Foreclosed properties have fallen into disrepair, but bank argues responsibility for upkeep lies elsewhere.
The Los Angeles city attorney's office has filed a lawsuit that accuses U.S. Bancorp of becoming "one of the largest slumlords in the city" and allowing hundreds of foreclosed properties to deteriorate into junk houses.
The core issue in the case is who is responsible for maintaining the properties. The city attorney is pursuing U.S. Bancorp because the bank became the trustee for more than 1,500 foreclosed properties around the city in the last four years. Officials estimate that the company's liability is "potentially in the hundreds of millions of dollars."
"U.S. Bank ... disregarded virtually every one of its legal duties and responsibilities as owner, resulting in the creation and maintenance of an alarming number of vacant nuisance properties and substandard occupied housing units," according to the lawsuit.
Minneapolis-based U.S. Bank says the city attorney is going after the wrong party. The bank's position is that other companies that service the loans carry responsibility for upkeep.
U.S. Bank hasn't filed a response yet, but in an interview and a statement Tuesday, a bank spokesman said the bank isn't the landlord or owner of the houses, and is the wrong target. The bank is solely the trustee for the trusts in which the pools of securities mortgages were placed, and not the party responsible for servicing the loans or maintaining the properties, bank spokesman Tom Joyce said.
"Because it is the servicers, not the trustee, who have the duty to maintain foreclosed properties, we intend to bring them into this lawsuit," he said in a statement. "Like the city attorney, we are troubled by properties that are not maintained, which have a corrosive impact on neighborhoods and communities."
The suit, which Los Angeles City Attorney Carmen Trutanich filed Monday in Los Angeles County Superior Court, is the latest shot as cities around the country get more aggressive, and creative, in trying to hold banks accountable for the devastating effects of the housing and foreclosure crisis.
It's the second time Los Angeles officials have sued a major bank for allegedly neglecting foreclosed properties. Last year, Los Angeles called Deutsche Bank a slumlord as well in a complaint that accused the lender of foreclosing on homes and allowing them to fall into disrepair and breed crime. That case is pending.
Frank Mateljan, a spokesman for the city attorney's office, said he thinks the two lawsuits are the first in the country to test the concept of whether trustees of securitized mortgages own the individual properties and are responsible for maintaining them. That matters, because so many mortgages were bundled and securitized.
"The bank is on the deed as the owner," Mateljan said. "We believe we are on terra firma."
A different challenge
The National Fair Housing Alliance is also testing the concept, but under federal law. It filed administrative actions with HUD against U.S. Bancorp and Wells Fargo & Co. earlier this year accusing the two banks of maintaining foreclosed properties in communities of color differently than in predominantly white neighborhoods. But it filed them under the Fair Housing Act.
"Under that, it doesn't matter if you're the trustee, you can't delegate your fair housing responsibilities to another entity," said Shanna Smith, the housing alliance's president and CEO.
The Los Angeles case against U.S. Bank focuses on 170 example properties and lists allegedly unlawful conditions ranging from overgrown vegetation and broken smoke detectors, to abandoned swimming pools with stagnant water, hazardous electrical wiring and accumulation of trash.
In some cases, squatters were living in the abandoned houses. In one case, someone was apparently repairing and storing cars in a front yard.
The lawsuit also accuses the bank of using deceptive and dishonest tactics in evicting hundreds of low-income tenants.
It's asking the bank to clean up the properties, reimburse the city for repairs and pay restitution to current and former tenants, among other things.
Pushing local government
Prentiss Cox, a University of Minnesota law professor and former assistant attorney general, said the lawsuit underscores how the fight to address the nation's foreclosure mess is becoming more local.
"There's a lot of movement to push the local government to become more aggressive on these issues," Cox said. "We're down to local actions.
"You're going to see more of this."
Jennifer Bjorhus • 612-673-4683