Slum Lawsuit Charges Called ‘Hogwash’

A lawsuit that charges Highland Federal Savings & Loan Assn. with conspiring with landlords to siphon profits from slums is “a bunch of hogwash--and you can put that in capital letters,” the president of Highland Federal asserted Friday.

“The city attorney made a mistake--a big mistake,” Ben Karmelich said. “Highland Federal and myself are innocent of everything they charge.”

Karmelich asserted that the only reason Highland Federal is in trouble is because it has refused to “redline” inner city areas as do some other savings and loans that refuse to make loans in poor areas.

Karmelich and Highland Federal, a mid-sized savings and loan with 10 branches in the Los Angeles area, are among 140 defendants charged in a massive lawsuit filed in Superior Court on Tuesday by the Los Angeles city attorney, the Legal Aid Foundation of Los Angeles and Litt & Stormer, a private law firm.

Racketeering Alleged

The 95-page suit charges Highland Federal, the Inglewood-based A & B Loan Co. and dozens of individuals with fraud, racketeering and other violations in connection with what officials call 11 of the city’s worst slum buildings. The suit alleges that the defendants “have totally controlled and effectively operated the slum buildings as the real beneficial owners.”

In essence, the suit claims that Highland and other lenders frequently transferred the buildings through shady loan practices, driving up mortgage payments so high as to leave no rent money left over for utility bills and maintenance. Among questionable loan practices cited by the plaintiffs are failure to appraise buildings, the issuance of loans to shell companies and failure to require mortgage payments from “owners” when they transferred their properties.

In these and other ways, the suit claims, Highland and other lenders were participating in a conspiracy to reap profits from the buildings while protecting themselves from prosecution because they were not technically the owners of record.

At a press conference called by Highland Federal on Friday, Karmelich said he did not want to wait for the protracted legal process to clear his name or that of his institution. Although there had been “a few human mistakes,” he said, his institution never knowingly encouraged the development of slum properties.