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April 2, 1989

Slum Sleuths
Tenacious Investigators Worked Long Hours to Uncover Alleged Housing
Scam


Author: JOEL SAPPELL; Times Staff Writer
Metro Desk

Edition: Home Edition
Section: Metro
Page: 2-1






Index Terms:
A & B LOAN CO
FITZPATRICK, JOSEPH
HIGHLAND FEDERAL SAVINGS & LOAN ASSOCIATION
LOS ANGELES FIRE DEPARTMENT
RACKETEERING
SLUMS
APARTMENTS -- LOS ANGELES
T H I S CORP
SUITS
LANDLORDS
RENTAL HOUSING
KARMELICH, BEN
CASTANEDA, DAVID



Estimated printed pages: 6



Article Text:

Los Angeles Fire Department Inspector David Castaneda was asking a
lot of coy questions, letting his eyes wander across desktops and
snapping Polaroid pictures of the hired help, who were not smiling.

From a back room in the cramped Wilshire Boulevard office of T.H.I.S.
Corp., a man emerged, grabbed Castaneda's elbow and shoved him
outside, slamming the inspector's arm against the door. Castaneda,
dressed in uniform, managed to get a shot of him, too.

His heart pounding, Castaneda stared at the door that had been locked
behind him.

"Why are they throwing me out of the office?" he remembers
thinking. "Why am I not supposed to be in there? I don't even know
who that guy is?"

Castaneda, 34, was not there that day back in October, 1985, to check
for smoke detectors or frayed wiring. A frustrated member of the
city's slum housing task force, he had broadened his duties to
investigate how a number of Los Angeles slumlords were managing to
evade city enforcement efforts.

The information he uncovered in hundreds of public records and in his
sleuthing helped lead last week to a novel racketeering lawsuit
against two lending institutions accused of secretly controlling Los
Angeles' worst slum buildings.

The investigation was more a labor of obsession than expertise. There
were no teams of specialized investigators assigned to the case, only
several people with no real knowledge of the byzantine banking
industry or the mind-numbing world of property transactions.

On their own time and between other assignments, they pursued an
investigation that the city attorney's office is calling the most
significant breakthrough yet in Los Angeles' continuing efforts to
provide livable housing for its poor.

Filed by the city attorney's office, the Legal Aid Foundation of Los
Angeles and a private law firm, the lawsuit alleges that Highland
Federal Savings & Loan Assn. and A & B Loan Co. used front men and
shell corporations--including T.H.I.S.--to inflate the value of 11
slum properties through frequent transfers of ownership.

Hundreds of thousands of dollars in rents were diverted to the
lenders to cover the escalating mortgages, the suit says, instead of
being used to maintain 408 units in the buildings, most of which are
inhabited by recent immigrants in the city's poorest neighborhoods.

Loans on one run-down building alone ballooned from $405,000 to $2.6
million as it changed owners six times in four years. One owner
turned out to be a dog, according to the complaint, which seeks civil
damages and an injunction to stop such practices in the future.

Highland Federal has denied any wrongdoing, while A & B Loan Co. has
yet to comment on the allegations.

The investigation was largely the work of Castaneda, a 14-year
veteran who began as a firefighter; Deputy City Atty. Stephanie
Sautner, who wishes she had paid more attention in her property law
class, and Legal Aid lawyer Deborah Dentler, who had to scrounge
documents because the foundation could not afford the $320 she needed
to make her own copies.

Sautner is a former New York City police officer who heads the city
attorney's slum housing task force, perhaps the most innovative in
the nation, which has successfully prosecuted several notorious
slumlords.

Changes of Owners

She says the inquiry began after a number of slum buildings kept
changing owners just before the city was prepared to move against
them.

"Our own egos were so great," she says, "that we thought they would
do anything to avoid being prosecuted by us." Instead, Sautner says
she would later learn, the lenders allegedly were interested in
boosting property values so they could reap more money on the
mortgages.

Fire inspector Castaneda had become "crazy with frustration," Sautner
says. He volunteered to spend his mornings at the county recorder's
office studying documents on the rat- and crime-infested buildings
that were changing hands.

"Something smelled fishy and I wanted to know what it was," he
says, "Why can't we hook these people?"

After staring at microfilm for days, he says he found "too many
common denominators" among the buildings, including two institutions
that had made loans on the property, Highland Federal and A & B Loan.
He says he also noticed that some companies involved in the
transactions had different names but were using the same addresses.

"I thought I was uncovering something," he says, "and I couldn't let
up."

Orders to Go Ahead

At the task force's weekly Wednesday meetings, he would report his
findings to Sautner, who instructed him to press ahead. She briefed
City Atty. James K. Hahn.

"We thought we knew the complete picture about the way slumlords were
operating," Hahn said. "But then we were learning that there was
another level. That made us very angry."

Next, Castaneda embarked on some amateur detective work, tracking
down people and corporations listed as owners of the dilapidated
buildings. He went to T.H.I.S. Corp., but got nothing except a rude
goodby.

At one address, he says, there was no building. Another was nothing
more than a post office box inside a copying shop; the box number, he
says, was listed in property records as a "suite."

Castaneda says he traced one purported building owner to a stationery
store. He figured the guy probably owned the business. He was a
delivery boy.

And then there was the man who lived in one of the slum buildings and
did not know he owned it--on paper.

"You are the owner," Castaneda says he informed the man.

"No I'm not," he responded.

"Isn't this your signature?"

"Yes, but I never signed that."

Castaneda said he made a note to himself that the document had been
notarized by the same person whose name appeared on other property
transactions.

Eyes and Ears

For help, Castaneda had plenty of eyes and ears. He often turned to
the tenants, who, among other things, jotted down license plate
numbers and provided him with detailed descriptions of the rent
collectors.

Not everyone appreciated Castaneda's efforts. Nasty letters started
coming in to the Fire Department from a lawyer and Highland Federal's
president, accusing the inspector of harassment.

Castaneda says he was questioned by his bosses, who "told me to
continue on so long as I don't violate anybody's rights."

The high turnover of slum building ownership also had caught the
attention of the nonprofit Legal Aid Foundation, which has
represented scores of tenants in disputes with slumlords.

In examining 10 years worth of property records for one building at
her kitchen table, Legal Aid's Dentler discovered that it had passed
through nearly 20 different owners. She, like deputy city attorney
Sautner, had come to believe that "there was a bigger picture but
nobody knew what it was."

One thing that particularly puzzled them was why dummy corporations
and people with seemingly risky credit histories were getting loans
to buy properties.

With both Legal Aid and the city attorney's office strapped for
resources, the two women decided to pursue the mushrooming case
together, forming a team that Dentler compared to
television's "Cagney & Lacey."

Working as a Team

"We come from completely different backgrounds," Dentler
says. "Stephanie was a cop, a working-class kid, hard-bitten. I'm a
typical bleeding heart liberal from an affluent background. We are
not best friends by any means, but we are a good work team. We would
pull each other out of the depths of despair."

Among other things, they divided up the properties that needed to be
studied. They also took turns sitting through a civil trial that, in
a stroke of good timing, would prove to be one of the major turning
points in the investigation.

They had been tipped to the trial by television reporter Jim Forbes,
who for years has been investigating the financial ties of slumlords
for KCBS-TV. The case involved two important figures: a Los Angeles
slumlord, who had owned some of the buildings under investigation,
and Highland Federal.

Testimony in the trial disclosed that the bank had knowingly approved
a false loan application submitted by slumlord Joseph Fitzpatrick in
the name of his Spanish-speaking maid.

Highland President Ben Karmelich approved the $217,669 loan on the
property, which was not a slum building, and then authorized
Fitzpatrick to cash the check. Karmelich testified that he had
sanctioned the transaction because Fitzpatrick was a credit-worthy
customer who was good for the money. The maid lost her bid to get the
building, but the neophyte investigators had more leads.

"It was exactly like the scenario we had cooked up in our minds,"
Dentler says. "An illiterate Spanish-speaking maid who had never had
a dime and found herself on the title of an apartment building for
the benefit of a group of financiers. We knew we were on the right
track."

Testimony also surfaced in the trial that Highland Federal had issued
a slum-property loan to one Teluce Black--purportedly the name of
Fitzpatrick's dog.

Plan for Action

By now, the city attorney's office and Legal Aid had agreed that a
class-action lawsuit should be prepared--targeting the financial
institutions--on behalf of the city and the tenants whose rents had
bankrolled the alleged scam.

But for the tenants to recover money, yet another player would have
to be brought into play because neither the city attorney's office
nor the federally funded Legal Aid Foundation can sue for money
damages.

Dentler said she tried to recruit a half dozen major law firms. Their
initial response, she says, was, "we're opposed to slumlords. Let's
go get 'em." But when the conversation turned to suing the lenders,
Dentler recalls, "they got cold feet," concerned that the case would
lead to laws harmful to their banking clients.

More disappointment was to follow. Dentler had finally managed to
corral the huge law firm of Finley, Kumble in the summer of 1987,
only to see it go under within weeks.

"I was just blown away," she recalls. "I thought I had it made."

Eventually, Dentler persuaded Litt & Stormer to handle the case, a
major commitment of time and resources for the relatively small
firm. "It was not the megafirm I had fantasized about," Dentler says,
but it had sued slumlords before and knew racketeering law.

Last Tuesday in Los Angeles Superior Court, roughly three years of
laborious and often boring work came together in the 95-page lawsuit
that, itself, took more than three months for Litt & Stormer to
draft. In a sense, the controversy is only beginning. By all
accounts, the case will take years to plod through the courts.

On the day the suit was filed, Castaneda gave himself a private pat
on the back as he sat in his shoe-box office on the 9th Floor of City
Hall East.

"I kinda feel pleased," says the inspector, who has moved on to other
assignments. "that my efforts did not fall by the wayside . . . I
feel for those tenants. They don't deserve to live like that."


Caption:
PHOTO: Slum-investigating Fire Inspector David Castaneda: "I feel for
those tenants. They don't deserve to live like that."
PHOTO: Legal Aid lawyer Deborah Dentler says law firms "got cold
feet" when they learned her case might harm bank clients.
PHOTOGRAPHER: THEODORA LITSIOS / Los Angeles Times





Copyright, The Times Mirror Company; Los Angeles Times 1989

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