Landlord receives $28K tax break
POTTSTOWN >> A landlord who settled fraud charges with the Securities and Exchange Commission for nearly $7 million two years ago, has avoided more than $28,000 in interest payments to the borough and school district in a settlement on more than $180,000 in back taxes.
It all started last year when William B. Fretz appeared before borough council and said the borough’s enforcement of a state rule that kept him from getting occupancy permits for his properties because he owed back taxes was a catch-22, keeping him from catching up on those taxes.
Fretz told council the taxes owed on 173 and 175 N. Hanover St. and 534 High St. were due to the failures of a hired property manager, Brian Patrick, whose Affinity Property Management and Realty firm carved a path of destruction across the housing stock of both the borough and other municipalities several years ago.
In 2014, Patrick avoided jail
by pleading guilty to pocketing more than $30,000 owed to 10 rental property owners after he closed his business in 2013.
A year later, Fretz himself avoided jail as the result of a settlement the SEC reached with him and his partner, John “Jack” P. Freeman. Their investment advisory firm, Oaks-based Covenant Capital Management Partners, allegedly defrauded investors by using client’s money to prop up their company, according to the SEC.
As a result of the settlement, the two owed the SEC $6.8 million to be redistributed among the investors.
And, as the result of a settlement unanimously approved by the Pottstown School Board at the Jan. 23 meeting, Fretz cut $28,357.20 in interest payments off what he collectively owed the borough and school district in back taxes on those three properties.
What Fretz paid on Jan. 31 — the last day the settlement allowed the payment to be made — was $112,445.79 to the school district in principal and penalties, along with another $6,649 in interest, along with another $68,485.74 to the borough in combined principal, penalties and partial interest.
That means a $119,094.79-sized hole in Pottstown tax coffers was plugged — money other taxpayers would not have to make up in higher taxes.
But Fretz’s agreement with both the borough and the school district allowed him to pay just 25 percent of the interest accrued on the back taxes and penalties.
In the case of the school district, the total interest amounted to $26,576.64, according to Linda Adams, the district’s business manager.
Borough Manager Mark Flanders said the borough forgave $8,522.22 in interest and the school district forgave another $19,834.98 — a total break of $28,357.20 for Fretz.
The settlement was reached after borough council last year authorized the borough staff to craft a policy by which such settlements could me made for those caught in the vice created by Act 90.
That state law authorizes municipalities to withhold all kinds of permits and permissions from property owners who owe back taxes and fees.
Aimed primarily at landlords who own many properties, the idea behind it is to keep scofflaws who don’t pay their taxes and fees from continuing to do business at their other properties, thus creating an incentive for them to settle up.
Until Act 90 came along, Flanders said, municipalities had little leverage because all the penalty for non-payment of taxes focused on the property in question, not the property owner.
Holding the owners’ feet to the fire by withholding other permits they may need at other properties brought many of them to the payment window in borough hall, he said.
“When the borough began enforcing Act 90, we noticed a definite uptick in people coming in to pay their bills and settle up,” Flanders said.
Any property owner who comes in for a building permit, occupancy permit or other document necessary to make use of a property, must produce certification from the tax office that they are not in arrears, he explained.
In theory, this can be done across municipal lines, but Flanders said the state has not set up any central data-base to make that easy.
“Sure, if we become aware of a problem at another property in another municipality, we can check on it and withhold a permit, but we’re not going to go through and check every municipality in the state,” Flanders said.
But there may be a downside to constricting landlords’ cash flow, it leaves them less cash to pay up.
Fretz argued that the borough’s enforcement of that law actually prevented him from collecting income at those other properties he needed to pay the back taxes on the three governed by the settlement.
By the time he appeared at council last year, he had already lost possession of four properties in the 300 block of North Charlotte Street.
Flanders said there is a point at which officials have to make a choice.
“If the property goes to sheriff sale and the liens are cleared, we get nothing,” he said. “So you have to make a judgement call at some point about whether it’s better to get some money back than nothing.”
In the case of Fretz’s property, Flanders said he was determined that the borough would get the original amount owed, penalties and at least part of the interest.
“Ultimately, our primary responsibility to the taxpayers is to get as much of that bill paid as possible,” said Flanders. “Otherwise, that loss in revenue has to be picked up by everyone else.”
“When the borough began enforcing Act 90, we noticed a definite uptick in people coming in to pay their bills and settle up.”
Mark Flanders, Pottstown Borough Manager