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CA bank won't make loans for Ellis Act rental properties

Ellis Act evictions more than doubled in California between March 2012 and February 2013 compared to the year prior.
Justin Sullivan/Getty Images
FILE: Evictions in Los Angeles through the Ellis Act jumped to 725 apartments in 2014 from 308 the year before.

The California-based First Republic Bank said it will no longer make loans to investors who use the state's Ellis Act to evict tenants from rent-controlled units.  

The law allows landlords to clear their apartments so they can get out of the rental business and do something else with their properties such as building condominiums. But critics say this hurts families and ruins the fabric of neighborhoods.  

There's been a steep rise in owners' use of the act in Los Angeles recently.

First Republic, under pressure from advocates for low-income tenants, said in a statement that 'if we are aware that the owner intends to utilize the Ellis Act before a loan is made, we will not make the loan."

The bank, which has eight branches in Orange and Los Angeles counties, said it will ask on loan applications whether borrowers intend to repurpose a property using the Ellis Act.

"It’s probably the only bank that has a policy like this," said Kevin Stein, associate director of the California Reinvestment Coalition, which pushes banks to help low-income communities. 

Tenants rights groups have called out First Republic for financing investors in San Francisco who use the Ellis Act.

"It's investors taking an opportunity to buy buildings at a lower price because they're rent-controlled and achieving a windfall by converting it, displacing oftentimes low-income tenants, oftentimes seniors, oftentimes people of color in favor of upper-income folks, " Stein said. 

Stein said abuse of the Ellis Act is especially rampant in expensive cities such as San Francisco and Los Angeles. Evictions in L.A. through the Ellis Act jumped to 725 apartments in 2014 from 308 the year before — an increase of 135 percent. Landlord groups point out that this is a tiny fraction of L.A.'s housing stock, but defend the Ellis Act as providing a financial out for struggling owners

 The coalition wants the bank to finance nonprofit affordable housing developers.  It also plans to pressure other banks to deny lenders who use the Ellis Act.  The coalition has set its sights on Bank of America and Wells Fargo.

First Republic said it is working with the coalition to perhaps finance the purchase of several rental buildings that could be subject to the Ellis Act.