Los Angeles Sues Deutsche Bank for Negligence of Foreclosed Homes

The city of Los Angeles filed a civil lawsuit Wednesday against Deutsche Bank, claiming the German bank failed to maintain foreclosed properties and illegally evicted hundreds of low-income renters.

The 106-page complaint, filed in the Los Angeles Superior Court, seeks potentially hundreds of millions of dollars in restitution to current and former tenants and reimbursement to the city for repairs, inspections and penalties.

The L.A. City Attorney's Office said in a press release that Deutsche Bank has become one of the largest slumlords in the city. The complaint included photos of properties in disrepair.

Deutsche Bank said that the city had sued the wrong party. Because the bank serves as the trustee for the securitizations holding the mortgages, it has no authority to foreclose on properties or evict tenants, Deutsche Bank said in a press release.

"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," the bank said.

Throughout the mortgage crisis, trustees have said they are contractually limited to administrative duties and have suffered reputational risk as judges and media outlets routinely blame the custodial agents for the actions of large mortgage servicers.

The Los Angeles civil suit alleges that various Deutsche Bank subsidiaries acquired more than 2,200 properties in Los Angeles through foreclosure and failed to make repairs to remedy nuisance violations.

The city claims it notified the bank of the substandard conditions of the buildings, but the bank either failed to respond or did not bring the properties into compliance. Most of the properties are in low-income areas in south Los Angeles or the northeast San Fernando Valley.

A Deutsche Bank spokesman said the bank has tried to work with the city for more than a year to identify the property addresses so it could notify servicers that repairs were needed, but the city would not give the bank a list of addresses.

The suit came a day after the federal government sued Deutsche Bank and its MortgageIT unit for as much as $1 billion, for allegedly originating thousands of Federal Housing Administration loans that disregarded underwriting guidelines. Deutsche Bank has said most of the activity covered by that suit took place before it acquired MortgageIT.