Charges Against S&L; in Slum Suit 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.

“Even to this moment, I can’t believe this (suit),” he said. “It’s ridiculous.”

He noted that Highland Federal has helped finance six buildings named in the suit--among about 8,000 loans it has made through the years. Because the institution is “not cold-blooded” and has on occasion allowed building owners to go up to several months at a time without making payments, it is being accused of colluding with them, he said.

“I never knowingly lent to a slum landlord in my life,” he declared. “Ever. That’s my past, my present and my future policy.”

Asked to respond to Karmelich’s comments, Deputy City Atty. Richard Bobb said: “There are other lenders who lend money in the inner city who don’t seem to have these problems.”

He said the case had been under investigation for two years, and “we are very well aware the allegations we are making are very serious. We do not feel there is any mistake here. We have been meticulous.”

Karmelich acknowledged that he had made “exceptions” to Highland Federal’s own policies, lending up to 100% of the value of property to certain clients with large deposits in the institution.

“How can this be a conspiracy?” he asked, referring to the long list of co-defendants in the case. “I don’t even know these people.”

Plaintiff attorney Barry Litt said in an interview that the exact nature of the alleged conspiracy will be learned in discovery processes--which could take years--leading up to the trial.

“We don’t have to prove Karmelich knows all these people,” he said. “That’s not the way many conspiracies work. There are a variety of ways in which conspiracies exist. . . . What is clear is that Highland is at the center of a network with a certain financial approach to financing slum buildings. We’ll find out the nature of the conspiracy in discovery.”