the city to help with the Wells Fargo lawsuit.
Blower called the city's tax lien process "fair" and explained that homes are only sold at auction after owners are given time to settle their debts.
Nilson, the city solicitor, said that the city gives homeowners as much as two years to pay off debts, much longer than any bank. As a result, most citizens keep their homes.
Blower also said that many of the foreclosures counted as part of the bank's 19,000 figure are properties that are part of Baltimore's Project 5000, a revitalization program that was initiated several years ago to rebuild sections of the city.
Those houses are mostly vacant and have been abandoned for years, he said. And, unlike houses that are foreclosed on by the bank, no one is living in houses taken as part of Project 5000.
"The bank is foreclosing on houses that have real people in them, people who were suckered into bad loans that Wells Fargo sold them," Nilson said.