LA sues Deutsche Bank over foreclosure blight

SAN FRANCISCO/FRANKFURT Wed May 4, 2011 2:35pm EDT

The Deutsche Bank headquarters are pictured in Frankfurt February 24, 2011. REUTERS/Ralph Orlowski

The Deutsche Bank headquarters are pictured in Frankfurt February 24, 2011.

Credit: Reuters/Ralph Orlowski

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SAN FRANCISCO/FRANKFURT (Reuters) - The City of Los Angeles sued Deutsche Bank (DBKGn.DE) on Wednesday, claiming the global financial institution is one of the biggest "slumlords" in the second-largest U.S. city.

Due to widespread foreclosures, Deutsche Bank subsidiaries have taken title to more than 2,000 residential properties in Los Angeles, according to a copy of the lawsuit available on the city's web site.

However, the bank has disregarded its responsibilities as property owners, creating vacant nuisance properties and substandard housing, the lawsuit said.

Deutsche Bank said the lawsuit is misguided, as loan servicers are contractually responsible for the maintenance of foreclosed properties.

"The Los Angeles City Attorney's Office has filed this lawsuit against the wrong party," the bank said in a statement on Wednesday.

Two Deutsche Bank subsidiaries "have become two of the largest, if not the largest, slumlords in the City of Los Angeles," the lawsuit said.

The suit follows a separate $1 billion lawsuit by the U.S. government filed on Tuesday, accusing the German bank of fraud for repeatedly lying to obtain federal guarantees on mortgages it issued.

Last year a U.S. appeals court found that the city of Cleveland could not recover against 22 Wall Street banks and mortgage lenders, which the city had accused of causing a public nuisance by creating risky mortgage securities to be sold to investors.

In a statement on Wednesday, Los Angeles City Attorney Carmen Trutanich said the city must "fight blight" by holding banks accountable.

The city is seeking restitution and civil penalties to "deter them and others" from engaging in such conduct, the lawsuit said. The bank's liability could potentially be in the hundreds of millions of dollars, Trutanich's office added.

Deutsche Bank said it had offered to help the city attorney's office to contact the loan servicers that are responsible for maintaining the properties in question, adding that the office had not told it which properties it meant.

The case in Superior Court for the State of California, County of Los Angeles, is The People of the State of California and the City of Los Angeles v. Deutsche Bank National Trust Company et al., BC 460878.

(Reporting by Dan Levine in San Francisco and Edward Taylor in Frankfurt, editing by Matthew Lewis)

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