Los Angeles Accuses Deutsche Bank of Being a Slumlord

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This week seems to be open season on Deutsche Bank. The Department of Justice suit on them over FHA loans was singling them out when a lot of US banks are every bit as guilty. Now we have a Los Angeles prosecution over Deutsche acting as a slumlord, with the city attorney looking to launch cases against other major securitization trustees, namely HSBC, US Bank, and Bank of New York.

We have pointed out, that banks (more accurately, securitization trustees and servicers) are awful property managers, as anyone who lives in a neighborhood with foreclosed properties will attest. This inattention becomes disastrous in densely populated areas. The story in the Los Angeles Times is about as gripping as real estate gets:

Los Angeles officials say the bank has been a dreadful landlord and neighbor. Prosecutors say that during a yearlong investigation, they found evidence that 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 other criminals.

Police records show scores of alleged crimes committed on the properties, including vagrancy, possession of drugs for sale and assault with a deadly weapon. In December 2007, police found a dead body at a Deutsche-owned house on West 55th Street. In 2008, they discovered prostitution at a house on Evers Avenue…

“This particular bank is … helping to destroy communities,” said Councilman Dennis Zine, one of six members of the Los Angeles City Council who joined City Atty. Carmen Trutanich at a news conference in which they excoriated Deutsche Bank and other banks that have foreclosed on properties in Los Angeles….

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 faulty plumbing and 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 on East 48th Street, 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” Jimenez said. “They wouldn’t say anything when we complained.”

In the bathroom of the two-bedroom stucco house he shares with his wife, son and another couple, the shower is missing tiles 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.

Deutsche offered a lame defense:

“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 in a statement.

I give the odds of this washing as close to zero. The servicer is effectively a subcontractor to the trustee; the responsibility ultimately resides with the trustee. If the trustee could somehow argue that the servicer had misled him (by withholding or falsifying information), the trustee might be able to shift liability onto the servicer. The spectacle of the servicers and trustees pointing fingers at each other in these cases ought to be amusing.

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  1. ambrit

    Dear Smiths et. al.;
    Here in Hattiesburg the “losal authorities” are moving ahead with a program to demolish the worst offenders. The politics of it are confused, (as is usual,) but the basic idea is quite popular. No giant metropolis are we, but the basic problem house list is several hundred units long. The distribution of affected houses is along fairly standard neigbhorhood socio economic level lines. Higher in the “quarters” and older neigbhorhoods, less so in outlying suburban zones.
    Just a thought, but what if the authorities required all bankster bonuses to be paid out in “distressed” or foreclosed properties? That would be a real incentive plan!

  2. russell1200

    My only thought was that possibly there is a way to actually assign the property management responsibilities and file it as such, since property managers themselves are often pretty closely regulated.

    But outside of that unlikely possiblity I agree. It would be a beyond lame defence.

  3. Charlie

    This is how it works at the top of the heap now…The banks, investors and servicers make the profit but it is someone elses responsibility to maintain the property (only the profit stream is maintained), corporations have personhood but none of the responsibilities, private military contractors engage in military activities but are not subject to military rules, the conservative ruling power elite borrows 14 trillion dollars, spends it on themselves and leaves the responsibility for paying the debt for the rest of us, corporations receive billions is welfare, pay no taxes and take their profit somewhere else to invest, investors want profit without risk and the public is expected to pick up the slack. Where is the leadership in America?

    1. another

      “Where is the leadership in America?”

      There is no America. America died. We need a new name for the beast that took its place.

  4. indio007

    Deutsche Bank had a really bad case come out yesterday against it in NC appeals court. The Court basically held the verbiage “pay to the order Deutsche Bank as trustee” does not make the trust (Deutsche Bank for Residential Funding Asset Backed Certificates etc..) the holder of the note.

    I have seen a ton of notes endorsed like this and have seen Deutsche Bank prevail with this defective verbiage.

    The only fix is to endorse over to the trust but that would break the REMIC status.

    They are screwed.

  5. fran

    They are the ‘owner’ when it comes to taking the property; but suddenly they are not responsible when it comes to maintaining it!

    We are suing Wells Fargo for fraudulent foreclosure in Los Angeles. Two Judges upheld a restraining order for the homeowner to stay in the house, but WF found a friendly judge and got an eviction. The family moved out and then WF came and posted big ‘Eviction’ signs on the empty house. The house has a clouded title, so now will probably sit empty and deteriorate.

    WF has lost far more money foreclosing than they ever would have by honoring a loan mod under HAMP. But WF was probably only the Servicer. They fraudulently bought the house at a much reduced price after charging $150,000 in fees and hiring 2 law firms to fight the homeowner in three different courts.

  6. Banner

    I work for the City of LA Building Dept. and deal with vacant buildings. I can say that Deutsche Bank is only one such violator. I regularly meet people who are getting screwed by bank property owners. Sometimes people get kicked out of the property by the bank, but the bank never records any ownership change and so when we levy fees and fines on the property, the owners (who got kicked out by the bank) are still responsible to pay. The City Attorneys could have picked any of a number of banks to prosecute for the same things as Deutsche Bank.

    1. Strata

      Once you can prove that you have been tossed out of a property by the bank, are you still on the hook for city/county taxes and fees?

  7. PeonInChief

    Deutsche Bank was probably selected because they keep making the argument that the servicer is responsible. In fact, they’ve been making it for quite some time. See http://peoninchief.blogspot.com/2010/11/new-tenants-together-report.html and the underlying report here http://tenantstogether.org/downloads/Without%20Justification:%20Banks%20Continue%20Mass%20Eviction%20of%20Tenants%20after%20Foreclosure.pdf?preview=1

    But it is quite true that virtually all of the major banks could be prosecuted for bad behavior toward tenants in foreclosed properties. It’s particularly bad in Los Angeles because LA has more substantial protections for tenants in foreclosed properties, giving the banks an incentive to behave exceptionally badly.

  8. morgan irving

    i work at a bank.

    i try not to get promoted, because im thinking it would end in suicide. i stay down low, very very low.

    one of the worst things at the bank is the internal propaganda.

    they have this ‘intranet’ where they post ‘bank news’. recently they started up this part called “national news of interest to the bank”

    it is the usual meaningless bullshit. it has almost nothing, whatsoever to do with anything that actually describes banking or what is going on.

    note: the bank i work it is constantly proclaiming itself ‘The biggest bank that did not accept TARP funding’, and says in its annual report that it ‘did not invest in CDOs’; the general idea is that it is run by kindly old gents who have too much common sense for that.

    in fact, if you dig into it a little bit, the way they avoided CDOs was by creating an ‘elbows length’ hedge fund, slapping the label ‘mutual funds’ on it, and selling it to their own employees as a retirement plan. they loaded it up with CDOs and other worthless shit. i guess if you sold something like Taberna V to a dentist or hairdresser you would be in violation of the law, but if you sell a shitty ‘mutual fund’ that has Taberna V inside of it to your own employees, its perfectly legal.

    anyways i digress. the funny part about the internal propaganda machine at this bank is they try to encourage people to ‘participate in the discussion’. it is like Mao’s hundred flowers campaign; they ‘encourage discussion’ so they can spot the troublemakers and get rid of them.

    if there were a ‘real discussion’ and ‘real thought’, stories like this DB story at naked capitalism would be on our banks ‘banking news’ website. our bizarre division managers quarterly newsletter would be discussing the MERS issues.

    instead, we are told that our new ‘mortgage imaging system’ will ‘revolutionize’ our mortgage workflow. they are diving face first into the servicing business, hiring quite a few people the last few months or so to get into this area. god knows why.

    they also have a special section on their intranet about the ‘dodd-frank act’. inside of it, a long time bank man explains all the awful things it will do to us, and how the bank is working to recover from the ‘loss of income’. i expect it will be like the reaction the bank had to the end of ‘free checking’; trying to push more and more bizarre new products like ‘instant loans’ or free checking for small businesses.

    of course one of the things they are miffed about is the restrictions on derivatives. hey, wait, i thought our solid, conservative midwestern values bank didn’t get involved with that nasty derivatives stuff? ah well. we are quite sure that the evil communists in washington are trying to limit our ability to hedge ‘on behalf of our clients’.

    anyways. once i realized that they were directly spying on our email, i just kind of quit discussing anything even with co-workers, except on the smoke bench. i do not post on the ‘internal discussion board’. i try not to have any ideas at all. unemployment is going back up. we all got to hold on to what we got, right?

    somehow i think the e-cigarette movement is controlled not by any kind of health entrepeneurs, but by bankers who want to stop their people freely talking to each other on break.

    my only question is this; how long can a system, rotting from the inside with a completely closed and subservient thought process, really survive? isn’t that what brought down the soviet union? the lack of honest feedback within the bureaucracies? nobody really sure what anyone else was actually doing or what they were being payed for? no honest debate or discussion?

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