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Subject: The Ben Karmelich Chronicles, Part V
Date: 19 Oct 2003 12:16:23 -0700

Subject:  The Ben Karmelich Chronicles, Part V

 
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BANK Will Pay $1.4 Million to Settle Lawsuit Over Slum Housing
Buildings: Highland Federal will disburse funds to tenants, the city
and lawyers. Firm says it has a good record of supporting low-income
housing.


Author: LARRY GORDON; TIMES STAFF WRITER
Metro Desk

Edition: Home Edition
Section: Metro
Page: B-1


1995



Index Terms:
HIGHLAND FEDERAL BANK
LOW INCOME HOUSING
RENTAL HOUSING
SLUMS
TENANTS -- SUITS



Estimated printed pages: 3



Article Text:

A bank accused of helping to run a Los Angeles slum ring that exposed
hundreds of low-income renters to dismal living conditions will pay
$1.4 million to tenants, the city and public interest attorneys,
officials announced Friday.

The move ends a complex lawsuit first filed against Highland Federal
Bank and 135 other defendants in 1989 and raises the total settlement
in the case to $3.26 million, a record for a slum housing lawsuit
brought by the city. In all, 11 buildings in Westlake, Echo Park,
Hollywood, South-Central, Koreatown and Pico-Union were involved,
including seven that had some financing from Highland Federal.

Authorities alleged that the bank, based in Highland Park, knowingly
helped finance frequent transfers of ownerships to people who had no
means and no intention of maintaining the buildings, many of which
were infested with vermin and had broken windows and other hazards,
such as dangerous wiring. At one point, a Labrador dog was listed as
the president of a shell corporation that owned the Cameo Hotel, a
Westlake building with a $200,000 loan from the bank, the city
attorney's office maintained.

Los Angeles City Atty. James K. Hahn told a news conference Friday
that the settlement "is really going to change totally the way slum
properties are looked at, especially from financial institutions'
standpoint. For many years, they would try to pretend they had
nothing to do with the slum conditions, that they were only the
lenders. This lawsuit says differently."

But Highland Federal's president, Stephen Rippe, strongly contested
Hahn's statement and insisted that the bank agreed to the settlement
only to avoid further legal costs. The 11-branch bank, Rippe
stressed, did not foster slum conditions and has a good record of
supporting decent, low-income housing in Central City neighborhoods.

"We settled an action that has been pending for six years, that has
been expensive to defend and promised to be more expensive to defend.
And that was the sole reason we settled," Rippe said in a telephone
interview. He added that lenders "should not be held accountable for
the actions of building owners, tenants and managers."

Part of the $1.4 million is covered by the bank's liability
insurance, but Rippe declined to specify how much. Other sources
speculated that insurance would supply more than $1 million.

The settlement with the city and public interest attorneys requires
Highland Federal to tighten lending practices for substandard
housing. In addition, the bank's former president, Ben Karmelich, is
banned from working for any bank with loans secured by Los Angeles
real estate, according to Hahn's office. A former bank vice
president, Selina Elizabeth Pratt, also agreed to carefully screen
building owners in any future mortgage work.

Michael Berk, the bank's attorney, said the restrictions
were "basically window dressing" and characterized the settlement as
a victory for the bank because the allegations were never proven or
admitted.

Between 700 and 800 current and former tenants are expected to
benefit from the case, as they did in two previous settlements in
1989 and 1992 from other banks, corporations and owners in the
massive case. Attorney Barry Litt, who represented tenants, estimated
that the latest settlement brings their total awards to nearly $2
million, or an average of $2,000 to $3,000 per person, including
children.

Litt and other private attorneys will receive more than $1 million in
legal fees and costs from all three settlements, he said. The city
will get $100,000 and low-income housing organizations are expected
to garner about $250,000, officials added.

Although the case was never fully argued in court, Highland Federal
lost an important procedural appeal two years ago when the state 2nd
District Court of Appeal held that the bank could be sued for slum
conditions even though it was not the actual owner. That decision
reversed a lower court ruling and set a state precedent, officials
said.

The suit contended that the bank made large profits from high
interest and loan points and that the buildings' values were highly
inflated for the loans. The lending practices "seemed designed to
keep the properties operating as slums," the lawsuit declared.

With the frequent change of ownership at the 11 buildings, the city
first had trouble enforcing building and safety codes. But slum
conditions were cleared up after the lawsuit was filed and only one
building, in Echo Park, has since slid back into violation, said
Richard M. Bob, a deputy city attorney for housing enforcement.


Caption:
PHOTO: (Southland Edition, B8), The Cameo Hotelin Westlake is one of
buildings involved in a lawsuit that charged Highland Federal Bank
with fostering slum conditions.
PHOTOGRAPHER: GINA FERAZZI / Los Angeles Times





Copyright, The Times Mirror Company; Los Angeles Times 1995
Record Number: 000047992

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