Formal Plea Entered In Baltimore Tax Sale Bid Rigging Investigation; Target Agrees To Cooperate With Feds In Continuing Probe

In Baltimore, Maryland, The Baltimore Sun reports on the winner of the race to the Maryland Federal prosecutor's office in connection with an ongoing probe into alleged monkey business at the county tax sale auctions:

• A veteran Baltimore real estate investor could serve up to 18 months in prison for conspiring to rig bids at Maryland tax sale auctions under a plea deal that obligates him to cooperate with a continuing criminal investigation of the auctions. Steven L. Berman, in a plea agreement filed yesterday in U.S. District Court in Baltimore, admitted to a single felony count of bid rigging. Berman, 50, also agreed to pay a $750,000 fine.

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• The bid-rigging case is the first to stem from a broad federal investigation that became public knowledge in August. [...] Though Berman is the sole investor charged in the case, FBI agents in court filings have identified other subjects of the investigation as Baltimore County attorney Harvey M. Nusbaum, 70, and his longtime business partner Jack W. Stollof, 73, of Stevenson. Both men have denied wrongdoing through their attorneys.

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• The tax sales often ensnare the same low-income homeowners as has [the local] ground rent [system]. Both collection systems, some critics argue, can force homeowners into costly court battles to keep from losing their homes, sometimes over a few hundred dollars of delinquent taxes, water and sewer fees or bills for sidewalk and alley repairs.

For more, see Investor admits rigging tax sale bids (Plea deal could bring 18-month sentence for Pa. businessman).

Go here for other posts related to the problems associated with the Baltimore tax sale system.

Thanks to Lance Gay for the tip on the story. baltimore tax sale bidding

More Light Shines On Baltimore City Tax Sale Auctions & Bid-Rigging Allegations

In Baltimore, Maryland, The Huffington Post Investigative Fund reports (story appears in The Baltimore Sun):

• Baltimore City officials on Monday auctioned liens on 12,689 homes and properties whose owners failed to pay local taxes and municipal bills — a probable record and twice as many as in 2006 in the midst of Baltimore's housing bubble.

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• The city's record tax sale comes as the Justice Department continues a criminal investigation into bid-rigging by some investors. Federal prosecutors allege that the activity compromised as many as two dozen of the tax sales in Baltimore and several Maryland counties. Prosecutors say investors agreed in advance which properties to bid on, improperly reducing the money earned by municipalities. Three investors have pleaded guilty in the case.

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• Vicki Valentine lost her West Baltimore home that way one raw day in early February. Real estate investors snatched her property over what began with an unpaid city water bill of $362. [...] Valentine was incredulous when the price to keep her property shot past $3,600. Jobless and lacking the savings to pay, she said she could do little to stave off the day of reckoning. [...] Though Valentine had no way to know about it, some investors rigged the 2006 Baltimore tax sale auction that led to her eviction, federal prosecutors alleged in court.

• The roots of that conspiracy run deep, prosecutors said. For years, a handful of Baltimore real estate lawyers and their investment partners quietly dominated Maryland tax sale auctions, with few questions asked about their bidding tactics or collection policies.

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• Prosecutors went on to charge three men with conspiring to rig bids at 21 auctions in Baltimore and four other jurisdictions, including Montgomery and Prince George's counties between 2002 and 2007. All three have since pleaded guilty.(1) No other charges have been filed.

For the entire story, see City auctions liens on homes; investors can collect.

For another version of the same story, appearing in The Huffungton Post, see The Other Foreclosure Menace (Mortgage Paid Off, Woman Loses Home -- Over a Small Water Bill); and go here for accompanying VIDEO: Tapped Out: How an Unpaid Water Bill Cost a Baltimore Woman Her Home.

Go here for more on bid rigging at real estate-related auctions.

(1) In earlier stories related to this Maryland bid rigging prosecution, see:

• Bid-Rigging Attorney Gets 12 Months In 5-Year, $10 Million Conspiracy At Baltimore-Area Real Estate Tax Lien Auctions,
• Baltimore County lawyer pleads guilty to bid-rigging at tax auctions,
• Baltimore County lawyer to enter guilty plea in tax sale bid,
• Federal judge rules no joint-venture defense,
• Despite ruling, no deal ahead in bid-rigging case in Md.,
• Baltimore County businessman Jack W. Stollof to plead guilty to bid.

Baltimore Tax Sale Investor Cops Plea, Agrees To Cooperate With Feds In Bid Rigging Probe

In Baltimore, Maryland, an editorial in The Baltimore Sun notes:

• Federal investigators looking into Baltimore's tax-sale auctions have found their canary. Steven L. Berman, a veteran real estate investor from Pennsylvania, has agreed to cooperate with U.S. Justice Department prosecutors as part of a guilty plea in a bid rigging scheme. Mr. Berman is not just any canary. He has participated in tax-sale auctions in the city and five counties for several years and should be intimately familiar with the system, its vulnerabilities and payoffs.

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• Federal prosecutors allege the bid rigging scheme involving Mr. Berman occurred over several years. They say a handful of tax-sale regulars, including Mr. Berman, cut secret deals to avoid bidding against each other, benefiting from the lack of competition as they purchased sale certificates in volume.

For more, see Tax-sale shenanigans.

Baltimore Judge Orders Flat Fees For Attorneys Clipping Homeowners For Fat Fees In Tax Sale Foreclosures

In Baltimore, Maryland, The Baltimore Sun reported earlier this month:

• A Baltimore circuit judge ruled [earlier this month] that attorneys handling tax-sale foreclosure cases in the city can charge only flat fees instead of billing by the hour, a move aimed at reducing the amount of money homeowners have to pay to keep their homes. The ruling by Evelyn Omega Cannon, the judge in charge of the Baltimore Circuit Court civil docket, capped a yearlong review that she began after realizing that many requests for fees and expense reimbursement in tax-sale cases were not documented.

• Her ruling comes as federal authorities look into possible mail fraud and restraint-of-trade violations in tax-sale auctions in the city and a number of counties around Maryland, and at a time when foreclosure rates in Maryland are rising rapidly. [...] In her 51-page opinion, Cannon set the fees at $1,300 or $1,500, depending on how far along the case has gotten ...

For more, see Judge limits lawyers' fees in tax-sale cases (when link expires, go here for story courtesy of LexisNexis). bidding

Maryland Lawmakers Move To Cap Legal Fees, Increase Debt Threshold In Tax Sales

In Maryland, The Baltimore Sun reports:

• In an effort to spare some homeowners the loss of their properties in municipal tax sales, lawmakers are proposing several reform measures. State Sen. George W. Della Jr. has introduced legislation to cap legal fees at the end of the court process and to improve notification. The Baltimore Democrat says he hopes to cut expenses and save homes.

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• The proposed law would cap attorney fees at $500 until a suit to foreclose the right of redemption is filed. Then "reasonable attorney fees" may be sought, not to exceed $1,000. State Sen. Richard Madaleno [...] has proposed a bill to raise the debt threshold for properties sent to tax sale from $100 to $500. [...] Del. Maggie L. McIntosh [...] said that she expects to take up legislation to lengthen the amount of time before a foreclosure results from a tax sale once notice is given, and possibly on changes to the way the city bills its residents. "We want to make sure that the city does everything it can to avert a resident from losing a home due to a water bill," McIntosh said.

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• Baltimore lawyer Jay A. Dackman, who has been among the city's active lawyers in tax-sale cases, said he would welcome greater control of fees. "The law the way it's currently drafted is too open-ended," he said. "It creates abuse in terms of excessive fees being charged by attorneys."

A recent Baltimore Sun investigation showed that at least 400 homes were lost in a recent three-year period by Baltimore homeowners for debts other than property taxes, and that half were for unpaid municipal charges of $500 or less, many of which included unpaid city water bills.

For more, see Lawmakers propose reforms to state tax-sale regulations (Bills would cap attorney fees, raise debt threshold for action). bidding

Feds Investigate Baltimore Area Tax Lien Sales

The Baltimore Sun reports:

• "Federal agents have raided two Baltimore County [Maryland] 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. [...] In last year's Baltimore tax sale, ... 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."

For more, see Probe targets tax-lien sales (U.S. agents raid 2 area businesses).

For story update, see Probe of tax sale bids (Federal grand jury subpoenas records on bidding patterns). bidding

Federal Investigation Of Bidding Patterns At Maryland Tax Sales Continues

The Baltimore Sun reports:

• Records turned over to a federal grand jury investigating municipal tax-sale auctions show that two of Maryland's largest tax-sale investors didn't bid against each other for properties during the past four years in Montgomery County. Bidding lists were among documents demanded in the subpoena, which also sought any records from 2002 to 2007 that would show whether bidders communicated with one another about what properties they would bid on and prices they would pay, or about any inducement not to bid on certain properties or not bid at all. The subpoena is part of an investigation being coordinated by the Justice Department's antitrust division in Washington. It was issued on the same day in August that the FBI conducted simultaneous raids at two Baltimore County real estate offices, seeking evidence of restraint of trade in tax sales.

For more, see Probe of tax sale bids (Federal grand jury subpoenas records on bidding patterns).

For earlier story, see Probe targets tax-lien sales (U.S. agents raid 2 area businesses), or try here for prior post.

Maryland Lawmakers Consider Slamming Brakes On Baltimore's "Water Bill" Foreclosures

In Maryland, The Baltimore Sun reports:

• State lawmakers are considering a moratorium on foreclosures stemming from unpaid water bills, a move that faces stiff opposition from Baltimore City officials who say that many property owners would not pay without the threat of losing their homes. Sen. James Brochin called Baltimore's tax-sale system under which homeowners face foreclosure over unpaid water and sewer bills "absolutely obscene." He said the city should rely on other means of leaning on residents who don't pay their bills, such as shutting off service or assessing late charges and liens that must be paid when a property is sold or refinanced.

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• Increased scrutiny of tax-sale cases began after an investigation by The Sun last year showed that homeowners who owe just a few hundred dollars in municipal debts - including Baltimore City water bills - often are hit with thousands of dollars in fees from private debt collectors and can lose their homes if they don't pay. At least 400 city homes were lost over debts other than property taxes over a recent three-year period, an analysis of city tax records and court filings by The Sun found. Most stemmed from unpaid water and sewer bills, though some also included alley re-paving charges, sidewalk repairs and even fees to register rental property.

For more, see Lawmakers ponder halting foreclosures over water bills (Senator Brochin says Baltimore's system is 'absolutely obscene'). bidding

Would-Be First Time Homebuyers Begin Running Out Of Time For $8K Income Tax Credit

The Baltimore Sun's Real Estate Wonk blogger writes:

• Determined to get the $8,000 tax credit for first-time buyers?(1) Keep in mind that the Nov. 30 deadline isn't about signing a contract -- you need to get to closing no later than that day. So says the IRS, which specifically uses the word "close."(2) This matters because you'll want to allow at least 30 days -- and probably more like 60 -- for a normal transaction to go from contract to closing. Even if there's nothing unusual about the home you're buying, you could find yourself delayed by issues relating to the loan, the appraisal, the home inspection -- you name it. That goes double if you want something more complicated, such as a foreclosure. What if you're having a home built for you? The IRS says you have to be physically occupying the place by Nov. 30. More Q&As here.

• Some real estate sites, wanting to remind you that "now is the time to buy," have countdown clocks. [...] Do you feel the pressure? Or do you have a "whatever will be will be" philosophy on the credit? (Or perhaps you're purposely waiting until the credit's gone?) The Wall Street Journal, sounding a cautionary note,(3) profiles a first-time buyer who recounts all the things he did wrong in the rush to get the $8,000. For instance, getting into a bidding war on a foreclosed home he saw only briefly, and not "taking into consideration taxes, homeowners' association fees, and the cost to fix up and maintain a distressed property."

For the story, see The clock is ticking on the $8,000 tax credit.

(1) Believe it or not, an individual need not actually be a first time homebuyer to qualify for the First Time Homebuyer Credit. Any individual who has not owned another principal residence at any time during the three years prior to the date of purchase can qualify for the credit. So, for example, if you owned a home and lost it to foreclosure, say, four years ago, and have since been either renting, shacking up with your girlfriend or boyfriend (or both) at their place, living in your mother's unheated/un-air conditioned basement, or otherwise freeloading off of somebody, you are considered to be a "first time homebuyer" for purposes of qualifying for the First Time Homebuyer Credit. Also, a taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States. For more infomation, See Internal Revenue Service: First-Time Homebuyer Credit Questions and Answers: Basic Information (Who is considered to be a first-time homebuyer? Would I be considered a first time homebuyer if I owned a principal residence outside of the United States within the previous three years?).

By the way, the credit is claimed on new IRS Form 5405, First-Time Homebuyer Credit, and filed with your 2009 federal income tax return. According to this form, the credit is available on the purchase of a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence, provided you make it your main home (the one you live in most of the time).

Also, for those thinking of rushing out and buying and living in a tent, a tree house, an old dilapidated recreational vehicle or mobile home, or other form of "low cost housing" in order to "game the system" and grab the $8,000 income tax credit, the amount of the credit is limited to 10% of the home's purchase price, if the purchase price is less than $80,000. For more information, see IRS Form 5405. For those seeking to "game the system" anyway, see IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud.

If two unmarried people buy a house together, IRS Notice 2009-12 provides guidance for allocating the first-time homebuyer credit between taxpayers who are not married.

(2) In cases involving certain so-called "rent-to-own" and other deferred payment situations where a seller retains legal title to the home until all payments are made, an actual "closing" may not be necessary for a would-be first-time homebuyer to qualify for the tax credit, provided that the arrangement causes a sufficient passing of the "benefits and burdens" of home ownership from the seller to the would-be buyer. The IRS addresses the passing of the "benefits and burdens" of ownership in the following Q&A (See First-Time Homebuyer Credit Questions and Answers: Basic Information):

• Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer's payment obligations?
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  A. If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

In some so-called "rent-to-own" situations in which a would-be homebuyer enters into a purchase contract with the seller that calls for an extended closing date (ie. a "slow close"), and where the homebuyer obtains immediate possession of the premises and begins making "rent" payments to the seller in the interim, he/she may be entitled to the tax credit in such a situation, provided a sufficient amount of the "benefits and burdens" of ownership (as described in the IRS Q&A, above) have passed to him/her.

(3) See The Wall Street Journal: Rookie Home Buyer Mistakes (Rushing to grab the tax credit and caught up in a bidding war over a distressed property, a first-time home buyer omits the basics).