Hidden Owners Divert Profits : ‘Straws’ of Slum Finance Conceal Vast Enterprises

The portable telephone that Mordehai Ben-Horin perpetually grips in his right hand is not for show. Ben-Horin is a talker.

Whether he’s conducting a tour of the aging brick Cameo residential hotel, which he owns, or just holding a conversation, “Senor Ben,” as he is known to his tenants, presses on nonstop. The one-sided discourse jumps from the philosophy of Socrates to the disdain his ex-wife feels for the architecture of low-income apartments.

These days, Ben-Horin’s more impassioned speeches center on two intertwined topics: the American way of making money (“If you don’t like it, go to Russia.”) and the threat to free enterprise that he sees in the city attorney’s legal attack on slumlords (“This is abuse of power.”).

Only one subject seems to silence Ben-Horin--his financial relationship with business associate Dan Tepper. As officers in Canadian Pacific Inc., a small corporation that holds title to four Los Angeles apartment buildings, the two men are the latest in a long, tangled strand of investors to own the Cameo, one of the city’s worst slums.

According to the city attorney, Ben-Horin is a front man--”straw man” or “straw” in the terminology of the slum trade. Ben-Horin may appear to own the Cameo, but Tepper and the financial institutions that hold the mortgages, such as Bengal Discount Corp., are the true operators, according to Stephanie Sautner, chief slumlord prosecutor for the city attorney.

Ben-Horin and Tepper, who came to the United States in the mid-1970s, along with Bengal, are among 142 defendants the city attorney alleges participated in a loosely-knit enterprise that drained profits from a score of slum apartments, leaving helpless tenants in unconscionable squalor.

Ben-Horin’s legal problems don’t stop there. He is scheduled to stand trial in Municipal Court in August on separate slumlord charges surrounding the 160-unit Cameo at 504 S. Bonnie Brae St. He has been charged with another 37 misdemeanor counts involving a building at 5423 Virginia Ave., also owned by Canadian Pacific. Ben-Horin and Tepper vehemently deny the charges, pointing to improvements that have been made in the buildings, and confidently predict that they will be vindicated in court.

Tepper privately owns more than a dozen other Los Angeles-area apartments and commercial buildings. But just who is in charge of Canadian Pacific is unclear. Ben-Horin claims to be the corporation’s president. But Tepper’s name appeared as president in one set of public records. Yet a third man, Rami Greenwald, is listed by the secretary of state’s office as the firm’s president.

“He (Ben-Horin) is nothing more than a front person to hold the properties in his name. He’s a straw man, as far as I’m concerned,” said Sautner. “He is a manager, nothing more. . . . He has no equity in these buildings himself.”

“I am not a front for anybody,” Ben-Horin responded. And anyway, he said, fronts are an integral part of the free enterprise system.

“A corporation per se is a front,” said Ben-Horin. “A corporation is a separate entity created by rich people historically to defend themselves. If the city attorney attacks fronts, this is the system against the system.

“Don’t sue people for living in the marketplace according to the situation of the marketplace,” Ben-Horin said. “He (City Atty. James K. Hahn) is doing something very destructive without knowing. This is not America, unless you decide America will be a socialistic state.”

Not all owners of slum property are accused of being straw men. Others named in the city attorney’s suit range from a young businessman who sees himself--someday--as the West Coast’s Donald Trump to a street-wise veteran of slum management whose war stories include driving prostitutes from buildings at gunpoint. Another defendant is one of the city’s best known slumlords, Vijaynand Sharma, who jumped bail in September, 1988, and became the object of a so-far futile international search.

To a man, all these owners of slum property complained that unreasonable city inspectors kept them from reaping the profits they had expected and claimed that, if the city would be more reasonable, they could run clean and decent buildings.

Other problems that plagued the owners, they said, include far higher than average interest rates, because many conventional lenders will not make loans on slum buildings. In many cases, according to federal statistics, the owners must finance the sales themselves, carrying back notes from the buyers.

For example, during the last 10 years as many as eight or even 10 trust deeds were outstanding at any one time on the Cameo, as one owner passed it to the next for little or no money down. Generally, the new owners took over the existing payments and gave the sellers notes for the balance.

Government programs do exist to help buy and repair low-income housing, but funds are scarce and they carry restrictions designed to prevent real estate speculation and to ensure that apartments remain affordable.

But one of the most troublesome problems of all are the straw men.

According to the city attorney’s suit and hundreds of pages of other court documents and property records surveyed by The Times, the “straw” system is a simple idea with almost limitless variations.

Because the point of using straws is to keep the true owner a secret, there is no reliable way to determine how often the practice occurs. However, low-income apartment owners said it appears to be fairly common.

At its most elementary, a “straw” is hired to pretend to own a building. Title is recorded in the name of the sham owner, who may never even see the building he supposedly “owns.” The true owners collect rents and reap the profits.

In other cases, the “straw” may collect the rents for the true owners and generally act as a manager. The rents still are turned over to the men behind the scenes and they still determine what, if any, repairs to make and receive the building’s profits.

On a more sophisticated level, unscrupulous real estate men and lending companies may lure legitimate investors into turning over hundreds of thousands of dollars supposedly to buy and fix up decrepit buildings. The investors’ funds and the rent profits actually are diverted to the pockets of the men behind the partnership. Investors are told that repairs far exceeded expected costs, that lucrative rents didn’t materialize.

In the worst cases, according to a variety of court documents and property records, the front men serve as a shield while slums are looted of rents--most paid in cash--and nothing is spent on repairs.

When fire, health or safety citations are issued by the city, it is the sham owners who take the blame. When the true owners allow mortgages to lapse into default, it is the front men who face financial ruin.

Typically, according to documents and interviews, the “straws” as well as other slum owners are immigrants.

Many of those believed by city officials to be “straws” simply don’t understand how they are being used, particularly those who cannot speak or read English well. Still others are blinded by greed, believing they can get something for nothing and that their name on a deed is the first step toward realizing the American dream.

“The myth of L.A. real estate is that the streets are paved with gold and all you need to do is get some real estate,” said one investor familiar with the system of sham owners who asked that his name not be used.

Ownership of the old, rundown buildings can be extremely lucrative, said the investor, but it takes a highly sophisticated owner to know how to balance both the unusually complex finances and often difficult tenant management ends of the business.

Why get into such a troublesome industry in the first place?

“Why? . . . For money,” said Ben-Horin. “It has to do with opportunity.”

“Why are they suing me?” he asked. “I’m not a slumlord. I’m a man who fixes properties.”

Not all landlords run their operations properly, he conceded, citing the fugitive Sharma as an example of “abuse of business.” Nonetheless, he added, “we don’t have laws that say someone must be a good businessman.”

For nearly a decade, one owner of the Cameo after another has been targeted by the city attorney’s office for operating the building under abominable conditions. Since 1981, seven individuals, partnerships or corporations have owned the Cameo. Of those seven, three, including Sharma, have been convicted of criminal charges.

Ben-Horin, now facing such charges himself, blames the fugitive Sharma for many of his problems.

In 1987, Ben-Horin, through another of his firms, Ty Properties, took over 12 buildings that had belonged to Sharma before the slumlord’s conviction ended his real estate career. Four of the buildings, including the Cameo, were on the city’s list of the worst properties in Los Angeles.

Prosecutor Sautner said that Tepper had contacted the city attorney’s office, saying he knew some prospective investors for the Sharma buildings. She said she warned him that whoever took control was in for a lot of work and the city would insist it be done swiftly and well.

Sautner said Ben-Horin began work on three of the four buildings, but nothing much was done at the Cameo on Bonnie Brae Street.

Behind Schedule

“We kept telling him, ‘You’re ignoring Bonnie Brae,’ ” Sautner said. “The health inspectors were very upset. We didn’t file (the criminal charges) until last fall so we had given them about 10 months. After we filed, he got a fire lit under him.”

However, when work stepped up at the Cameo, she said, crews slowed down or stopped at the other buildings Ben-Horin was supposed to repair. Ben-Horin acknowledges that he was behind schedule in some repair work but insists that the real cause of his woes is that “these are ex-Sharma buildings.”

Vijaynand Sharma, 41, is the subject of a nationwide search by the FBI and the bonding company that put up his $250,000 bail. He is believed to be in hiding in Scotland.

Behind him, in foreclosure auctions, Sharma left a legacy of some of the worst slum buildings ever seen in the city. Some now are run by suspected “straws” like Ben-Horin; others were taken over by men like Don Matthias.

Matthias, another defendant in the city attorney’s suit, worked for Sharma for years. A self-described tough guy and veteran manager of some of Los Angeles’ roughest, most rundown buildings, including the Cameo, Matthias bears a slight resemblance to the late actor Steve McQueen.

Although he never served in the military, he wears his gray hair close cut and carries himself with a soldierly bearing. In conversation, he describes all his tenants by their ethnic origin.

Now running a well-kept apartment complex in the shadow of a Las Vegas freeway, Matthias told how he drove prostitutes from one especially noxious Inglewood building he managed.

When a prostitute and her client went into a room, Matthias said, he would take a loaded shotgun and wait until he was sure they were settled: “I break the door down after they get into the act, walk up with a gun, stick it in their heads, bring them downstairs to a holding area buck-naked and hold them until the police come.” The prostitution problem didn’t last long, he said.

“I’ve been shot at, knifed, rocks thrown at,” he said.

Matthias saw his big chance in Sharma’s legal misfortunes.

In the dissolution of Sharma’s real estate holdings, Matthias, for little or no money down, picked up a 30-unit apartment building at 2616 Idell St. and a 17-unit apartment at 4020 S. San Pedro St. The buildings were in terrible shape. But Matthias blames health, fire and building inspectors for his failure to reap profits. He said his buildings repeatedly were cited while inspectors ignored worse problems at nearby apartments.

“I got tired of the bull . . . from the city,” Matthias said. “That’s why everybody’s moving out of Los Angeles. It’s all a one-sided game. Either they like you or they don’t. If you’re not in the clique, then get the hell out.”

No matter how hard he worked, Matthias said, he couldn’t make a go of the buildings as long as the inspectors kept after him.

“I was broke when I got into them,” he said, “and I was broke when I got out.”

When Matthias got out, the buildings on Idell and San Pedro were taken over by Tim Preis for no money down.

At 40, Preis looks and sounds much younger than his age. Boyishly disclosing his dreams, counting the millions his buildings may be worth when he turns 70, he said he admires the more experienced men who taught him the ropes of slum housing.

Preis also is a defendant in the city civil suit and, like Ben-Horin, faces separate criminal slumlord charges.

“It just feels so unfair to be prosecuted as heavily as I’m being prosecuted,” he said. “No matter what you do, you just can’t do enough” to satisfy the inspectors.

A native of Cedar Rapids, Iowa, with a degree in engineering, Preis gave up his job as an industrial engineer to capitalize on the everlasting California real estate boom.

By the early 1980s he was ready to move into the slum apartment business but had no money to invest. Borrowing $1,000 against his aging Volkswagen, he took over a building where the owners had given up trying to cope.

Using newspaper advertisements and industry contacts, Preis said he was able to make other investments in the low-end housing market, owning as many as four buildings at a time, with little or no money down.

At some point, according to Preis’ dream, the equity in the buildings and sales to other investors should start turning his finances around. His dream is to emulate his heroes, the late Los Angeles philanthropist Ben Weingart, who made his fortune in Skid Row real estate, and New York tycoon Donald Trump.

When his own years of struggle are over, Preis said, he’ll turn to philanthropy, maybe buying an apartment building for the homeless.

But not yet.

The apartments Preis owns on Idell and San Pedro each have six outstanding mortgages. The lenders are the same for both, he said. The first trust deeds are held by Highland Federal Savings & Loan, the second trust deeds by A & B Loan Co., the thirds by Neil Blueler, the fourths by a doctor in Thousand Oaks, the fifths by a real estate agent and the sixths by Matthias. Highland, A & B, Blueler and Matthias all are defendants in the city attorney’s civil suit. Preis said Blueler has sold his trust deed to someone in San Francisco.

The total outstanding debt on San Pedro is $330,000, on Idell $530,000.

When Preis took over the buildings from Matthias last year, he put no money down, assumed the five existing loans and gave Matthias a note for the balance of the purchase price. In return, Preis got a six-month grace period before he had to begin making his payments to Matthias.

The purpose of the grace period, Preis said, was to give him a chance to make repairs and bring in some money. Now, the payments are coming due. And Preis is concerned that Matthias or one of the other lenders may move to foreclose.

“Now that I’ve done all the work, people are saying, ‘Hey, great. Now I’ll foreclose and take the building back.’ Now I just have to protect myself from them taking it away from me.”