U.S. Bancorp has agreed to settle a lawsuit that claimed it neglected to maintain foreclosed properties in Southern California after the 2008 financial crisis.
The Los Angeles City Attorney's Office announced Thursday that the Minneapolis company would pay $13.5 million to the city and Los Angeles County to settle the suit. The settlement is subject to court approval.
The $433.5 billion-asset U.S. Bancorp agreed to maintain its foreclosed properties in accordance with local laws and standards for two years and to assign an employee to work with city municipalities to address code violations.
"Banks must be accountable for the condition of the properties they hold," City Attorney Mike Feuer said in a press release. "This significant settlement underscores my commitment that all foreclosed and vacant properties be kept up to code, so they don't become sources of blight or magnets for crime."
Carmen Trutanich, the Los Angeles city attorney at the time, filed the suit in July 2012. It charged that U.S. Bank allowed roughly 170 properties it acquired through foreclosure to fall into disrepair after the 2008 collapse of the housing market.
Despite repeated notices to comply from various city agencies, U.S. Bank "failed to respond and bring its properties, many vacant and in primarily low-income areas of South Los Angeles and the San Fernando Valley, into compliance," the city said.
When the suit was filed, U.S. Bancorp officials said that the company was merely acting as a trustee of the pool of loans tied to the properties and that it was not the servicer or company directly responsible for managing the loans, according to the Los Angeles Daily News.
U.S. Bancorp reiterated that argument after the settlement announcement. It owns one of the 170 properties involved "and will pay its respective portion of the settlement" for that property, a company spokesman wrote in an email to American Banker.
"It is important to note [that] loan servicers and not the trustee are contractually [and] legally obligated and responsible to maintain foreclosed properties," the email said. "The financial portion of the settlement will be paid by the trusts and the servicers responsible for the properties at issue."
New York officials have pressured lenders to help correct the problem of abandoned and neglected foreclosed homes, also known as "zombie" properties. In May, 11 major mortgage lenders, including Wells Fargo and Bank of America, signed a set of best practices to help municipalities in the state maintain and monitor such properties.
In June, Gov. Andrew Cuomo of New York signed legislation that requires banks and mortgage servicers to secure, protect and maintain vacant and abandoned properties before and during foreclosure proceedings. The law takes effect in December.