Friday, December 16, 2016

Attention Zeroes In On Milwaukee Slumlords Routinely Using Multiple LLCs In 'Cat & Mouse' Game To Hide Ownership, Dodge Paying City Fines Incurred By Operating Dilapidated Rental Properties; Local Experts Encourage Municipal Officials To "Pierce The Corporate Veil" When Suing Sleazy Operators To Stop Them From Screwing Over City, Poor Tenants

In Milwaukee, Wisconsin, the Milwaukee Journal Sentinel reports:
  • Elijah Mohammad Rashaed, a major central city-landlord with a trail of code violations, court fines and lawsuits, has long frustrated Milwaukee building inspectors and creditors with a dizzying array of companies created to run some 180 rental properties.
    ***
    All of the companies are organized as limited liability companies, or LLCs, a setup that allows owners to keep their identities secret and protect personal assets from liabilities incurred by their businesses. In other words, the owners of an LLC do not risk losing the homes they live in if their business goes under or runs up huge debt.

    Rashaed and other landlords are routinely using LLCs to avoid paying fines incurred for renting out substandard, unsafe housing or for violating ordinances aimed at preserving neighborhoods.

    In all, LLCs owed the city nearly $3 million in past due fines for building code violations, as of Nov. 7. At least $9 million more is owed in delinquent property taxes. The fines, involving 777 LLCs, were imposed in 1,927 court cases dating to 2004.

    Yet the city does not go after Rashaed — or those behind other LLCs that own problem-plagued housing — personally to collect the money. City and court officials say it's difficult to determine true ownership and, if they could, those behind the LLCs are protected by law.

    But experts say there are ways to hold landlords accountable.

    "The law is not intended to protect abusive landlords," said Joseph Boucher, a Madison attorney who helped lead the State Bar of Wisconsin committee behind the state law on such entities. Boucher argued that a judge could be persuaded to allow the city to go after an LLC owner's personal assets.

    "When people use it to screw people over, you could pierce the veil" of protection, Boucher said.

    To April Hartman, an attorney for Legal Action of Wisconsin,(1) an organization that often represents tenants in disputes, the use of LLCs gives the landlords an unfair advantage.

    "You have these incredibly low-income people who are held responsible for every little thing," she said. "Then you have these landlords who could just hide behind these LLCs.

    "It's a mess — it’s a real mess."
    ***
    'It's not that complicated'

    City officials say the only way to get to the owner of an LLC is to "pierce the corporate veil" of the company. In order to meet that legal standard, creditors would have to prove the company is effectively the same as the owner and was created to commit fraud.

    Private attorneys say it isn't that hard.

    "The key is to follow the money in order to determine how to best get it," said Michael Polsky, a Milwaukee attorney who frequently works as a receiver and needs to chase down LLCs on behalf of creditors. "You may be able to follow payment to owners or third parties ... that were made to defraud creditors."

    Boucher, the Madison lawyer who helped write the LLC law, agreed the city could readily go after an owner.

    "It's not that complicated," he said. "You sue the guy and prove he's the owner.”

    The proof can come during a deposition, when an individual is required to answer questions under oath. "Now you've got him testifying with perjury potential,” said Boucher.
For more, see Landlords try to keep identities secret in cat-and-mouse game.
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(1) Legal Action of Wisconsin is a non-profit law firm that provides free legal services to low-income people in certain areas of legal practice, and serves 39 southern Wisconsin counties with offices in six cities.

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