A Baltimore real estate attorney has admitted to conspiring with other local lawyers to rig the bids for millions of dollars' worth of government tax auctions in Maryland, newly unsealed court records show.
Attorney John Reiff stated under oath that he and two law partners helped fix bids for the purchase of "large numbers" of property tax debts, or tax liens, sold by tax assessors at auctions in Baltimore and several Maryland counties from 2003 to 2007, according to court filings made public last month.
The bid rigging, which in some years affected nearly three-quarters of the liens up for auction, cost the city and several Maryland counties money by artificially holding down the bid price, local officials say, though they could not determine how much. The Department of Justice says the scheme affected "tens of millions of dollars" of tax lien purchases, and prosecutors say the attorneys involved subsequently collected millions in fees from debtors.
"I don't think there's any question but that the city was harmed by what was done," City Solicitor George Nilson said in an interview. "Could I put a price tag on it? No."
Reiff has been a key witness in a federal probe of corruption in Maryland property tax-lien sales that has resulted in three convictions. He and his two partners cooperated with the government and were not charged. Reiff could not be reached for comment this week.
The Justice Department's antitrust division began investigating the Maryland sales after a Baltimore Sun analysis of sales records in 2007 showed that while large numbers of investors participated in the annual tax sales, three groups dominated in Baltimore and other counties in the state.
More than two dozen states sell the right to collect unpaid property taxes and other municipal bills to investors, often banks and Wall Street hedge funds.
An investigation published in December by the Washington-based Center for Public Integrity showed how the lien buyers can tack on double-digit interest rates, legal fees and other costs that can add thousands of dollars to a homeowner's bill. In some states, lien holders can seize homes from those who fail to pay.
Though the tax-lien industry has long been controversial, Reiff's sworn declaration appears to be the first to mention a bank, or a tax-lien portfolio manager, in connection with allegations of criminal conduct in the bidding process.
Reiff stated that a firm formed with his law partners acted to "suppress competition for tax liens by refraining from full competitive bidding."
U.S. District Judge J. Frederick Motz in Baltimore unsealed Reiff's declaration and some other records at the request of the Huffington Post Investigative Fund, now part of the Center for Public Integrity.
Bids placed for BankAtlantic, Mooring Asset
Reiff said the firm had bid on behalf of several companies, including two subsidiaries of BankAtlantic Bancorp. called Heartwood 88 LLC and Sunrise Atlantic LLC. The Fort Lauderdale, Fla.-based bank, which has $4.5 billion in assets and 100 branches in Florida, has invested in tax liens in several states in recent years. Bank officials did not return calls seeking comment.
Reiff said his firm also placed bids for the Mooring Asset Group, a Virginia company that has managed tax lien investments for Bank of America Corp. Mooring also has managed a large portfolio of Florida tax liens that Bank of America sold last year in a securities deal.
Mooring is among the tax lien companies subpoenaed by a federal grand jury in New Jersey that is also investigating the industry. Mooring has denied any wrongdoing and said it is cooperating fully with the New Jersey investigation.
Reiff's sworn statement does not specify whether banks or corporate investors knew about the bidding collusion.
Mooring official Jim Meeks told the Center for Public Integrity that Reiff had represented his company, but he denied any knowledge of bid rigging. "This is a shocker to me," he said.
Meeks said: "We never conspired or colluded with anybody in these auctions," adding that the company had not heard from prosecutors. "We were never contacted regarding the case by the Department of Justice. They must have concluded that we were not involved," he said. Bank of America declined to comment.
Reiff and his partners, Anthony DeLaurentis and Richard Turer, were one of three investment groups that participated in the five-year scheme to dominate the tax lien auctions, according to prosecutors.
Other participants have pleaded guilty to bid rigging in the case. In May, Baltimore County attorney Harvey M. Nusbaum, 73, was sentenced to a year and a day in prison and an $800,000 fine. His partner, Jack W. Stollof, 75, was sentenced to 12 months of house arrest and an $800,000 fine.
A third man, Steven L. Berman, 53, received two years' probation and a $750,000 fine.
"Bid rigging is typically a clandestine effort made to line the pockets of unscrupulous businessmen at the expense of unsuspecting consumers — in this case, at the expense of homeowners and county and city governments," Justice Department prosecutors wrote in a sentencing memorandum about Nusbaum.
"In principle," prosecutors wrote, "bid rigging is no different from any other common theft of money or property. It is criminal fraud, pure and simple."
The unsealed records describe in detail how the well-financed investment groups illegally dominated the process in Maryland through collusion — and how they made millions of dollars off homeowners as a result.
Scheme aimed to limit auction price of liens
The groups, according to Reiff's statement, decided in advance which liens each would bid on.
The groups would either not bid on liens not assigned to them, or would submit intentionally low bids as a cover, he said. The scheme was designed to reduce the amount each would pay local governments for liens.
Once liens were purchased, the investors collected interest rates from homeowners of between 12 percent and 20 percent and legal fees and other charges.
"Attorneys' fees can run to thousands of dollars per lien and are not dependent on the amount of taxes or other fees owed by the homeowner," Reiff said.
Government prosecutors alleged that Nusbaum made $6 million or more in fees he charged homeowners to keep from losing their property.
In the unsealed documents, prosecutors cited the plight of Kevin Shoop, who was sued by Nusbaum over an unpaid tax bill. Nusbaum's office demanded $4,000 in legal fees to settle the matter. When Shoop contacted the law firm to try to work out a settlement, he was told, "You will pay," according to Shoop.
Prosecutors also cited the case of Laurie Gross, who owed $199.57 in back taxes on a property in Montgomery County. Nusbaum demanded that she pay $3,972 in fees to avoid foreclosure.
"Such homeowners, many of whom had no idea they owed taxes or water bills, did not object to paying their debt when they learned of it," prosecutors wrote. "They could hardly afford to pay attorneys' fees sometimes 1,000 percent more than their debts into the pocket of defendant only because he won the right to collect those attorneys' fees in rigged tax lien auctions."
Building on reporting by The Sun that began in 2007, the Huffington Post Investigative Fund found that nearly a dozen major banks and hedge funds — anticipating quick profits from homeowners who fell behind on property taxes — had quietly plowed hundreds of millions of dollars into the tax-lien industry, often by creating corporate aliases that obscured their identities from the public.
In many cases, homeowners who owed only a few hundred dollars in taxes or municipal bills saw their debt soar into thousands because of the fees and interest. A Baltimore woman lost the home that her family had owned for nearly three decades over what began as an unpaid water bill of $362, for instance.
Nilson, the city solicitor, said though he has no doubt the city government suffered financially, he has no plan to sue for damages. "Obviously, if your damages are guesstimates, then the feasibility of bringing a lawsuit goes down," he said. "We don't have unlimited resources."
With the annual May tax sale approaching, Nilson said he is focused on trying to ensure the integrity of the process. The city signed a consent agreement with Berman that barred him from taking part in city tax sales last year and this year. Nilson said the city is discussing similar agreements with others, including Reiff.
A temporary ban could wind up effectively becoming permanent, Nilson said: "Odds are that if they're out of the tax sale for four or five years, they're likely to stay out of it. They're likely to move on to other things."
This project was supported in part by the former Huffington Post Investigative Fund, which recently became part of the Center for Public Integrity, a nonprofit journalism center in Washington. Schulte is a former Sun reporter.