(CN) - Los Angeles can pursue claims that predatory Citibank loans in minority neighborhoods caused a disparate number of foreclosures in those areas, a federal judge ruled.
The city sued Citibank, Citigroup, CitiMortgage, Citicorp Trust Bank and Citi Holdings in December 2013, claiming they were "reverse redlining" certain minority neighborhoods, resulting in blight and diminished property-tax revenue. A "regression analysis" Los Angeles cited showed that from 2004 to 2011, a black borrower was 2.273 times more likely than a white borrower to receive a predatory loan. The city said it could identify 1,200 loans that resulted in foreclosure, and that it expected the number to rise.
U.S. District Judge Otis Wright found sufficient evidence Monday of racial motivation behind the predatory loans. "As L.A. points out, the complaint is rife with allegations that defendants targeted minority borrowers for unfair loan terms based on race or national origin," he wrote.
The banks failed to sway him on their characterization of the city's alleged injuries as nonspecific.
Citing the 1979 decision Gladstone Realtors v. Village of Bellwood
, which held that civil actions could be brought against racial discrimination housing sales or rentals, Wright wrote: "the Supreme Court made clear that 'a significant reduction in property values directly injures a municipality by diminishing its tax base, thus threatening its ability to bear the costs of local government and to provide services.'"
"The court finds that it need go no further with respect to L.A.'s alleged injuries of decreased property-tax revenue and increased municipal services," Wright added.
Citi meanwhile had claimed that property-tax revenue increased in Los Angeles every year from 1997 to 2009, dropped in 2010 and 2011, then increased again in 2012, with projected increases in 2013 and 2014.
"The only conceivable purpose for introducing this evidence is to disprove L.A.'s allegations that it has been injured by decreased property-tax revenue," Wright wrote. "That is a factual attack on Article III standing."
This showing does not mean that the city did not suffer injuries, however, the judge found. "L.A. may still have been injured by defendants' conduct because that property-tax revenue could have been higher absent the discriminatory lending," he wrote.
The banks had also claimed that L.A.'s claims were too speculative, and that a county assessor could have decided to decrease the assessment of property values because of foreclosure.
"This is true," Wright wrote. "But at this stage of the litigation, the court finds L.A.'s allegations sufficient to show that defendants' challenged conduct was determinative or had a coercive effect on lowering a property's assessment."