Cities sue home lenders

MINNEAPOLIS -- Valeria Golebiowski moved to the Hawthorne neighborhood 45 years ago, and she's staying even as it crumbles around her.

Golebiowski, 72, remembers when flower gardens bloomed and neighbors chatted over coffee. Eleven of the 13 houses that once made up her block are vacant, condemned or demolished — victims of a foreclosure crisis that walloped this north Minneapolis neighborhood on the Mississippi River.

A city plan to redevelop the neighborhood stalled over 415 31st Ave. North, a decrepit, long-vacant bungalow in the middle of the block. In October, CitiMortgage foreclosed on the house.

The Hawthorne Area Community Council then sued CitiMortgage in January, saying the lender had approved an inflated mortgage on the property and created a nuisance by failing to fix it up after foreclosure.

Hawthorne and the city of Minneapolis are pioneers in an emerging civic strategy to sue lenders and banks to recoup lost revenue and reclaim neighborhoods devastated by the mortgage crisis. Around the country, the loss of tens of thousands of homes to foreclosure is shrinking cities' tax base, straining city services such as policing, and ruining neighborhoods.

Minneapolis and three of its neighborhoods won their first legal battle last month in a separate lawsuit against real estate company TJ Waconia, when a judge appointed a legal caretaker to manage 141 mostly vacant properties.

Cleveland, Baltimore and Buffalo also have sued lenders and banks in recent months. St. Paul has written to its lenders threatening a lawsuit if they don't fix their foreclosed properties.

"Hundreds of cities across the United States are in the same position," says Greg Squires, a professor of sociology at George Washington University who studies urban redevelopment. "I think there will be more lawsuits. If we get an early decision in one of these cases, it will either encourage or discourage" other cities from filing suit.

Alan Mallach, a senior fellow at the National Housing Institute, says the lawsuits are "a bit of a reach under the laws of most states, but … a creative court could reasonably make some law in that direction."