Judge rules Los Angeles can go forward with discrimination lawsuit against Citigroup accusing it of targeting minorities for high-cost mortgage loans; city seeking damages for costs of extra service and lost tax revenue in blighted neighborhoods

Allison Oesterle

LONDON , June 9, 2014 (Thomson Reuters Corp.) – (Adds comment by Los Angeles city attorney, paragraph 13)

A lawsuit by the City of Los Angeles accusing Citigroup Inc of mortgage discrimination can go forward, a federal judge ruled on Monday, turning down the bank's motion to dismiss the case stemming from last decade's real estate boom.

The lawsuit, filed in December, accuses Citigroup of engaging in a "continuous pattern" of discrimination since at least 2004 by targeting minorities for high-cost mortgage loans, violating the U.S. Fair Housing Act. The city is seeking damages from the bank for the costs of extra services and lost tax revenue in blighted neighborhoods.

Citigroup is one of four banks that Los Angeles has sued since December for allegedly giving minorities home loans they could not afford, resulting in a wave of foreclosures and a lower tax base.

Lawyers for Citigroup had challenged the city's right to sue, saying it had not offered specific or concrete details of harm.

U.S. District Judge Otis Wright said a loss of tax revenue and increased spending on services in blighted neighborhoods was a sufficient injury to allow the city to sue.

A Citigroup spokesman said the bank remained confident it would ultimately prevail in the case.

"This is not a ruling on the facts in the case, and we continue to believe the suit is without merit," spokesman Mark Rodgers said.

"Citi is proud of its deep commitment to make sure our lending standards are fair to all of our customers," he said.

Filed in Los Angeles federal court, the lawsuit said Citi issued high-cost loans to minorities, then refused to refinance the loans later on the same terms it extended to white borrowers, resulting in defaults.

Loans in predominantly minority neighborhoods were 4.8 times more likely to end in foreclosure than loans in predominantly white neighborhoods, the lawsuit said.

A typical foreclosure costs local governments more than $19,000 for safety inspections, police and fire calls and maintenance, the lawsuit said. Banks should repay such costs when they are caused by discriminatory lending, it said.

Bank of America, Wells Fargo and JPMorgan were hit with similar lawsuits by the city. Wells Fargo lost its bid to have its lawsuit dismissed last month.

"We are pleased with Judge Wright's rulings and look forward to litigating our cases against Wells Fargo and Citigroup," said Los Angeles City Attorney Mike Feuer.

The Citigroup case is: City of Los Angeles v Citigroup et al, U.S. District Court, Central District of California, No 13-cv-9009. (Reporting by Dena Aubin; Editing by Kevin Drawbaugh and David Gregorio)

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