Bank Will Pay $1.4 Million to Settle Lawsuit Over Slum Housing : Buildings: Highland Federal will disburse funds to tenants, the city and lawyers. Firm says it has a good record of supporting low-income housing.

A bank accused of helping to run a Los Angeles slum ring that exposed hundreds of low-income renters to dismal living conditions will pay $1.4 million to tenants, the city and public interest attorneys, officials announced Friday.

The move ends a complex lawsuit first filed against Highland Federal Bank and 135 other defendants in 1989 and raises the total settlement in the case to $3.26 million, a record for a slum housing lawsuit brought by the city. In all, 11 buildings in Westlake, Echo Park, Hollywood, South-Central, Koreatown and Pico-Union were involved, including seven that had some financing from Highland Federal.

Authorities alleged that the bank, based in Highland Park, knowingly helped finance frequent transfers of ownerships to people who had no means and no intention of maintaining the buildings, many of which were infested with vermin and had broken windows and other hazards, such as dangerous wiring. At one point, a Labrador dog was listed as the president of a shell corporation that owned the Cameo Hotel, a Westlake building with a $200,000 loan from the bank, the city attorney’s office maintained.

Los Angeles City Atty. James K. Hahn told a news conference Friday that the settlement “is really going to change totally the way slum properties are looked at, especially from financial institutions’ standpoint. For many years, they would try to pretend they had nothing to do with the slum conditions, that they were only the lenders. This lawsuit says differently.”

But Highland Federal’s president, Stephen Rippe, strongly contested Hahn’s statement and insisted that the bank agreed to the settlement only to avoid further legal costs. The 11-branch bank, Rippe stressed, did not foster slum conditions and has a good record of supporting decent, low-income housing in Central City neighborhoods.

“We settled an action that has been pending for six years, that has been expensive to defend and promised to be more expensive to defend. And that was the sole reason we settled,” Rippe said in a telephone interview. He added that lenders “should not be held accountable for the actions of building owners, tenants and managers.”

Part of the $1.4 million is covered by the bank’s liability insurance, but Rippe declined to specify how much. Other sources speculated that insurance would supply more than $1 million.

The settlement with the city and public interest attorneys requires Highland Federal to tighten lending practices for substandard housing. In addition, the bank’s former president, Ben Karmelich, is banned from working for any bank with loans secured by Los Angeles real estate, according to Hahn’s office. A former bank vice president, Selina Elizabeth Pratt, also agreed to carefully screen building owners in any future mortgage work.

Michael Berk, the bank’s attorney, said the restrictions were “basically window dressing” and characterized the settlement as a victory for the bank because the allegations were never proven or admitted.

Between 700 and 800 current and former tenants are expected to benefit from the case, as they did in two previous settlements in 1989 and 1992 from other banks, corporations and owners in the massive case. Attorney Barry Litt, who represented tenants, estimated that the latest settlement brings their total awards to nearly $2 million, or an average of $2,000 to $3,000 per person, including children.

Litt and other private attorneys will receive more than $1 million in legal fees and costs from all three settlements, he said. The city will get $100,000 and low-income housing organizations are expected to garner about $250,000, officials added.

Although the case was never fully argued in court, Highland Federal lost an important procedural appeal two years ago when the state 2nd District Court of Appeal held that the bank could be sued for slum conditions even though it was not the actual owner. That decision reversed a lower court ruling and set a state precedent, officials said.

The suit contended that the bank made large profits from high interest and loan points and that the buildings’ values were highly inflated for the loans. The lending practices “seemed designed to keep the properties operating as slums,” the lawsuit declared.

With the frequent change of ownership at the 11 buildings, the city first had trouble enforcing building and safety codes. But slum conditions were cleared up after the lawsuit was filed and only one building, in Echo Park, has since slid back into violation, said Richard M. Bob, a deputy city attorney for housing enforcement.