State regulations that could curb slum housing by reining in the owners who profit from it was the subject of an Assembly Ways and Means subcommittee hearing in Los Angeles Wednesday.
"We're looking for the loopholes to see where the law is failing us," said Assembly Speaker Pro Tem Mike Roos (D-Los Angeles), who called the hearing at the Museum of Science and Industry that was attended by tenants of slum housing, landlords and state and local housing enforcement officials.
Roos said he began to look into the practices of slumlords and the lenders who finance them after The Times published a series of articles on the subject last summer. The lawmaker said that the hearing was a fact-finding effort and that the testimony would be used to draft new legislation "to deal with all the loopholes."
Among those testifying Wednesday was Stephanie Sautner, supervising attorney of the Los Angeles city attorney's Slum Housing Task Force, which filed a massive civil lawsuit last March against 142 owners and financiers of 11 slum properties, alleging fraud, conspiracy and racketeering.
Sautner cited difficulties the task force encountered in prosecuting slumlords, such as tracking the frequent transfers of properties to different owners and the way the true owners or profit makers can remain hidden behind a series of "straw" buyers and "shell" corporations.
"We feel there are loopholes in these sham transfers and accountability," she said.
One of the defendant slumlords in the group lawsuit, she explained, listed a dog named "Teluce Black" as head of one of his real estate companies, while another held property in the name of a corporation in which he owned all the stock but held no corporate office.
"It would be a lot easier if there was an existing statute that we could fall back on, that if you hold property it must be held in your own name or, if it's by a corporation, you hold a responsible corporate office," Sautner said. "It would be a lot easier to get behind the scenes."
The Times found that slum traders often "sell" buildings to their own dummy corporations, giving themselves new "loans" each time and inflating the apparent value of the buildings. Because each transaction taken alone appears to be standard, government agencies are unlikely to spot abuses.
Roos said his legislation is still in draft form but is likely to deal with "the flipping of properties and sham owners." His staff has been researching the possible regulation of property transfers of buildings already declared "substandard"-- with multiple fire, health, building and safety violations--by local enforcement agencies. An aide said certain repairs might be required before the properties can change hands.
Roos has also been exploring the possible regulation of loans on properties that have been declared substandard. During the hearing, one landlord of a recently renovated slum on South Main Street, Anthony Barras, said he believed owners of low-income housing had a hard time finding any lenders to fund their buildings because of "red-lining"--a practice of refusing to make loans in certain areas, particularly those inhabited predominantly by minorities.
"All of the lenders in this state red-line," Barras said flatly. "They'll say, 'We don't want to lend; we don't like the area.' "
Barras largely financed the purchase of his property, he said, by taking over existing loans.
Barrett S. Litt, an attorney who has represented several hundred tenants in suits against landlords over slum conditions, testified that the state should take a role in seeking changes in federal laws governing lending institutions.
"Given what does appear to be a problem getting lending institutions to lend in certain areas, despite anti-red-lining legislation," Litt said, "there should be standards that require a portion of loans from federally chartered savings and loans be designated for low-income property."