Los Angeles Accuses Deutsche Bank of Being a Slumlord

Posted: 06 May 2011 01:24 AM PDT

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.