Judge Rejects Los Angeles Schools’|Predatory Lending Allegations Against Banks

LOS ANGELES (CN) - The claim that major banks' predatory lending practices against blacks and Latinos contributed to reduced funding levels in Los Angeles Unified School district has been thrown out of court by a federal judge.

U.S. District Judge Otis Wright granted JPMorgan Chase, Wells Fargo and Citigroup's motions to dismiss the school district's claims.

In three Feb. 3 orders, Wright rejected the claim that decreased property tax revenue from the foreclosures that prolonged some of the worst economic conditions since the Great Depression financially damaged the nation's second-largest public school system, after New York City.

Los Angeles City Attorney Mike Feuer and California last year made similar claims against the banks.

Feuer said that predatory lending in poor, minority communities reduced city property tax revenue and left taxpayers on the hook for maintenance of foreclosed homes. He claimed that damages to the city totaled $1 billion.

Relying on U.S. District Judge Percy Anderson's Jan. 7 ruling against the school district in its virtually identical lawsuit against Bank of America, Judge Wright said the district failed to demonstrate how reduced property taxes affected school funding - over which the district has no control.

In three 9-page orders, Wright noted that property taxes are commingled with other state funds. Without an accounting, the district could not establish where each dollar of funding comes from, the judge said.

"The mere fact that the actual property tax revenue from Los Angeles County reaches the LAUSD bank account is irrelevant - local property taxes immediately lose their identity as 'local' as soon as the funds are commingled and the state takes ownership," Wright wrote.

Because the district has "no legal right to any particular funding source" and California has "complete control over revenue distribution," there are no facts to support the claim that the banks predatory lending practices injured the schools, Wright said.

Wright, appointed to the federal bench by George W. Bush, dismissed the school district's case with prejudice.

Late last year, Wright allowed the city to move forward with its claims.

The city claims that from 2004 to 2011, African-American borrowers were two-and-a-half times more likely to receive a bad mortgage loan than white borrowers.

Borrowers in black and Latino neighborhoods were more than five times as likely to find themselves under water after securing a bank loan than borrowers in white neighborhoods. Latino borrowers were more than four times as likely to receive a loan that ended in foreclosure, the city claimed.

A jury trial for L.A.'s case is scheduled for Nov. 3.

Los Angeles Unified School District did not immediately respond to an emailed request for comment.

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