Housing group lawsuit alleges racial discrimination in REO property preservation

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A group led by National Fair Housing Alliance is suing Deutsche Bank, Ocwen Financial Corp., Altisource Portfolio Solutions, and related entities, alleging racial discrimination in their real estate owned property management practices.

At issue in the suit are the housing group's longstanding complaints that Deutsche Bank, Ocwen and Altisource violated the Fair Housing Act by keeping properties in predominantly white census block groups in better condition than those in black and Latino areas.

"Defendants discriminated against communities of color in the exterior maintenance and marketing of properties owned by Deutsche Bank after foreclosure in 30 metropolitan areas," the alliance alleged in the suit, which was filed in a United States District Court in Illinois.

A Deutsche Bank representative declined to comment. Representatives for Ocwen and Altisource both said the lawsuit's allegations have no merit.

"We strongly deny the National Fair Housing Alliance’s allegations, and believe they lack credible evidence," said John Lovallo, an external spokesperson for Ocwen, said in a statement. "The company will vigorously defend itself against these allegations."

"Ocwen cares about communities, and is committed to equal maintenance and marketing of bank-owned homes no matter where they are located in the U.S.," the statement adds. "We believe we have in place the necessary quality control standards designed to ensure that all properties are handled consistently regardless of their location."

The Altisource representative also raised questions about the basis of the lawsuit's claims.

"The NFHA research, relied on as the basis of its claims, was previously discredited in 2016 by the U.S. Department of Housing and Urban Development in connection with another claim against a large U.S. bank," Altisource spokesperson Lisen Syp said in a statement.

Deutsche Bank is named in the suit because of its role as a mortgage-backed securities trustee and property owner of record following foreclosures. Ocwen is the servicer of the properties in question, while Altisource is a property preservation vendor. Altisource was formerly a division of Ocwen, but is now its own publicly traded company.

"Altisource is a property preservation vendor operating on behalf of institutions that service mortgages and foreclosed homes. The NFHA assertions misrepresent both Altisource’s conduct and our role as a property preservation vendor," Syp added.

"Altisource is committed to the principles of fair housing and neighborhood stabilization. We provide services according to client-approved policies and processes, applied without regard to the racial composition of a neighborhood and supported by industry best practices of quality assurance. We believe NFHA is acting irresponsibly and using misleading and inaccurate information."

The alliance filed a similar lawsuit against Fannie Mae in 2016, and the group previously attempted to resolve similar complaints against Fannie, Deutsche Bank and other companies by meeting with them, according to Shanna Smith, president and CEO of NHFA.

The group only files lawsuits after other efforts to get the trustee and servicing companies to follow through on basic maintenance of the foreclosure properties fails, she said. The alliance filed a federal housing discrimination complaint against Deutsche Bank in 2014.

"We're saying 'mow the lawns and fix the doors,'" said Smith.

However, a 2011 review found that, among other things, the alliance misidentified the institution legally responsible for maintaining specific homes and mischaracterized the role of trustees as being directly responsible for REO maintenance.

While trustees are not directly charged with property maintenance, they are the named owner of the REO properties, Smith said. There can be mistakes made in identifying owners due to delays in county recorders' records, and the alliance uses waiting periods to ensure its data is as accurate as possible.

Trustees are responsible for representing bond investors' interests as defined by the terms of the pooling and servicing agreement for a particular RMBS transaction. While servicers are more frequently targeted in litigation, some private action lawsuits do target trustees.

Deutsche Bank settled a lawsuit with the City of Los Angeles over neglected maintenance of foreclosure properties in 2013, but had the mortgage servicers and the securitization trusts that hold the property pay for it.

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REO Foreclosures Distressed Litigation RMBS Deutsche Bank Ocwen Financial