The Most Revolutionary Act

According to the Los Angeles city attorney, the two biggest slumlords in California are US Bank and Deutsche Bank. US Bank (aka US Bancorp) is the fifth largest bank in the US and Deutsche Bank the fourth largest bank in the world. Both acquired thousands of foreclosed properties in the 2007-2008 economic crash. Of 620,000 foreclosed Los Angeles properties (down from one million a year ago), 25% have been empty longer than two years and 11% have been vacant longer than three years. Especially in neighborhoods with large numbers of foreclosed vacant homes, the empty homes attract squatters and vandals, leading to increased criminal activity and declining property values.

Los Angeles Sues US Bank and Deutsche Bank

Despite numerous complaints by city authorities and advocacy groups, the failure of US Bank and Deutsche Bank to maintain their vacant properties remains a major problem. In May 2011 Los Angeles prosecutors filed a civil complaint against Deutsche Bank. The suit seeks a court order for Deutsche Bank to clean up 2,000+ Los Angeles properties (in compliance with the city’s municipal code), as welling as paying a $2,500 per day penalty, plus restitution,  for each code violation. This could add up to a major chunk of change, given the US Justice Department is suing Deutsche Bank for more than $1 billion for allegedly lying in arranging for federal insurance for faulty mortgages.

Milwaukee, Cleveland, Atlanta, Baltimore and other cities have also made repeated complaints to Deutsche Bank over their failure to maintain vacant foreclosed homes in these cities – despite billions of dollars in profits the German bank posted last year.

In July 2012 Los Angeles city attorneys filed a similar lawsuit against US Bank. The suit also accuses the bank of charging tenants excessive rent for rental units in foreclosed properties, using underhanded tactics to evict them and allowing utility and water to be cut off for extended periods.

US Bank and Deutsche Bank Pass the Buck

Both US Bank and Deutsche Bank claim that the mortgage servicer, not the trustee (themselves) is responsible for maintaining foreclosed properties. They claim they are merely trustees for bond holders, who are the actual owners of the toxic mortgages and thus the foreclosed property. I doubt the courts are likely to agree, given that the banks are listed as the owners on the property deeds. Both US Bank and Deutsche Bank took over many of these bad mortgages from failed banks they bought out and merged with following the economic crash. However prior to 2008, both played a major role bundling their own risky subprime mortgages into worthless bonds and selling and trading them to unsuspecting bondholders.

How Other Cities Deal with Slumlord Banks

Two other southern California cities, Fontana and Ontario, have a controversial plan to help residents whose homes are underwater by using eminent domain to seize and restructure mortgages. Oakland has a municipal ordinance that requires banks to register, inspect and maintain homes in foreclosure. Cleveland has persuaded lenders to demolish vacant houses by establishing a “land bank.” The land bank agrees to assume ownership of a property provided the lender pays to knock it down. The Cuyahoga County Land Bank now has some 700 demolitions pending, with Bank of America, Citibank, Wells Fargo and other lenders committed to paying between $3,500 and $7,500 per house.

With the thousands of homeless Clevelanders sleeping in the freezing cold every winter, you have to question the moral integrity of policy makers who opt for demolishing foreclosed homes that could be used to house them.

Baltimore Sues Eight Banks Over LIBOR

Baltimore has sued eight banks over the London Interbank Offer Rate (LIBOR) scandal (Bank of America (BAC), Barclays (BCS), Citibank (C), HSBC (HBC), J.P. Morgan (JPM), Lloyds (LYG), UBS (UBS), and  WestLB (Westdeutche Landesbank – insolvent and dissolved as of June 2012). This is in addition to criminal prosecutions the federal government has brought against these banks for fraudulently colluding to keep LIBOR artificially low. City officials maintain that the arbitrarily low rates caused Baltimore to lose massive amounts of money they (like many cities) had invested in credit default swaps.

Holding Banks Accountable

It’s refreshing to see cities go after the big banks, especially in view of Obama’s reluctance to prosecute them over a systematic pattern of fraud and criminal behavior. It’s high time someone held them accountable for wrecking the world economy. Where the feds have pursued prosecution, they have let banks off with a slap on the wrist. I have a feeling cities won’t be quite so forgiving. Cities and states aren’t allowed to run deficits, and the 2008 banking collapse has forced many of them to slash essential public services – laying off teachers and cops, closing schools and clinics, and even suspending street lighting and maintenance.

With all funky accounting banks engage in, you wonder how many, if any, will remain solvent once the courts finish with them.