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MBBA: The Aftermath
by Justin Sondel
The bad deal a state agency struck with the city eight years ago continues to have repercussions for homeowners and neighborhoods here
Gutters droop, windows are smashed, and the plywood covering the side door is split in two at 186 Paderewski Drive. Leaves and garbage litter the floor of the gated entranceway of the storefront building at 754 Filmore Avenue.
The tall, skinny house that stands at 281 Parkdale Avenue is in good shape. Painter’s plastic hangs in the bay window facing the street, but neighbors say that they haven’t seen anyone in the home since last summer.
All three buildings, and 1,496 others in Buffalo, were tied to a deal struck between New York State and upstate cities in an effort relieve the municipalities of burdensome tax liens from unpaid property taxes, water bills and garbage bills.
In 2003 the Municipal Bond Banking Agency, a subsidiary of New York State’s Home and Community Renewal agency, struck a deal with four cities: Buffalo, Syracuse, Binghamton, and Plattsburgh. The state paid the cities for their delinquent tax liens. For its part, Buffalo sold 1,499 liens for $4.6 million. There were 3,521 liens bought in total with the four cities receiving $13.9 million, according to a private placement memorandum acquired by Artvoice from the agency through a Freedom of Information Law request.
The cities sold the liens to a Delaware statutory trust set up by the agency, then were bundled and sold as bonds to outside investors, according to the memorandum. The bonds were rated AAA and A by Standard and Poor’s, a financial services company.
The state planned to recoup the money by either pressuring homeowners into catching up on their taxes, water bills, or garbage bills by threatening foreclosure, or by carrying out the foreclosure and selling the properties at a tax sale auction.
Artvoice visited 40 buildings that had court actions related to foreclosure tied to them as a result of this deal. Of those buildings, four were occupied, five were vacant and in good shape, 10 were standing but ready for the bulldozer, and 21 had been demolished.
The cities, unable to work towards collecting on the tax liens due to a lack of resources, got money up front and relied on the state to pursue all of the legal proceedings and collection efforts, said Joy Willig, a member of MBBA’s executive staff who joined the agency as the deal was in the midst of being unwound.
The state then subcontracted the collection and foreclosure responsibilities. They hired the Connecticut-based collections firm JER Revenue Services, LLC to put the pressure on taxpayers to catch up on their bills. The company was also charged with the responsibility of holding any foreclosure sales and maintaining any properties that the state foreclosed on that remained unoccupied.
Employees of JER Revenue Services did not return phone calls requesting an interview.
Rich Tobe, now an adjunct instructor of law at the University at Buffalo, was the commissioner of economic development, inspections, and permit services while the city was working with the state to unravel the tax lien deal.
Tobe came into office with Mayor Byron Brown’s administration in 2006 and started to hear concerns from community leaders later that year regarding vacant homes owned by the state agency.
“By then the situation had become completely untenable,” Tobe said.
City inspectors were avoiding doing anything to houses attached to the MBBA tax lien deal and he wasn’t sure why, he said.
“It didn’t go to housing court,” Tobe said. “It didn’t get on the foreclosure list, it didn’t get an emergency demolition.”
The city was operating under the assumption that they couldn’t touch the properties because they were tied to bonds that the state had issued, but that wasn’t part of the deal, Tobe said.
Members of People United for Sustainable Housing, a housing rights advocacy group, began painting an image of then Governer George Pataki’s face on the plywood that covered the entrances to derelict houses controlled by JER and the agency in the city’s West Side in an effort to pressure the city and state into maintaining the state-owned vacant houses.
Tobe started to order emergency demolitions on MBBA leveraged properties that were beyond repair, he said.
“I thought we had the power to do it and they never contested it,” Tobe said.
Tobe tried to charge JER with code violations but the company avoided taking deed to the houses to ensure that they wouldn’t become responsible for maintenance. The homeowners weren’t keeping up on maintenance because they felt that losing the house was imminent, he said.
“We knew that there were people caught in a limbo,” Tobe said. “We didn’t know how many. We knew there would be massive disinvestment because nobody would invest in a property that they lost or were about to lose.”
To further complicate the situation the City of Buffalo started to collect taxes again on MBBA properties the following year.
“The city never agreed to subsequent action with the liens,” Tobe said. “It was only past due ones.”
The way that Buffalo’s tax law is written, newer liens get paid before older liens. So, any money that came in, either through the homeowner making payments or through a foreclosure and tax sale, would be used to repay the city’s liens in full before JER, the MBBA, and, ultimately, the bondholders would ever see any money.
“MBBA is suddenly in a position, or JER, in which they’re are not going to get their money back,” Tobe said.
The state realized that they were not going to be able to keep up with the bond disbursements and that they were going to have to dip into the reserve funds of the Delaware Trust that was linked to the bonds. This requires the bond issuer to notify the bondholders that the most recent disbursement has come from the reserve funds.
“When it went belly up the people who held the bonds went ballistic because they believed that they were told no risk and they have a letter from Standard and Poor’s that says so,” Tobe said.
The bondholders had bought the AAA rated bonds, the highest rating available, to fill out the “safe bet” section of their portfolios: $11.7 million worth of the bonds were rated AAA and $3.4 million worth of bonds were rated A, according to the private placement memorandum.
“They acquired big-time Wall street counsel and they intended to sue us all,” Tobe said. “They were claiming that we had committed an act of fraud on the investors.”
The city was very clear in the prospectus that there was substantial risk tied to the properties, according to Tobe.
“There were no factual errors in what Buffalo had said about its properties, and it was full of warnings,” he said.
Finally the state decided that it was time to admit defeat.
“Time went on and it was clear that the amount that MBBA was counting on recouping from selling, from the liens, wasn’t going to be enough to pay the bond holders,” Willig said. “And so the trust was unwound, the bond holders were paid off, and the right to foreclose on those liens was returned to the city.”
Priscilla Almadovar, then the executive director of the Housing Finance Agency, a state agency that has since evolved into the Homes and Community Renewal agency, had to work out a plan to unravel the deal.
Almadovar did not respond to requests for an interview. She, like Tobe and many of the people involved from both the financial institutions and the state and municipal agencies, was not involved in the development of the deal. She was charged with the task of dismantling it in a way that was fair to the bondholders, the taxpayers and the cities.
In the end the MBBA, HFA, and Standard and Poor’s signed off on a deal with the bondholders but the cities refused. The deal went ahead without the cities, Tobe said.
In order for the deal to work the state needed the cities to take back the liens. The city was able to use this as a bargaining chip and in exchange for reclaiming the liens Tobe and Assemblyman Sam Hoyt got the state to set up Block By Block, a $3 million fund designated for housing rehabilitation, Tobe said.
While houses around the city fell into disrepair over the five years that it took for the deal to be struck and then dissolved, the city gained a total of $7 million in funding.
As a result of the deal, any foreclosure proceedings or lis pendens that were filed with the county were vacated, a process that stops all court actions. Any judgment of foreclosure and sale granted was vacated, returning the home to the original owner.
Sherree Meadows is an attorney for the not-for-profit Legal Aid Bureau of Buffalo, an agency that provides counsel people who can’t afford a lawyer.
Recently she took on a client, Anthony Gadley, who thought that he had lost his childhood home in 2007, owing over $17,000 in back taxes. Gadley’s home, which he inherited from his mother, on the densely populated and well-kept Midway Avenue, was one of the houses sought by the MBBA.
Gadley, and any other homeowner who had a lien tied into this deal, was denied the opportunity to work out a repayment plan with the city, an option normally afforded to taxpayers every fall at the city’s in-rem tax auction, Meadows said.
An order of judgement of foreclosure and sale was granted in March 2005, according to court documents. Gadley, unlike many city homeowners going through foreclosure proceedings, continued to stay in the house.
He received a letter in August 2006 from Phillips Lytle, the law firm that handled a large amount of the MBBA tax lien trust litigation, telling him to “make every effort to move out of the premises by the completion of the public sale.”
Gadley removed all of his belongings from the house where he grew up on October 10 and 11, 2006, Meadows said.
The house was sold the next day by John Nuchereno, a court-appointed referee, to the highest bidder: the MBBA, according to foreclosure and tax sale documents.
The house sat empty while JER tried to find a buyer. There was no interest.
Then, when the deal began to unwind, the MBBA filed for a vacation of judgement of foreclosure and sale on every house on which they had foreclosed in order to return the tax liens to the city.
By law all parties involved in the court action, including the original homeowner, who will once again be responsible for the house, need to be properly served notification for a vacation of foreclosure of judgement and sale.
“They served the house they knew, or should have known, to be vacant,” Meadows said. “So, in effect, they gave no notice. [Gadley] was never able to challenge them vacating this.”
In court the city, county, and MBBA signed off on the vacation of foreclosure and sale without Gadley present. The person with the most at stake in the decision to vacate the foreclosure and sale was never aware of the action, Meadows said.
And so the house sat, once again in Anthony Gadley’s name, though he had no idea that it was his.
Then, in August and September 2008, city inspectors cited the house for multiple code violations.
Gadley never showed up for court because letters notifying him of his court date were sent to the house on Midway.
Housing court used a computer program that cross-references drivers licenses, bills, and legal records to come up with possible addresses and phone numbers, to find him. Once they located him, Gadley showed up to housing court to answer to code violations.
In court Gadley was told that city inspectors had deemed the house ready for the wrecking ball, a process that would cost him another $14,000 on top of the delinquent tax liens, for which he was once again liable.
Gadley went back to his home to see for himself the conditions that the inspectors had described. The place where all his boyhood memories had been made was now nothing more than a shell of a home with an overgrown, trash-strewn yard. Copper miners, thieves who raid vacant homes and new construction sites, had taken most of the metal inside. Neighbors said that local kids were using the house as a party spot.
The house came down in March 2011. When the demolition crew had completely dismantled it only three small pieces of metal were left, not even enough to fetch $10 at the scrap yard.
In April Judge Patrick Carney dismissed the demolition judgment that Gadley was facing, freeing him of the $14,000 debt for the demolition costs. He still owns and is responsible for the empty lot.
Judge Carney has had several cases come before him in housing court with houses linked to the MBBA tax lien deal since taking over as housing court judge in January, and will have many more as city inspectors continue to hand out citations.
Carney doesn’t understand why housing court is able to find homeowners but the MBBA was not, he said
“I mean, it really falls onto housing court to be the one that finds these people, locates these people?” Carney said.
The fact that the city was party to the deal to begin with and that it never had to repay the money that it received from the state gives reason for Carney to dismiss cases linked to the MBBA deal, he said.
“I would be disinclined to enforce the city’s judgement of demolition through any court,” Carney said. “You don’t get paid twice.”blog comments powered by Disqus
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