Cities face hurdles in foreclosure cases

The logo of Germany's leading bank, Deutsche Bank, is seen at the banks headquarters in Frankfurt am Main, central Germany, on September 13, 2010.

Tess Vigeland: Damage of the man-made kind has descended on cities around the country since the housing bust. In many of them, you'll find block after blighted block of vacant homes. City halls have tried suing the big banks that made the subprime loans that led to all these foreclosures.

Now, Los Angeles is the latest entrant in the litigation game, with a new approach. Instead of attacking lending practices, it's suing Deutsche Bank for -- essentially -- being the biggest slumlord in town. Marketplace's Janet Babin reports.


Janet Babin: The foreclosure crisis is known for all the dense, elaborate agreements made between various parties to shady mortgage loans. There's the lender, the servicer that collects the loan payments, and the trustee, to name just a few.

Bankruptcy attorney Keith Maynard says all these players have made it tough for cities to prove which entity is responsible for faulty foreclosures.

Keith Maynard: It's really just a hard paper trail to follow to find out who owns that property, because a lot of times it's just an account number.

Los Angeles cut through that paper shuffle. It alleges that the owners of neglected, foreclosed homes are the ones that should pay damages for the blight. Los Angeles Deputy City Attorney Julia Figueira-McDonough says at hundreds of foreclosed homes in the city, that title owner is Deutsche Bank.

Julia Figueira-McDonough: The buck stops with the owner. They're the owner, that's the end of the story. They have the obligations that any property owner would have under federal state and municipal law.

In a statement, Deutsche Bank said it's just the owner of record. It says by contract, loan servicers are responsible for maintaining foreclosed properties.

University of Illinois law professor Robert Lawless says the city may have found a way to hold someone accountable for the boarded up homes nobody wants.

Robert Lawless: The city is alleging very specific statutory and code violations. And those violations put the city at a little bit better footing than some of the other cases we've seen.

If Los Angeles is successful, other towns will likely try a similar strategy.

I'm Janet Babin for Marketplace.

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