Tax lien investors probed by FBI for bid rigging. Post 50

BaltimoreSun.com September 7, 2007     By Fred Schulte and June Arney | sun reporters

Probe targets tax-lien sales

U.S. agents raid 2 area businesses

Federal agents have raided two Baltimore County real estate businesses and seized a wide range of records as part of a criminal investigation into municipal auctions of property tax liens.

Search warrants show that the FBI obtained the records to support a probe into possible mail fraud and restraint-of-trade violations.

The federal probe raises questions about how the annual tax sales are conducted. In these auctions, investors bid over the Internet for the right to collect back taxes or unpaid municipal fees from delinquent homeowners. The investors can then sue to take the house if the bills, plus interest and fees, aren’t paid.

The system functions on the assumption that the bids are competitive. In Baltimore, the tax sale process is intended in part to find new owners for abandoned or dilapidated properties.

In past decades, these auctions often attracted scores of small-time investors hoping to pick up properties at a bargain price. But as rising real estate prices have made the properties worth far more than the debt owed, a few investment groups have come to dominate the process.

In last year’s Baltimore tax sale, for instance, more than 100 companies or individuals bid for about 7,400 tax certificates sold to investors. But just three investment groups won more than two-thirds of the total, city records show. Two of those groups were the targets of simultaneous raids by the FBI on Aug. 9.

Agents searched a second-floor office suite used by real estate attorney Heidi S. Kenny and her investor husband, Steven L. Berman. Firms connected to the couple, Mid-Atlantic Tax Sale LLC and Fairtax LLC, bought about $2.4 million worth of liens in Baltimore last year, city records show.

The other office raided attorney and veteran real estate investor Harvey M. Nusbaum, state records show. Last year, according to city records, Nusbaum purchased more than 1,000 Baltimore tax liens, paying about $2 million.

Kenny was criticized by the Baltimore City Clerk of Courts for filing ground rent lawsuits against deceased homeowners without going through the probate process – as well as for her attempt to eject a Canton man and his two sons from their home during the holiday season.

The third major investment group in Baltimore’s tax sales is Sunrise Atlantic LLC, an arm of Fort Lauderdale, Fla.-based BankAtlantic. It purchased more than 2,800 liens last year, more than any other investment group.

Some Maryland jurisdictions include charges other than taxes in the lien sale process, including water bills and sidewalk repairs. While that happens rarely in some areas, about a third of the roughly 8,000 liens Baltimore offered for sale last year contained no property taxes, and roughly one in 10 were for debts of under $500, The Sun found this year.

De Laurentis, the lawyer whose firm bids for the Florida bank, said he didn’t believe any evidence of criminal conduct would be uncovered. “I don’t think anybody is rigging anything,” he said. “The bidding is ferocious.”

For full article:  http://www.baltimoresun.com/business/bal-te.bz.taxsales07sep07,0,2743492.story

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Coach Mitch’s REFLECTIONS

This is serious.

I wonder if there is any real proof of bid rigging between the competitors or if the Feds are reacting to political pressure?

Maryland enacted a very onerous law a few years ago that prohibits real estate investing. An exception is tax lien certificate purchases. It looks like Maryland wants to also not allow investors to pursue a legal action to foreclose on the property – unless it is done in a politically correct manner. Authorities certainly would not like it if anyone were to be evicted during the Christmas season. However that is not evidence of bid rigging, rather it is evidence of an investors insensitivity to the current political realities.

There is bid rigging.

Be aware that bid rigging is not legal. Be aware also, that bid rigging goes on, especially in smaller auctions, mostly with tax deed auctions.

I have been approached. It seems innocent enough. I’m asked, “What property are you interested in?” This can certainly be a question derived out of curiosity but it can also be a ploy. For instance, I have been told, “Did you see that roof? It will need to be replaced. And those floors are buckling.”

It is done informally. A few investors will determine which parcels they each are most interested in and agree to not bid against each other.They divide up the parcels between them. Other investors are needed to drive up the bids. However, they can be harshly dealt with.

I saw bid rigging first hand in Bankruptcy sales.

There were several “old hands” at the sale of assets of a business. The “old hands” did not bid against each other. However, when someone new tried to purchase something, the “old hands” jumped in and bid up the asset. In this manner the “old hands” made sure that the newbie knew that it would be costly if he was going to step into their turf.

In another type of rigging, I lost a prime property because the auctioneer said “sold” so quickly that I could not bid. It was the only quick call in the auction. There certainly could be collusion between an auctioneer and a bidder.

What to do?

The best way to not be hurt by nefarious practices is to anticipate them so that you can create a better strategy. Coach Mitch’s “Ridiculously Simple System…” has provided the best strategy – buy before the auction. Coach Mitch’s “Ridiculously Simple System…” helps you locate tax delinquents whose property will probably be auctioned. You will be able to make an offer to these folks before the other investors, thereby avoiding any competition and the attempts at collusion by other investors.

See Coach Mitch’s “Ridiculously Simple System…” ™ for details.

Cynically yours,