For more than a decade, many of Los Angeles' worst old slum apartment buildings have been commodities on an insider's trading block.
While immigrant tenants live in squalor in the aging structures, behind-the-scenes investors have developed sophisticated financial devices that drain the buildings of thousands of dollars in cash rents and virtually condemn them to further decay.
For the Record
Los Angeles Times Tuesday August 1, 1989 Home Edition Part 1 Page 2 Column 6 Metro Desk 2 inches; 62 words Type of Material: Correction
Alexander Spitzer--The Times reported incorrectly Monday that Inglewood lender Alexander Spitzer controls several industrial loan companies. The appropriate term for Spitzer's firms is not industrial loan companies, but finance companies. Finance companies, or "hard-money lenders," are less regulated than thrift and loans, which take deposits from the public in the form of investment certificates. Both are licensed by the state.
Those who stand to make the greatest profits do not need to step inside the door. Often, they do not own the properties, at least not in their own names. They own the mortgages on them.
Exceed Property Value
In a two-month examination of Los Angeles slum real estate, The Times found that some lenders have heaped old buildings with high-interest mortgages that often exceed the value of the properties. That leaves the titular owners to run the buildings on little cash, face creditors, and assume the liability for slum code violations.
Slum traders often "sell" buildings to their own dummy corporations, giving themselves new "loans" each time and inflating the apparent value of the buildings. They then sell the buildings to paid front men, or to unsophisticated buyers who often do not realize their lenders are related to each other. Because each transaction taken alone appears to be standard, government agencies are unlikely to spot abuses.
And, there are abuses:
--The titular president of two slum trading corporations, Grover Black, apparently is a dog once owned by Westside real estate agent William Leyton, according to associates. Public records show that Grover Black has had two offices, hired at least two attorneys, signed court records, and claimed an interest in at least two major slum buildings.
Leyton declined an interview. His attorney, Milton Simon, who filed a federal bankruptcy petition signed by Grover Black, said he "preferred not to comment" on the identity of Grover Black.
--One of Los Angeles' busiest and most flamboyant slumlords in recent years was a one-time Boston bank robber named Joe Fitzpatrick who financed his empire of several dozen apartment buildings through numerous loans from friendly bankers to what he himself described as "straws" and "shell" companies. One was named MLUS Inc., an anagram of SLUM. A close associate of Leyton, he has been accused in court of naming his dog president of one of his companies. Fitzpatrick claimed that the company president, "Teluce Black," actually was his gardener.
Fitzpatrick, who acknowledged in a court case last year that he had been convicted of bank robbery about 20 years ago, left town last year after declaring bankruptcy. But he managed to get back at least one of his old apartment buildings by lying to the court about his relationship with his real estate agent, Leyton, records show. He could not be reached for comment in Las Vegas, where he has recently incorporated new companies.
--Inglewood lender Alexander Spitzer has financed many of the city's most infamous slumlords for more than a decade, buying and selling slum trust deeds among his own companies. While his companies have taken in profits from high-interest loan payments, his staff has treated some of his borrowers--the slum owners of record--as "managers," charges one borrower who is currently suing him for fraud.
Asked about the frequent property transfers, an attorney for Spitzer said they were "for business purposes." Through the attorney, Spitzer declined an interview. Several of Spitzer's business entities have recently begun defaulting on more than $90 million in bank loans and halted payments to investors. One has petitioned to reorganize under Chapter 11 of federal bankruptcy procedures.
Massive Civil Suit
Leyton, Fitzpatrick and Spitzer are among 142 defendants in a massive civil lawsuit filed last March by the city attorney, the Legal Aid Foundation and Litt & Stormer, a private law firm that is representing thousands of tenants. On July 12, the city settled its claims with 11 companies and individuals related to Spitzer with an unprecedented agreement that requires them to alter their lending practices and force their borrowers to make repairs on substandard buildings. They are still being sued by the tenants.
The suit alleges fraud, conspiracy and racketeering by the defendants in connection with their ownership roles in 11 selected slum buildings over the last decade. It argues that lenders, through imprudent or insider loans, have so much control over Los Angeles slum properties that they are \o7 de facto \f7 owners and should therefore be held accountable for living conditions in the buildings.
"At first we saw a conspiracy among record owners," said City Atty. James K. Hahn. "Then there was a whole other level underneath it that we were completely unaware of, and that was the lenders. . . . The lenders were essentially using these people as fronts . . . uncredit-worthy people who could come in the back door and get exorbitant loans you and I could never get."