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Another Fine Mess
by Jim Heaney, InvestigativePost.org
The city’s failure to collect Housing Court fines has let bad property owners off scot-free and left millions of dollars in potential revenue on the table
You can’t get away without paying your property taxes or garbage fee or even a parking ticket without City Hall coming after you.
Letting your property go to seed is another matter.
Judges in City Housing Court have imposed more than $22 million in fines since 2006 against some 1,470 property owners who ignored orders to repair building and health code violations. A vast majority have ignored the fines and gotten away with it, an Investigative Post inquiry has found.
Less than $800,000 in fines have been paid during that period—less than a nickel on the dollar. It’s not only costing the city money, but taken some of the bite out of efforts by inspectors to enforce the building code.
City Comptroller Mark Schroeder termed the Investigative Post’s findings “alarming” and “problematic” and said the city would have found the uncollected fine revenue “very, very helpful.”
City Court Judge Patrick Carney acknowledged “we have tens of millions of uncollected fines,” but nevertheless insisted the court is “as absolutely effective as we can possibly be.”
Both Carney and City Treasurer Michael Seaman downplayed the amount of unpaid fines, contending most of them are uncollectable because many owners have insulated themselves from legal liability.
But Seaman, responsible for the city collections process, was not aware until questioned by Investigative Post that the city has the legal authority to collect unpaid fines or that the proceeds went into city coffers. As a result, the city has not even attempted to initiate collection proceedings against delinquent owners once the court has filed a judgment against them.
“It’s not part of our City of Buffalo system,” he said.
The Investigative Post inquiry, based on Housing Court and City Hall documents and interviews with key city and court officials, found:
• The problem begin with disjointed records maintained by the city, the Erie County Clerk, and the Housing Court, which is a division of the state court system, that make it very difficult to track the information necessary to collect fines. The result, Carney said, “is a quagmire of numbers.”
• As a result, officials aren’t even sure how much in delinquent fines is owed. One set of records provided by the Housing Court shows $22 million in judgments have been filed against defendants who failed to pay fines since 2006. Other records provided by the court show the number is $12.9 million. Most officials are working off the assumption the $22 million figure is the correct one.
• There’s also discrepancy in how much in fine money has been collected. Data provided by the Housing Court showed $454,477 in fines were paid between 2006 and 2011. But city budget documents show a somewhat larger figure, $786,558. Either way, it’s a fraction of what was owed.
• Twenty-two defendants were fined more than $100,000 and none of them subsequently paid their fine, according to court officials. There is no systematic accounting payments made by defendants assessed smaller fines, but the amount of money turned over to the city suggests few payments were made.
• Carney maintained the court does a good job collecting fines from locally based property owners and that the problem primarily involves out of state owners. But an Investigative Post analysis shows the court filed $6.5 million in unpaid fines against owners listing a local business address.
• City officials maintain large fines, even those that go uncollected, have spurred most delinquent property owners to make repairs. But city records show that the owners of more than four in 10 properties cited for nonpayment eventually walk away from their buildings, prompting the city to foreclose on them.
In part because of these foreclosures, Seaman said as little as $1.1 million of the $22 million can be considered a candidate for collection.
Such is the cost of years of inaction.
Disjointed record keeping
Buffalo’s Housing Court is a busy place. Between 2,000 and 3,000 cases are brought against property owners each year for failing to correct building and health code violations. Most defendants make the repairs once they are hauled into court, but every year hundreds of property owners thumb their nose at the court by failing to make repairs. Some don’t even bother to show up for court.
Henry Nowak, who sat as Housing Court judge from 2003 through the end of 2010, often resorted to imposing large fines in an effort to compel recalcitrant owners to make the repairs. A judge can impose fines of up to $1,500 per violation, per day—which can quickly add up to more than the value of the property.
“When the fine exceeds the value of the property many times over, the judge was trying to make a strong statement to bring the owner into court to get his attention and to bring the building into compliance,” said Lou Petrucci, the city’s chief building inspector.
That was the case with 66 Elmer Avenue on the East Side. The house is worth $43,000, according to city tax assessors. But in 2008, Nowak slapped the owner, a trust established by Wachovia Bank after it had foreclosed on the house, fines totalling $975,000. The bank was fined $1,500 a day for nearly three months for its failure to to repair seven code violations.
A similar scenario played out with the house at 41 Schreck Avenue, the subject of the second-largest fine. The house is assessed at $35,600. In 2007, its North Carolina owner was fined $787,500 for failing to correct seven code violations over a two-month period.
The court usually gives defendants 30 days to pay. If they don’t, the court files a judgment, which enables the city to seek payment through a collections process.
Good luck tracking these cases.
Court records themselves are disjointed: Those that list fines aren’t necessarily linked with those that track payments. Records maintained by the County Clerk that track whether judgments have been satisfied don’t link with court records. A myriad of city records also stand alone.
“There’s no set of records that tracks all these things from beginning to end,” Carney said.
Added Seaman: “The problem is you have three independent systems that do not all work together.”
The inefficiency makes it difficult not only to track individual cases but to account for what defendants collectively owe or pay in fines. When pressed to explain the difference between records that show judgments totalling $22 million (no, wait, $12.9 million) and payments of some $785,000 (make that $455,000) officials are hard-pressed to explain the discrepancies.
City not diligent
The court washes its hands of cases once it files a judgment. Collections are left to the city. Seaman has operated under different assumptions, however.
Seaman contended the city doesn’t have the legal authority to go after deadbeat housing court defendants.
“I’m not sure we do. No, the answer is no,” he said.
Corporation Counsel Tim Ball offered a different opinion.
“The city does have the legal ability,” he said.
Seaman also said he only recently learned that Housing Court fines are directed to city coffers, declaring that he had operated under the assumption the money “was always a court revenue source.”
That’s simply not true.
Fines collected by the court are sent to the city’s general fund and their source is noted in the city’s annual budget.
The fine money, if collected, would have provided the city with a financial shot in the arm. Fines topped out at $6.5 million in 2008 and have averaged $3.7 million a year during Mayor Byron Brown’s tenure in office.
Challenge in collecting fines
Seaman and Carney contend the giant fine totals overstate what could have come to the city.
“A lot of these fines are really, totally uncollectable,” the judge said.
Carney said many delinquent property owners operate a limited liability corporations or under some other corporate structure whose assets are often limited to the value of what is sometimes almost worthless property. Compounding the problem is that many of these corporations are located downstate, out of state, or out of the country.
“You really don’t have any leverage,” he said.
Carney said it’s a different story with local owners. He rated the court’s effectiveness getting local owners to repair properties and pay fines as eight or nine on a scale of 10.
“Anybody who we can get to walk in here, we’re very effective,” he said.
An Investigative Post analysis shows many local owners don’t pay their fines, however.
Property owners listing a local address accounted for nearly half—some $6.5 million—of the $13.7 million in unpaid fines to which Investigative Post was able to attach a business address.
What’s more, the analysis shows that local property owners account for a substantial share of the 89 defendants against whom the court filed judgments after they failed to pay fines of $25,000 or more. Investigative Post established business addresses for 55 defendants, 20 of whom listed addresses in Western New York.
Little left to collect
Seaman said there is little of the $22 million in unpaid fines left to collect.
“I’m telling you the number is $1.146 [million] and going lower,” he said.
Indeed, a substantial portion of the $22 million—up to $9.4 million—has to be written off because the owners walked away from the properties and forced the city to foreclose on them. Another $1 million in fines involved properties in such bad shape the city had demolish them after taking title. Properties with unpaid fines of $6.5 million were sold to other owners and the court is usually reluctant to insist on payment as a condition of transferring the deed.
Seaman’s analysis also considered uncollectable $2.7 million in judgments filed against out-of-town owners.
“Out of town is very difficult to collect,” he contended.
Carney, who took over Housing Court in January 2011 after Nowak was elected to the state Supreme Court, isn’t a fan of using big fines as leverage. He instead prefers to issue bench warrants in an effort to force defendants to show up for court. Last year he issued 348 warrants, compared with an annual average of 217 issued by Nowak from 2006 to 2010.
“I find the arrest warrant is a lot more effective than the fine,” Carney said.
Problem is, the judge said he doesn’t know how many of the 348 warrants he issued were served on defendants, or how many showed for court. No such records are kept that he’s aware of.
City officials maintain that even unpaid fines can have their effect, by compelling property owners to make repairs.
“It has worked for most of the cases,” said Petrucci, the city’s chief building inspector.
The analysis done by Seaman’s office shows otherwise, however.
Of the 1,685 cases tracked, some dating back to Anthony Masiello’s final term as mayor, the city foreclosed on 723 of the properties. That’s 43 percent.
While maintaining property owners still fear the Housing Court, Petrucci acknowledges that a more effective collections system would help the city’s efforts to enforce the building code.
“If people realize that there is going to be a heavy fine after court and it they knew that fine would have some weight, yeah, it would be a positive,” he said.
Carney has initiated discussions with Seaman and other city officials in an effort to improve the collections process. That begins with synching information kept by the courts, city and county.
“What we’re trying to do now is consolidate all the information,” he said.
The judge estimated it will take six months do a year to cobble together a functioning system.
Seaman, meanwhile, hopes to determine precisely who he can go after through the collections process by the end of September.
“I need to identify what can actually go to a collections agency,” he said.
Jim Heaney is editor of Investigative Post, a nonprofit investigative reporting center focused on issues of importance to Buffalo and Western New York. Visit investigativepost.org daily for investigations, analyses, blog posts, and the latest from Tom Toles.blog comments powered by Disqus
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