U.S. Aid Sought in Slumlord Fight

A day after his office was dealt a severe setback in a dramatic bid to hold lenders responsible for slum conditions fueled by fraudulent loans, the Los Angeles city attorney vowed to ask federal regulators to participate in the crackdown.

City Atty. James K. Hahn, who started the effort by announcing a massive lawsuit against more than 140 defendants outside a shabby Hollywood apartment building in March, 1988, also said he would seek out a congressman to introduce laws that would prohibit the sort of fraudulent lending practices he alleges were committed by Los Angeles slum owners and their lenders.

Those lenders, the suit alleged, conspired with property owners to siphon fortunes out of crowded old buildings in the form of mortgage payments, leaving no money for repairs. Superior Court Judge Barnet M. Cooperman on Wednesday struck down the most innovative portion of the lawsuit--the effort by city officials to sue federally regulated savings and loans.

Hahn said his office had not yet decided Thursday whether to appeal. Deputy City Atty. Stephanie Sautner said that if the ruling stands, federally regulated lenders would have free rein to violate local laws.

“This is a failure of regulatory agencies across the board,” Hahn said Thursday. “The laws are only as good as the ability to monitor and enforce them. You hope that when the federal agencies go in and look at their books, they are doing it carefully, noticing whether or not patterns begin to appear. I think, though, our experience with savings and loans indicates that did not go on.”

Among the violations alleged in the lawsuit: fraudulent use of notary public stamps, conflict of interest of bank officers, the illegal use of straw owners to conceal true owners, and unsound banking practices like those that led to the collapse of hundreds of savings and loans nationwide over the last few years.

“Slum tenants are every bit as much victims as the investors of (indicted Lincoln Savings owner Charles) Keating,” Hahn said, adding that he hoped to persuade federal authorities to scrutinize questionable lending practices his staff had found in this case.

He said he also hoped to work with a congressman to craft legislation that would hold lenders liable for fraudulent loans knowingly made to slumlords.

Hahn said that despite the allegations of regulatory violations listed in his lawsuit, no other law enforcement agency or regulatory body ever called him--even after widespread publicity about the case.

“We never heard anything from anybody,” he said.

A spokesman for the Office of Thrift Supervision said Thursday that the office was not prepared to comment.

Highland Federal, a principal defendant, argued that its banking operations are regulated by the federal government and that the city had no jurisdiction in the case. The judge agreed, and also dismissed allegations of racketeering against property owners and loan brokers that had been filed by attorneys for the tenants. The city already had dropped its racketeering charges for procedural reasons last year. The remainder of the case proceeds against more than 90 other defendants.

Michael Berk, attorney for Highland, said immediately after the ruling that the case against Highland was “improper from the very concept.” He said the judge’s ruling turned the remainder of the case into “a garden-variety civil lawsuit against the owners of the property, which is what it should have been in the first place.”

Barry Litt, one of the public-interest attorneys representing tenants of the building, said Thursday it was “extremely likely” that the verdict would be appealed. “The implications (of Cooperman’s judgment) are very serious,” he asserted. “Basically it means a federally chartered lender can go out and break all kinds of laws.”

Sautner said two of the principal objectives of the lawsuit have already been achieved. The 11 slum buildings listed in the lawsuit have nearly all been brought up to code, and questionable lending practices by Highland Federal have stopped, she said.

A review shows that several government entities that made public statements announcing they planned to investigate the problems either decided against doing so or failed to follow up. There have also been these recent developments:

* One of the worst slums listed the owner as Teluce Black, a dog reportedly belonging to a convicted slumlord named Joe Fitzpatrick. The city attorney charged that a corporation registered to the dog was one of numerous Fitzpatrick shell companies that received loans from Highland.

* A second dog, Grover Black, was listed as president of a California slum corporation that petitioned for bankruptcy in 1985. Neighbors said Grover was a dog that belonged to another defendant, convicted slumlord Bill Leyton. “In the manual we’re called the watchdog of the federal bankruptcy court,” said Davis von Wittenberg, U.S. trustee in Los Angeles, at the time. “Now, we’ve got a dog to watch”

Von Wittenberg is now retired. Assistant U.S. Atty. Maureen Tighe said Thursday that “the investigation has been closed and no indictment was ever brought.” The dog’s attorney, Milton Simon of Santa Monica, who signed a federal document for the animal, said that as far he knows the investigation is over.

Jim Randall, chief of the notary division of the secretary of state’s office, said his office attempted to investigate an allegation that Karmelich, a notary public, notarized a document involving a transaction in which he had a financial interest. While Randall acknowledged that such a notarization “appears to be a clear violation” of state law, he said his investigator could not proceed because he could not find the right documents.

County Supervisor Mike Antonovich announced at the time that the Board of Supervisors had asked the district attorney to look into allegations involving slumlords. However, a district attorney spokeswoman said the office never received a letter. Antonovich never followed up, an aide said Thursday.

Of the remaining defendants, the most infamous, Vijaynand Sharma, 44, still is being sought by authorities. Sharma jumped bail in January, 1988, after being sentenced to serve 23 months in jail and pay $153,000 in fines in connection with dozens of housing code violations involving 18 slums. In September, 1988, he was caught in New Jersey but accidently was released before authorities realized he was wanted in Los Angeles.

Several other defendants have either left Los Angeles or gotten out of the low-income housing market, said Deputy City Atty. Richard Bobb. Some have disappeared and a few more have improved their buildings. One defendant, Timothy Michael Preis, 41, of Northridge, was convicted Thursday in Municipal Court for the fifth time on slum charges and is appealing an earlier six-month jail sentence on slum code violations.

“I spent two years of my life on this case,” said Bobb. “And I still believe in it. Something’s wrong when a dog can get a loan on a building easier than I could get a loan on my condo.”