Bank of America fights claims of discriminatory foreclosures

Homeowners in Hawaii and Florida accuse the bank of scheming to foreclose on their properties, but the bank says they haven't offered clear evidence it had anything to do with the foreclosures.

by Candace Cheung, Court House News, March 3, 2023

HONOLULU (CN) — Bank of America defended itself Friday at a motion to dismiss hearing on claims the bank deliberately foreclosed on mortgage loans as part of an extensive conspiracy to maximize profits at the expense of people of color in Hawaii and Florida.

The eight lead plaintiffs in the class action, a majority of whom are people of color, say they have been or are currently being foreclosed on, some for nearly two decades. They first leveled racketeering and Fair Housing Act claims against Bank of America and The Bank of New York Mellon in a July 2022 complaint. Although a majority of the plaintiffs’ foreclosure actions occurred in Hawaii, the suit also includes several plaintiffs who went through foreclosures in Florida. Three of the five Hawaii plaintiffs are of Native Hawaiian descent and the three Florida plaintiffs are women of color.

“Defendants BANA and BONYM devised a scheme or artifice to defraud, that involves the use of many sub-schemes, for the purpose of filing and prosecuting, or causing the filing and prosecution of, thousands of unlawful foreclosures complaints, in this district and nationally," the plaintiffs say in their complaint.

Bank of America attorney Jesse Smallwood of the Washington firm Williams & Connolly came straight out of the gate arguing the plaintiffs had not addressed a majority of the banks' core arguments that the plaintiffs had brought no cognizable claims.

“Grant our motion in full and with prejudice, based solely regarding those arguments without even having to get to the abstention and preclusion arguments that the plaintiffs do contest,” Smallwood told U.S. District Judge Jill Otake.

Smallwood, speaking for both Bank of America and The Bank of New York Mellon in the hearing, argued the plaintiffs could not back up their RICO and Fair Housing Act claims. He said the foreclosure actions are not criminal acts, as required to bring RICO claims, especially those associated with prior litigation.

As for the Fair Housing Act claims, Smallwood said the plaintiffs had failed to adequately plead them "by alleging and repeating several times in their papers that all plaintiffs, both FHA and non-FHA plaintiffs, were subject to the same treatment and the same impact…that all plaintiffs were subject to this alleged foreclosure scheme.”

The arguments revolved around the role of the foreclosures underpinning the lawsuit, some of which are still pending in state court without a final judgement.

The 264-page complaint, which Judge Otake called “way too long, way too confusing” during the hearing, details each of the eight plaintiff’s extensive foreclosure litigation history, only some of which feature Bank of America or The Bank of New York Mellon as direct parties. None of the plaintiffs claim fraud in the first place.

“Isn’t your general allegation regarding RICO about the defendant’s fraud in the state court action? And if that’s the case, then you are acknowledging that they were not involved in the state court action, how can your RICO claim survive?” Otake asked the plaintiffs' Honolulu-based attorney Frederick Arensmeyer.

Arensmeyer said there had been "a mix of both intrinsic and extrinsic fraud" and "an enterprise that precedes any litigation activity,” referring to the claims of false mortgage assignments and document-fixing done by the banks.

The plaintiffs also cite a history of shady foreclosures handled by Bank of America in their complaint, a matter the FBI investigated a decade ago.

“Class plaintiffs allege that while Bank of America did not originate any of the mortgage loans that are the sine qua non of this complaint, that the predatory and discriminatory loans originated by Countrywide and others (e.g. reverse redlining, infra), fit right into Bank of America’s historical mode of discriminatory loan servicing policies, practices and procedures, like a hand in a glove (e.g. redlining, infra),” the plaintiffs say in their complaint.

Arensmeyer also clarified the plaintiffs were not necessarily challenging the foreclosures themselves. “In this case, we are not challenging the assignment, we are not challenging the endorsements. We are pointing to these documents as evidence of a RICO enterprise," he said.

Smallwood pushed back at this, repeating that Arensmeyer had not made any of these arguments before in meetings or in opposition briefs, and that some arguments even contradicted the plaintiffs' complaint.

Bank of America dodged a recently dismissed case in federal court in which a Native Hawaiian advocacy nonprofit accused the bank of denying home loans to Native Hawaiians for property on Hawaiian homelands. The bank had promised millions for the loans that never came to fruition as the bank removed its retail presence in the state before the full amount could be paid out.