Bidder with a ‘checkered past’

Bidder with a ‘checkered past’

Legal woes don’t block firm’s activity in D.C.

Published on September 9, 2013

For Heartwood, the trouble began in Florida in May 2002, when state law enforcement agents accused the company of rigging tax auctions on the Gulf Coast.

The second case came five years later, when the firm was again accused of thwarting auctions in a civil racketeering lawsuit, this time in Chicago.

By then, Heartwood was firmly entrenched in the District’s tax lien program, spending millions on liens and moving to take dozens of houses through foreclosure in every corner of the city.

Above: The former headquarters of Heartwood in Fort Lauderdale, Fla.

 

HOMES FOR THE TAKING

LIENS, LOSS AND PROFITEERS

Back to part 2: As federal agents investigated a sweeping bid-rigging scheme at Maryland’s tax auctions, some of those same suspects were in the District, engaging in dozens of rounds of unusual bidding.

The Florida company’s involvement in the District underscores the ease in which investors with troubled track records can take part in a program that has cost struggling families their homes, records and interviews show.

Tax office officials say the law doesn’t allow them to exclude bidders who have been in trouble in other places and that Heartwood has not participated in a District auction since 2007.

But the liens won by the firm affected families for years, with the company’s foreclosure cases lasting into 2012.

A leading official in the tax lien industry who has watched Heartwood and other companies for years said the District had a responsibility to probe Heartwood’s record.

“Why do I want my local government dealing with people that have that kind of checkered past?” said Howard Liggett, a former Florida tax collector who once ran the National Tax Lien Association, the industry’s trade group. “The fallout can impact real people, real homes.”

A representative from Heartwood declined to address questions about past practices in Florida and elsewhere but noted the company is no longer buying tax liens in the District and Maryland.

The Florida case began in 1998, when local tax officials became suspicious that Heartwood, then a subsidiary of Florida’s BankAtlantic Bancorp, was secretly meeting with other firms outside the bidding room to decide who would win liens. Then-Florida Attorney General Bob Butterworth stepped in, filing a civil case against 22 companies.

“You go after them. You’ve got to,” Butterworth recently told The Post. “The abuse is totally unconscionable.”

In 2002, Heartwood, denying that it broke the law, agreed to settle the case by paying $120,000. The firm also agreed to train its employees about proper bidding practices, court records show.

But just five years later, Heartwood was sued again, this time by two competitors in Chicago. The federal lawsuit alleged that groups of bidders struck secret agreements to work together, creating companies to pack the auction room with bidders to buy up as many liens as possible.

Heartwood and other defendants agreed two years ago to pay a total of $7 million to settle the civil case, records show.

Chicago wasn’t the last time Heartwood would find itself in the center of a bid-rigging controversy.

In 2010, a lawyer for Heartwood, John Reiff, admitted that he and his law partners had rigged auctions in some of Maryland’s largest counties in what became a sweeping criminal case.

“These things are out of view. No one knows what’s going on except for the players.”

—Illinois State Sen. William Haine

Though reports of the federal investigation became public in 2007, District tax officials acknowledged that they’ve never gone back to examine Heartwood’s practices in the city’s auctions.

In all, the company spent $3 million on liens in the District between 2005 and 2007 and foreclosed on 40 properties in recent years — more than any other investor in the city.

In a written statement, the D.C. Office of Tax and Revenue said officials have taken steps to ensure “the integrity of the tax sale process.”

But the tax office doesn’t keep detailed records of bidding, a practice used in other cities so officials can check for unusual behavior. The agency only tracks investors who win liens, not who bid against them.

The tax office also doesn’t videotape its auctions, a tool that helped state agents in Florida build the case against Heartwood.

D.C. tax officials said they are not required by law to videotape auctions and were unaware of any other places that do it.

But the Post found other jurisdictions have relied on videotaping as a safeguard for years, including those in Maryland. Baltimore City, Howard County and Anne Arundel County videotaped auctions until they went online.

Outside the region, lawmakers in Illinois, prompted by a criminal bid-rigging scandal in Madison County, passed legislation just two years ago mandating that counties videotape live auctions. State Sen. William Haine said he sponsored the bill because he thought videotaping was one of the best ways to spot suspicious bidding.

“These things are out of view,” he said. “No one knows what’s going on except for the players.”

Jennifer Jenkins contributed to this report.

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Suspicious bidding

Part 2 — Amid investigation into a bid-rigging scheme at Maryland’s tax auctions, some of the suspects engaged in unusual bidding in D.C.

Left with nothing

Part 1 — The Post finds that out-of-town investors buy D.C. tax liens and, in some cases, move to seize homes.

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