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Originally published May 6, 2011 at 10:01 PM | Page modified May 7, 2011 at 6:21 PM

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Los Angeles sues Deutsche Bank as slumlord

Los Angeles prosecutors are calling Deutsche Bank one of the city's largest slumlords, accusing it of allowing hundreds of properties it owns to fall into disrepair and breed crime.

Los Angeles Times

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LOS ANGELES — Los Angeles prosecutors are calling Deutsche Bank one of the city's largest slumlords, accusing it of allowing hundreds of properties it owns to fall into disrepair and breed crime.

The Los Angeles City Attorney's Office filed a civil lawsuit this past week against the world's fourth-largest bank, seeking hundreds of millions of dollars in penalties and restitution and an injunction forcing it to clean up its foreclosed properties in Los Angeles.

The Frankfurt, Germany-based bank has foreclosed on more than 2,000 homes in the past four years in neighborhoods across the city, according to the suit. Los Angeles officials said the bank has been a dreadful landlord and neighbor.

Prosecutors said that during a yearlong investigation, they found evidence Deutsche Bank had illegally evicted some tenants, let others live in squalor and allowed hundreds of unoccupied properties to turn into graffiti-scarred dens for squatters, gang members and criminals.

Police records show scores of suspected crimes committed on the properties, including vagrancy, possession of drugs for sale and assault with a deadly weapon. In December 2007, police found a body at one Deutsche-owned house; in 2008, they discovered prostitution at another.

Many Deutsche Bank properties have also wound up in a slum-housing database, in which tenants pay rent into an escrow program while the city tries to get the properties fixed up.

"This particular bank is ... helping to destroy communities," said Councilman Dennis Zine.

City Attorney Carmen Trutanich said he wants the suit to send "a strong message to other banks" that the city might come after them, too. Officials said they may soon take action against HSBC, the Bank of New York and U.S. Bank.

Deutsche officials said Los Angeles was going after "the wrong party."

"As we have repeatedly advised the Los Angeles city attorney's office, loan servicers, and not Deutsche Bank as trustee, are contractually responsible for both the maintenance of foreclosed properties and any actions taken with respect to tenants of foreclosed properties," spokesman John Gallagher said.

Many banks accused of neglecting foreclosures have shifted blame to loan servicers, who are contracted to manage properties.

Trutanich insisted Deutsche Bank, as owner of the properties, ultimately is responsible. "We are not going to allow them to play the shell-and-nut game," he said.

Renters living in some Deutsche-owned homes and residents living near others cheered the suit, saying they have been caught in the middle between the bank and its servicers and unable to find help.

Maria Reyes was never sure who owned the Echo Park bungalow she rents with her disabled son. After the original landlord lost it in foreclosure, she paid her rent to the loan servicer. But she said the people she spoke to there turned a deaf ear on her repeated requests for repairs. City records show more than 50 code and habitability violations at the house, including a broken front window, which Reyes finally covered with plywood.

Other renters also have had to take matters into their own hands.

Jorge Jimenez, 30, got no response when he complained about a collapsed floor in the bedroom of his Deutsche-owned home, so last year, he paid several hundred dollars for materials to rebuild it himself, he said.

"The floor was falling, and they wouldn't do anything" he said.

In the bathroom of the two-bedroom stucco house he shares with his wife, son, and another couple, shower tiles are missing, and the faucets won't stop dripping. Jiminez has wrapped plastic bags around them to try to stop the flow.

In the kitchen, he and his family have to use pliers to turn the water on and off because the handle is broken.

He's hopeful that the city will prevail so the family can get compensation for its hardship.

City officials said they hope to be the first in the nation to collect a settlement from a bank for the conditions of foreclosed homes.

Cleveland sued Deutsche Bank and other financial institutions in 2008, but the suit was dismissed. Milwaukee took a different tack. With the backing of city officials, community groups sent representatives to Frankfurt to speak at a bank shareholders meeting about the conditions of Deutsche-owned properties back home.

Much of the criticism of banks' role in the foreclosure crisis has centered on their lending practices. Last Tuesday, the U.S. Attorneys Office in New York filed a fraud lawsuit against Deutsche Bank, seeking more than $1 billion. The government said the bank's New York-based home lender, MortgageIT, recklessly approved 39,000 mortgages for government insurance "in blatant disregard" of whether buyers could make the monthly payments.

Los Angeles' suit takes a different approach. It seeks to hold the bank responsible for what happened in the city after loans went bad and foreclosures rippled through neighborhoods.

"A lot of the focus has been on how (banks), in effect, sold people mortgages that weren't in their interest," said Michelle White, an economics professor at the University of California, San Diego. "This is a different angle. This is really focused on the problems that come up when the lenders end up owning the properties. ... The problem is when a lender takes over a property, they have the interests only of the lender in mind."

Katherine Porter, a visiting professor at Harvard Law School, said she believes the city has a case in its contention that it's the responsibility of a property owner to make sure the servicers it hires do their jobs.

If the city is successful, many of the tenants living in substandard conditions could get compensation.

But those who live near rundown Deutsche-owned properties said their neighborhoods have suffered long-term damage.

In South Los Angeles, Richous Jackson, 50, lives next door to a Deutsche-owned vacant house. The front yard of the white stucco home is overgrown. The backyard is full of illegally dumped debris.

City records show 96 habitability violations.

"The stink is awful," Jackson said. "What they need to do is bulldoze the whole place."

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