In an effort to prevent fraud and waste in government-subsidized housing, Baltimore officials have put seven landlords on a barred list, become more aggressive about inspections and hired a consultant to help overhaul the system.
Housing Commissioner Paul T. Graziano discussed the changes during a recent interview about the Section 8 program, through which the federal government pays the rent for 10,788 families living in privately owned housing in the city.
The crackdown on fraud came after complaints from housing activists and a report in The Sun in June that the $75 million a year flowing into the Section 8 program was helping to fuel what a lawsuit called a "fraud scheme" by a Columbia-based mortgage broker, William W. Dent.
Two companies founded by Dent used documents with false information to buy and rapidly resell government-owned houses for large profits, often holding title to them for less than a day before flipping them for almost triple the amount paid, according to documents and interviews with home buyers.
The investors who bought the houses often ended up in foreclosure, forcing low-income tenants out on the street. The renovated homes promised by Dent's firms often turned out to be in terrible condition, some with no heat, leaky roofs, sewage leaking through the walls and other serious problems.
"We will not tolerate greedy actions that abuse people and communities," Graziano said. "The big picture is, that if we operate our Section 8 program in a way that forecloses these avenues for abuse, these guys will be out of business."
Investigators with the state Department of Labor, Licensing and Regulation recently called for criminal fraud charges against Dent and a hearing for the possible revocation of the license held by his mortgage company, All Financial Services Inc.
"This agency is considering administrative charges in the case ... which could be to revoke or suspend his license," said Jonathan Krasnoff, an assistant attorney general who works with the department. He added that a referral for possible criminal prosecution could follow.
The real estate firm that Dent created, Millennium Properties, attracted investors by promising buyers that Millennium would fill houses with tenants in the Section 8 program, which often pays landlords hundreds of dollars a month above market rate.
Michael Kramer, head of the Section 8 program for the city, said that his employees are now re-inspecting many units and reducing subsidies if the properties are in poor condition or are surrounded by market-rate apartments that rent for less.
"A lot of the landlords are very upset with us, because we are telling them that are we giving them $150 to $200 a month less now," Kramer said. "But we say, 'If you want to be in the program, take it or leave it.'"
Kramer said his program cut off all payments to Millennium and an investor featured in the Sun article, Tam Nguyen, a medical student who bought 27 rental houses. In addition, the program has put seven other landlords on a barred list, five of them for running flipping schemes similar to the ones that Dent's firms performed, Kramer said.
Kramer would not release a list of the other landlords that the city suspects of abusing the Section 8 program.
The program is also becoming stricter in double-checking the condition of apartments, to make sure that landlords don't skimp on maintenance, Kramer said. The department has thrown about 700 units out of the program since June because they failed to meet quality standards.
Mayor Martin O'Malley said that his housing department has been working hard to clean up a program that was in chaos before he took office in December 1999.
"It was a big, big mess. We had landlords not receiving their checks, tenants unable to get through the process, we had virtually no inspectors going to make sure the apartments that we were renting weren't substandard," O'Malley said. "Now we are turning all of that around."
In April, the city installed a new computer system for the Section 8 program, which until recently used only paper files.
And to help organize the program and root out abuses and inefficiency, the city in June hired a consultant, CGI Inc. of Cleveland, to a six-month, $250,000 contract, Kramer said.
One persistent problem, city officials and other said, is that HUD continues to sell about 65 percent of homes that it gets through foreclosure to real-estate speculators - such as Millennium Properties - instead of to families who will live in the houses.
In an attempt to stop this problem in part of Northeast Baltimore, a local nonprofit housing organization called the St. Ambrose Housing Aid Center is negotiating with HUD to sign a contract on Jan. 1. This agreement would require HUD to sell St. Ambrose all of the houses that go into foreclosure in the Northwood area at half of their appraised value.
St. Ambrose would then renovate the houses and sell them only to people who promise to live in them, said Vincent Quayle, executive director of the non-profit.
"Our goal is to stop HUD houses from being sold to investors," Quayle said. "We want them sold to homeowners who will live there."
The Section 8 program pays landlords willing to rent to lower-income residents. The number of families in the program more than doubled in the city during the 1990s, as the demolition of public housing high-rises led to an effort to scatter poor families throughout the city.
But even with the expansion, the program hasn't kept up with demand. About 10,300 families are on waiting lists for subsidized housing.
Trying to catch up with this backlog, city officials closed the waiting list in February, saying they wouldn't add any more names until the families now in line receive housing.
"The Section 8 program was really in disarray, and now they [Graziano and Kramer] are trying hard to get the program back in good order," said Kenneth Strong, coordinator of a federal advisory committee called the Baltimore City Flipping and Predatory Lending Task Force.