Atlanta might sue mortgage lenders

Atlanta may join the list of big cities taking mortgage lenders to court.

Some city leaders believe risky lending practices by some banks and companies are responsible for the rising number of foreclosures in Atlanta — thereby creating several problems for City Hall — and would hire a law firm to investigate the city’s legal options.

The City Council is scheduled to vote on the proposal on April 20.

City Attorney Elizabeth Chandler said Atlanta has no potential defendants in mind, stressing it is in the “exploratory stage” of any legal action.

Other major cities suing lenders include Baltimore; Buffalo, N.Y.; Cincinnati; Cleveland, and Memphis.

Atlanta city officials have no specific data detailing how many foreclosures have taken place in Atlanta, but they say the foreclosures have had a big impact. Under a foreclosure, Atlanta does collect property taxes from the former owner. But foreclosed properties lower the values of other homes nearby and, if they are vacant, become a police problem because they become magnets for vagrants who commit crimes.

Between 2006 and 2008, foreclosures rose in metro Atlanta by 42 percent from 9,334 to 13,292 last year, according to the city.

Property tax revenue in Atlanta was 15.5 percent below projections between July and December, city officials say. Atlanta, like most major cities, has laid off hundreds of workers and cut some services in the past year to survive during the ongoing economic recession.

William Brennan, an attorney who has worked with homeowners facing foreclosure, said he hopes the city will sue, noting some banks have received federal bailouts.

“The [lenders] offered loans to people who could not pay and they knew that,” said Brennan, program director for the Atlanta Legal Aid Society. “The city’s tax base eroded tremendously. Now, [the lenders] are getting the bailouts and the cities are holding the bag.”

State Sen. Vincent Fort (D-Atlanta) said the City Council should have acted sooner, noting the city has business relationships with several major banks.

“What they ought to do is call in these companies and read them the riot act,” said Fort, who has been vocal against predatory lending and subprime lenders. “[The council] fiddled while Rome burned. People have been foreclosed on and evicted over the last year and [the city has] done nothing.”

Atlanta is part of a group of attorneys from other major American cities that has coordinated efforts to respond to the foreclosure crisis.

Councilwoman Natalyn Mosby Archibong, who has pushed for the city to consider its options, said senior citizens in her district bring her paperwork detailing dangerous lending agreements that consume their retirement income.

“To see people struggling to keep their homes and the impact it’s had on the community, that’s been a real burden,” said Archibong, whose district includes older East Atlanta neighborhoods like East Lake and Kirkwood.

Plaintiff cities across the country have argued that lenders knew prospective homeowners couldn’t afford the loans, but made the deals anyway.

In some cases, the lenders have denied responsibility. In others, such as Baltimore, attorneys for Wells Fargo Bank said that city was suing because it was “thirsty for revenue.”