Plots sold for cheap to sham nonprofit
Group paid $1,000 for foreclosed properties to sell for huge profits
A sham nonprofit group took advantage of lax oversight by city officials to repeatedly purchase tax foreclosed properties for $1,000, a Milwaukee Journal Sentinel investigation has found.
Inner City Development Project Inc. — a group that city records show falsely claimed to be certified by the IRS as a nonprofit — then sold several of the properties for quick gains, in one case making $44,000 on a north side house it bought one week earlier.
Gathan Anderson, a disgraced exreal estate broker, was involved in at least six of the sales shortly after the city sold the properties to Inner City Development, deeds show.
The city routinely charges nonprofit organizations
$1,000 for properties it seized through tax foreclosures with the commitment that the group will fix them up.
The Journal Sentinel’s discovery of the sales, which are documented in City Hall and courthouse records — and concerns about other buyers trying to game the system — has sparked frustration and anger among city officials.
“Keeping ahead of the criminal element is a full-time job,” said Preston Cole, commissioner of the city Department of Neighborhood Services, which inspects foreclosed properties before and after they are sold.
“I don’t like being victimized. I don’t like people being victimized.”
The Department of City Development, also a part of Mayor Tom Barrett’s administration, vets potential buyers and sells the tax foreclosed properties.
“Clearly there was a problem and we’ve taken steps to address it,” Barrett said in a statement, adding: “When people attempt to exploit our good intentions, we will continue to respond and hold them accountable.”
At issue are at least seven properties that deeds show were purchased by Inner City Development, once an active community group launched in the 1960s.
Anderson surrendered his real estate license under regulatory pressure in 2014.
And the city said it blacklisted Anderson, 44, roughly three years ago and refused to sell properties to companies connected to him.
But Anderson was a key player in the quick resale in six of the seven deals found by the Journal Sentinel.
For example, Anderson signed a deed selling a house in the 1900 block of W. Purdue St. for $45,000 just one week after the city sold it to Inner City Development.
There were red flags in public records that city officials missed when they sold the Purdue St. house to Inner City Development.
For one thing, the IRS revoked Inner City Development’s tax-exempt status in February 2015 — information that can quickly be found online at irs.gov/charities-non-profits. Instead, the city took the group’s word — backed up with a 1972 IRS letter — that it was a nonprofit.
Anderson’s name also appears repeatedly on documents related to the group.
In 2010, Anderson’s name appeared on corporate paperwork filed with the state. Four years later, it was listed on two property deeds as an “authorized agent” and in another contract as the person who drafted a sales agreement.
Recorded deeds are filed at the Milwaukee County Register of Deeds office in the courthouse, located about a mile west of City Hall.
The Purdue St. house was among three homes sold to Inner City Development on April 25, 2016. All three were then sold less than one month later by Anderson — who again signed the deeds as an “authorized agent” for Inner City Development.
Letitia Holloway, who bought a house in the 2500 block of N. 33rd St. from Inner City, said she was shocked to learn the value had jumped by $17,000 in the five months records show it was owned by the group.
“No way,” Holloway said. “They didn’t even do the work that they said they would do” prior to the sale.
Holloway said she dealt with Anderson when she bought the house in 2014.
One month before Holloway purchased the house, records show city inspectors cited the property for 11 building code violations, including missing screens and storm windows. A city estimate prepared in December 2013 said it would cost $7,250 to bring the house up to code.
Inner City agreed when it purchased the property that it would make the repairs within a time frame set by the Department of Neighborhood Services.
The Department of City Development is able to repossess a property if the home is not brought up to code, according the the standard deed used when the properties were sold to the group. Officials were aware of only one instance where a property was taken back by the city in the nearly 10 years it’s been offering $1,000 homes to nonprofits.
In Holloway’s case, inspectors dismissed the violations shortly before she purchased the house and reissued them to her — standard procedure when a property is sold. Holloway made the repairs and brought the property up to code, records show.
Records show profits
The real estate ventures appear to have been profitable for the so-called nonprofit.
Inner City Development’s checking account ballooned from $7,200 in 2013 to more than $162,000 in 2016, city documents released in response to an open records request show. The documents were used by the group to show it had the cash needed to bring the properties up to code.
Once a key player in the local war on poverty and a driving force on civil rights, Inner City Development became much less active in recent years. The group lost its tax-exempt status in 2015 when it failed to file required financial documents with the IRS.
State records show the group hasn’t filed income tax returns in at least four years.
Amun Bordain is listed as a board member and the contact person on the group’s annual report filed with the state. Documents filed with the state show Anderson was on Inner City Development’s board in 2010 and was listed as an officer in June 2016, but his name was not on an annual report filed last week.
Bordain and Anderson did not respond to phone calls or emails seeking comment.
Anderson was arrested on suspicion of fraud in late September and spent two days in jail, but charges have not been filed. The investigation is continuing; sources say it involves numerous property sales.
Bordain was the contact person for Inner City Development when it purchased the three $1,000 properties from the city in 2016 — after the group had lost its tax-exempt status, according to records and city officials.
Officials with the Department of City Development acknowledged they had been duped by Inner City Development on more than one occasion and say they have since tightened their procedures. Department officials reported the group to authorities when they became suspicious.
The department is taking more steps to detect fraud, including checking the IRS website to see if an organization really is tax exempt, said Jeff Fleming, spokesman for the department.
More houses, more fraudsters?
Milwaukee officials believe attempts by fraudsters to buy tax-foreclosed properties have increased in recent years due to the jump in properties being offered for sale by the city.
The number of properties taken by the city through tax foreclosures nearly doubled from 532 in 2010 to 937 in 2015, before dropping to 461 last year, records show.
The result: A group of new players seeking to buy homes for the $1,000 price tag.
“We were in a whole new realm of nonprofit organizations,” said Martha Brown, deputy commissioner of the Department of City Development. She said that in past years the city dealt mainly with established groups, such Habitat for Humanity and ACTS Housing.
The city is not the only party to fall victim.
Last month, the Journal Sentinel exposed two cases where unsuspecting individuals paid Anderson to buy properties that neither he nor Inner City Development owned.
In addition, a Milwaukee man has sued Inner City Development and Anderson charging they twice sold a home the man owned even though he did not authorize the sales, or know they had occurred.
In all of the cases, Anderson and Inner City Development sold the properties using quit-claim deeds. In quitclaim transactions, people sell any interest in the property they may or may not have.
Amy Turim, real estate development services manager for the Department of City Development, said she regularly turns down deals when she suspects the buyers are unscrupulous. Often, she said, she sends names of questionable players to the city attorney or other authorities.
For example, Turim said she once refused to sell a city-owned property to Ballerz Condoms LLC, because Anderson was listed as the Milwaukee-based LLC’s registered agent.
Cole, the neighborhood services commissioner, said it’s time for the city to increase its enforcement efforts when selling properties.
“Knowing what we know now, I think the city should pivot and pay closer attention to what may be a criminal element lurking in properties where people want to buy,” Cole said. “Now we realize that there are criminals out there trying to gyp the system.”