Properties that the District government bought last February from developer Jeffrey N. Cohen in a complex $12.5 million Shaw area land deal were still encumbered last month with millions of dollars worth of liens that could endanger the city's investment, according to a report issued yesterday by D.C. Auditor Otis H. Troupe.
The report charges that Cohen, a close friend of Mayor Marion Barry, cited some liens but not others in four separate written agreements relating to the deal. In another section, the report asserts, "there was a knowing misrepresentation of fact in four different documents . . . . "
The report indicates that a title insurance company informed the city in 1984 of all outstanding liens. The District's "failure to require discharge of all liens against its property at settlement Feb. 1, 1985, suggests the possibility that the District deliberately intended to provide indirect funding to a close friend and political ally of the mayor . . . . "
Neither Cohen nor Barry could be reached for comment late yesterday after the report was issued.
A partnership controlled by Cohen received $11 million in the deal and according to the auditor the liens against the properties totaled nearly $11.6 million. Less than half of that amount had been paid off as of last month, the report said.
If Cohen fails to pay off the remaining debts, the D.C. government, which acquired six properties, including the former Children's Hospital site, in the unusual agreement, "could lose several project parcels valued at $6.2 million," according to the report.
If the debts are eventually settled, the District's failure to require that they be paid off at the time of purchase allows Cohen "to enrich himself by applying taxpayers' money to alternative investments . . . " until the debts are paid.
Disclosure of the deal between the city and Cohen was criticized almost immediately by some Shaw community activists and City Council member Frank A. Smith Jr. (D-Ward 1), whose ward includes the Shaw area, when it was revealed that the city closed the deal without first conducting its own appraisal of the properties. Instead, it relied on an appraisal prepared for Cohen's partnership in 1984 by a private real estate appraiser.
Smith called on Troupe to conduct an audit of the transaction, but in a letter yesterday accompanying his report, Troupe said that "despite numerous requests," his office was unable to obtain the necessary information from either Barry or Curtis McClinton, the deputy mayor for economic development who was the city's primary negotiator in the deal. Troupe wrote that he had "stressed this matter in not less than three telephone conversations with the mayor" in July and August.
Instead Troupe used public documents and issued what he called "a letter report" and found what he called "a major inconsistency" in the financing and conveyance of the property.
The city, in an effort to spur redevelopment in the run-down Shaw neighborhood, borrowed $11 million from a consortium of banks and gave that money to a partnership controlled by Cohen to purchase the properties.
In February 1986, the city will be required to repay the banks, with interest expected to total $1.5 million. Meanwhile, Cohen and a nonprofit community group are to develop the parcels.
According to Troupe's report, on the Feb. 1 settlement date, only one lien on the property, for $80,000, out of a total of $11.6 million in liens, had been paid off. Since then, according to the report, another $4.8 million in liens has been paid off.
However, as of Aug. 22, nearly $6.8 million in liens remained unpaid -- a figure that includes one debt for $4.4 million that was due in 1982. The report does not identify the kinds of outstanding liens or to whom they are owed.
The audit team, the report states, "has been unable to locate any other records with the Recorder of Deeds indicating" that this remaining $6.8 million has been paid off.
Among the properties included in the deal are sites of the former Manhattan Laundry, the Lincoln Theatre and Thompson's Dairy.