As Kansas City’s largest owner of foreclosed properties, Deutsche Bank lets the city rot
Justice moves swiftly in Kansas City, Missouri, Housing Court. Minutes after tersely issuing a $1,000 fine, Judge Wayne Cagle takes pity on an elderly man whose gutters need repair. “I can refer you to a program where the city will help you pay for it,” the judge says.
The program, the Municipal Court Fund, helps low-income homeowners with grants up to $10,000. The grants are an attempt to keep poor neighborhoods from slipping further.
But what’s a city to do when the sad bungalow behind the weeds and crooked downspouts is owned by a German bank worth $48 billion?
According to Legal Aid of Western Missouri, Deutsche Bank is the largest owner of foreclosed properties in Greater Kansas City. In Jackson County, the bank holds titles to 350 foreclosures.
Working with neighborhood leaders, Legal Aid officials took a look at 60 Deutsche Bank parcels in the urban core. By their estimation, more than a third had code violations.
Some properties are sickly enough to depress an entire block. A vacant house at 34th Street and Holmes has a soiled rug in the driveway and extensive fire damage outside. Numerous code violations at 49th and Olive have undermined attempts to sell five homes recently built by a Blue Hills nonprofit. Broken windows on a house at 36th and Park invited mischief and, finally, an emergency order of plywood. City inspectors made frequent visits during the 20 months that Deutsche Bank owned the house, which leers at an elementary school across the street. (In June, the property was sold to a buyer in Utah.)
Legal Aid attorney Michael Duffy cited these homes as examples of “mismanagement” in a recent letter to a Deutsche Bank vice president in New York. “Deutsche Bank, for all practical purposes, has failed to maintain these properties,” Duffy wrote. He encouraged the company to be a responsible corporate citizen and provide a plan for the repair, maintenance and eventual sale of the properties. Legal Aid, Duffy concluded, was at the “brink of moving forward with large-scale litigation.”
Duffy shared his letter with the media in an effort to increase his chances of getting a response. A Legal Aid colleague sent Deutsche Bank a similar letter a year ago and heard nothing. “We’ve attempted to make contact before,” Duffy tells me, “but we never get past a 1-800 number in the Philippines.”
Deutsche Bank doesn’t have an office in Kansas City. The real estate in question came under its purview as a result of the meltdown of the mortgage finance system.
In the old days, a lender held on to a mortgage until the debt was paid. Then Wall Street firms devised ways to buy mortgages, package them and sell them to investors. The current credit crisis began when homeowners started defaulting on tricked-out mortgages that had been sliced and diced into securities.
What does this process look like on the ground? In 2002, the owner of a house in North Hyde Park took out an adjustable-rate mortgage from Ameriquest, a subprime lender in California. Five years later, the $53,400 loan went into default. Deutsche Bank, trustee of the security that the mortgage supported, became the house’s owner of record.
Vacant, the house caught fire in June. Once the smoke cleared, the city’s Dangerous Buildings division boarded up 11 windows and doors and started demolition proceedings, which can take months.
It also takes time to recover the cost of tearing down such houses. Two years ago, the city demolished a Deutsche Bank foreclosure near 31st Street and Myrtle. The $8,750 bill remains unpaid. Eventually, the city will get around to filing a lawsuit. “It can be a couple of years,” says Jesse Sendejas, an assistant city attorney who pursues payments for demolitions.
Neighborhoods, meanwhile, are stuck with vacant properties that become less inhabitable by the day. “People are living next door to them, and the grass isn’t cut, and other maintenance issues are a concern,” says Margaret May, executive director of the Ivanhoe Neighborhood Council. May’s husband, Walt, worked with Legal Aid on the survey of Deutsche Bank foreclosures.
Frustrated by declining property values and garbage-strewn yards, some U.S. cities have begun to take big banks to court. In January, the mayor of Cleveland filed a suit accusing Deutsche Bank and other Wall Street firms of creating a public nuisance. The city of Baltimore filed a discrimination claim against Wells Fargo.
Kansas City officials haven’t taken such drastic measures. Instead, code enforcers say they are working on procedures for issuing civil penalties that do not require an individual (or a corporation) to first appear in court.
Deutsche Bank offers a simple defense: The company claims it doesn’t technically own the foreclosures.
I reached Deutsche Bank spokesman John T. Gallagher by phone. He was unable to comment officially on the Legal Aid letter. But Deutsche Bank officials have said that as trustees, they are not responsible for keeping up or selling a foreclosed property. Those duties, the company says, fall upon the initial lender or an institution hired to collect payments and perform other services.
If Deutsche Bank’s theory is correct, the “real” owner of the fire-damaged house on Holmes is Asset-Backed Pass-Through Certificates, Series 2003-AR1. (Block-party invitations should be adjusted accordingly.)
Deutsche Bank’s argument seems ridiculous to Duffy. If the trustee doesn’t own a foreclosed home, Duffy posits, then, “It’s who? A bondholder in Norway?”
Blight has no concern for the semantics of real-estate law. May says she’d like to see Deutsche Bank maintain the foreclosures or give them to someone who will. “If they are just holding them, why don’t they donate them to the neighborhoods so that we could be able to rehab them and get families into them?” she asks.
Families owning homes? What a concept.
Click here to write a letter to the editor.
