Landlords try to keep identities secret in cat-and-mouse game
Elijah Mohammad Rashaed, a major central city-landlord with a trail of code violations, court fines and lawsuits, has long frustrated Milwaukee building inspectors and creditors with a dizzying array of companies created to run some 180 rental properties.
Consider just one of those companies, Second Property Development LLC.
The company, created in 2008, was fined $3,080 in municipal court last year because a house it owned in the 2000 block of W. Hopkins St. had been vacant for more than four years and racked up 18 building code violations. Neither the fine nor a delinquent $4,150 property tax bill has been paid.
All told, Second Property Development LLC — one of at least 50 companies linked to Rashaed — owes about $23,500 in municipal court fines issued for building code violations and $58,000 in delinquent property taxes.
When the other companies linked to Rashaed are factored in, the total owed is about $72,000 in court fines and at least $368,000 in delinquent property taxes, a Milwaukee Journal Sentinel investigation found.
All of the companies are organized as limited liability companies, or LLCs, a setup that allows owners to keep their identities secret and protect personal assets from liabilities incurred by their businesses. In other words, the owners of an LLC do not risk losing the homes they live in if their business goes under or runs up huge debt.
Rashaed and other landlords are routinely using LLCs to avoid paying fines incurred for renting out substandard, unsafe housing or for violating ordinances aimed at preserving neighborhoods.
In all, LLCs owed the city nearly $3 million in past due fines for building code violations, as of Nov. 7. At least $9 million more is owed in delinquent property taxes. The fines, involving 777 LLCs, were imposed in 1,927 court cases dating to 2004.
Yet the city does not go after Rashaed — or those behind other LLCs that own problem-plagued housing — personally to collect the money. City and court officials say it's difficult to determine true ownership and, if they could, those behind the LLCs are protected by law.
But experts say there are ways to hold landlords accountable.
"The law is not intended to protect abusive landlords," said Joseph Boucher, a Madison attorney who helped lead the State Bar of Wisconsin committee behind the state law on such entities. Boucher argued that a judge could be persuaded to allow the city to go after an LLC owner's personal assets.
"When people use it to screw people over, you could pierce the veil" of protection, Boucher said.
To April Hartman, an attorney for Legal Action of Wisconsin, an organization that often represents tenants in disputes, the use of LLCs gives the landlords an unfair advantage.
"You have these incredibly low-income people who are held responsible for every little thing," she said. "Then you have these landlords who could just hide behind these LLCs.
"It's a mess — it’s a real mess."
Designed to encourage risk
Limited liability companies originated in Germany in the 1890s, but the concept didn't come to the United States until 1977 when Wyoming enacted a law to create them, said Mark Hinkston, a Racine lawyer who has written about LLCs. By 1996, every state had some form of LLC law; Wisconsin's took effect in 1994.
The idea behind LLCs is to encourage entrepreneurs to take risks and grow businesses without losing everything they own.
"We wanted people to be able to form business entities to reduce their risk," Boucher said. "Just like the big boys."
Under the law, the LLC itself is not taxed. Rather the tax obligations from profits or losses are passed on to the LLC owners.
An LLC can be created online for a fee of $130. As of Oct. 31, there were 283,731 LLCs based in Wisconsin, up 40% since the end of 2011, according to the state Department of Financial Institutions.
To be sure, the vast majority of LLCs operate above board, and experts say simply having ownership in numerous companies isn't necessarily a red flag.
State law requires an LLC to have an address where a court summons can be served and the name of a person who, as registered agent, can receive the summons. In practice, it can become a virtually impossible chase, say city officials, process servers and building inspectors.
"It’s a nightmare," said Les Johns, a private investigator and process server. "Some of these guys have a different LLC for each property. They use fake address, fake names ... they use a post office as their address."
In October, the city attorney's office filed a $1.25 million racketeering lawsuit in civil court against veteran landlord Mohammad Choudry. But that only came after a Journal Sentinel investigation exposed how he and others game the system by delaying payment of fines and taxes, run properties into the ground, then abandon the homes and their tax burdens, even as they pay cash to buy more properties at the weekly sheriff's sale of foreclosed properties.
The lawsuit alleges Choudry used fake identities and straw buyers, and failed to publicly file titles of properties his LLCs purchased, in order to prevent him from being legally linked to the rental properties — many of which faced code violations or had been condemned.
In a recent court hearing, Choudry repeatedly asserted his Fifth Amendment right against self-incrimination when asked about his ownership stake in various LLCs. It marked the first time the city took such an aggressive approach.
"We’re looking at it beyond a collection action," said Adam Stephens, an assistant city attorney. "It’s a stop-a-behavior effort."
Stephens noted that it took "an enormous amount of time" to build the case against Choudry.
In the space of several weeks — using records from the courts, state and even the city itself — the Journal Sentinel was able to establish connections between scores of properties that have had problems and their owners.
Consider a north side apartment building once owned by JHH Enterprises LLC that was briefly boarded up by the Department of Neighborhood Services in 2011. The building was sold this year after foreclosure proceedings were started.
The Journal Sentinel traced ownership of JHH to James H. Herrick, co-head of Global Trading at Robert W. Baird & Co. Inc. His attorney confirmed Herrick was an owner of the LLC.
In November, four LLCs tied to Herrick owed $3,160 in court fines and $156,353 in delinquent property taxes on 10 properties. Herrick, who lives in a $1.1 million home in River Hills, is listed as an owner, manager and/or organizer of the LLCs on numerous documents filed with the state.
Officials in the city attorney's office, the Department of Neighborhood Services and municipal court all told the Journal Sentinel they had never heard of him.
Special section: Landlord Games
Similarly, city and court officials were unaware that Devin Harris, a University of Wisconsin basketball star who now plays for the Dallas Mavericks, used his Divine Momentum LLC to buy about 60 central-city properties that racked up more than $200,000 in fines and delinquent taxes until the Journal Sentinel disclosed the information in April. All but $1,665 in fines have since been paid.
In the case of Herrick, $136,175 in delinquent taxes were paid in November after the Journal Sentinel repeatedly attempted to question him about his connection to the properties.
'It's not that complicated'
City officials say the only way to get to the owner of an LLC is to "pierce the corporate veil" of the company. In order to meet that legal standard, creditors would have to prove the company is effectively the same as the owner and was created to commit fraud.
Private attorneys say it isn't that hard.
"The key is to follow the money in order to determine how to best get it," said Michael Polsky, a Milwaukee attorney who frequently works as a receiver and needs to chase down LLCs on behalf of creditors. "You may be able to follow payment to owners or third parties ... that were made to defraud creditors."
Boucher, the Madison lawyer who helped write the LLC law, agreed the city could readily go after an owner.
"It's not that complicated," he said. "You sue the guy and prove he's the owner.”
The proof can come during a deposition, when an individual is required to answer questions under oath.
"Now you've got him testifying with perjury potential,” said Boucher.
In the case of Rashaed, much of that work has already been done.
Last year, the landlord sued two lawyers at Legal Action of Wisconsin, alleging they abused the legal process when they filed a lawsuit in a rent dispute against both Rashaed and Fourth Property Development LLC.
"Rashaed is not the owner or manager of the property," stated the lawsuit filed by David Halbrooks, a former Milwaukee municipal judge who now represents Rashaed. "The property is owned by Fourth Property Development LLC. Rashaed serves only as the registered agent for purposes of service."
Once the lawsuit against Legal Action went forward, its lawyers were able to twice question Rashaed under oath in depositions.
The hearings were contentious affairs, with Rashaed quarreling with attorneys questioning him, refusing to answer some questions and offering curt answers to others.
Asked where he kept a list of properties owned by Fourth Property Development, Rashaed said he didn't remember. Asked where he would look for a list of the properties, he responded: "I think I start (by) looking inside my car first."
However, the deposition shows Rashaed eventually listed 14 LLCs, including Second Property, in which he said he was the sole owner. Municipal court records show six of those LLCs owe more than $65,000 in fines for building code violations.
'They're rip-off artists'
Stephens, the assistant city attorney, and presiding Municipal Court Judge Phillip Chavez contend that just knowing who is behind an LLC isn't enough for the city to start a collection action against the owners.
"Members who make up that LLC cannot legally be held accountable," Chavez said in an email. "It does not matter whether or not those members are known."
Stephens noted the reason police in 2005 were able to arrest Timothy Brophy, a Sussex man once dubbed a "slumlord" by city officials, was that he kept some of his properties in his name, instead of using only LLCs. At the time, Brophy owed $70,000 in fines.
"That was his mistake," Stephens said.
Even if the city succeeds in breaking the corporate protection, officials with Harris & Harris — the municipal court's collection agency — maintain there is little chance of collecting the debt.
"These guys are experts at hiding their assets even when you pierce the veil," said Arnie Harris, president of the firm, which receives up to 25% of the debts it collects.
"They're not necessarily collectible," he said. "They're rip-off artists."
Outside attorneys countered that courts are showing an openness to allowing creditors to collect from LLC owners.
"A (LLC) member or manager may become personally liable by his/her own acts or conduct," said Hinkston, the Racine attorney. "The courts have said you can’t hide behind the corporate veil of the LLC."
For example, Hinkston said, courts have allowed individuals whose companies have violated environmental, pharmaceutical or building codes to be held personally responsible.
He cited a 1998 state appellate court decision in which the three-judge panel reinstated building code fines against Neal Mohammand, who was listed on city paperwork as the "operator" of the property. That is, the person responsible for the management of the property. Mohammand argued that as the operator, he was not liable for the $2,064 fine — the owner of the LLC was. The municipal court agreed.
The city appealed and the decision was overturned.
"An operator of a building may be subject to liability under the statute because an operator, by definition, is one 'who rents to another or others or has charge, care or control of a building or part thereof,'" the decision said. "It is reasonable and consistent with the enforcement of the building code for a municipality to impose liability upon a person who has control of the building."
Stephens says that door was closed this year under a new state law that prevents municipalities from requiring owners to list an operator responsible for the property. State Sen. Frank Lasee, a De Pere Republican, was the key sponsor of the bill.
Boucher, who has written articles that are cited in the state LLC statute, offered to volunteer his time to research legal issues if the city opted to go after bad landlords who use the LLC law to shield themselves and their assets.
"I don't want to see the taxpayers or anybody getting ripped off," Boucher said.
A familiar face at the Courthouse
Rashaed, 47, formerly known as Dennis Bell, has long been one of the most notorious landlords in the central city.
In 2007, he was charged in a criminal complaint with misdemeanor battery for chasing a city building inspector out of a property on N. Teutonia Ave. and punching the inspector in the face. He pleaded no contest to disorderly conduct and was fined $200.
In April, 39 of his properties were being inspected by the city every month because he failed to make repairs ordered by the Department of Neighborhood Services. In October, 11 properties remained on the increased-inspection list.
Rashaed and his LLCs are well-known in the Milwaukee County Courthouse, both as plaintiffs filing eviction suits and as defendants in suits filed by tenants who are often represented by Legal Aid or Legal Action.
In July, the Legal Aid Society sued TYTY Property Investments LLC — a company linked to Rashaed that is based at one of Rashaed's home addresses — on behalf of Pennie Armstrong, a former tenant who said she lost all of her belongings when she was evicted.
The lawsuit, which is pending, alleges that a representative of Rashaed's Horizon Management came to her home on Dec. 23, 2015, to collect $500 and then drove her to Horizon's office to discuss payment of the remaining money owed.
Armstrong claims that when she came back to her apartment, the door was screwed shut. She was allowed in and given 15 minutes to get her personal belongings and was told to return on Dec. 28.
"Ms. Armstrong only had time to retrieve her Christmas ham and side dishes prepared for Christmas," the lawsuit alleged. When she returned Dec. 28, her possessions and medications were gone.
Halbrooks, Rashaed's lawyer, declined comment about the lawsuit.
In other cases, lawyers have had difficulty even locating Rashaed.
For years, Legal Action tried to serve Rashaed with lawsuits at 743 N. 25th St. — where Rashaed is listed as the registered agent for 17 LLCs. Rashaed testified at the 2015 deposition that he sometimes lived at that address.
An LLC linked to Rashaed owned the building until this year when it was sold at a sheriff's sale.
"We only had the 743 address," said Hartman, the Legal Aid lawyer. "Our process servers never found anybody there to serve."
Another example:
Mariama Rashaed — Elijah Rashaed's daughter — is currently listed as the registered agent for New Pride Property LLC. State records show her office is at 3301 W. Highland Blvd. That building was owned by Studio Six Properties LLC, a company owned by Elijah Rashaed, that lists 743 N. 25th St. as its headquarters.
But the Highland Blvd. building was bought in 2013 by an LLC owned by the Forest County Potawatomi tribe, according to county records and Ken Walsh, a spokesman for the tribe.
"New Pride and Mariama Rashaed have never been a tenant" in the building since at least 2013, Walsh said. "But we do keep receiving mail from DNS and Water Works."
A new corporate structure
In addition to the city fines, Rashaed also owes at least $1.5 million in personal court judgments for guaranteeing large loans made to LLCs, unpaid state taxes, and other civil lawsuits.
Sources said Rashaed is currently under investigation by the Milwaukee County District Attorney's Office over his rental practices.
Stephens would not say whether the city was considering suing Rashaed as it has Choudry.
Halbrooks, who prosecuted landlords as an assistant city attorney, said his client is reorganizing his real estate holdings in response to the Legal Action lawsuit and the money he owes to various creditors.
As part of the reorganization, they are creating about 20 new LLCs in a four-tier setup. About 40 properties owned by LLCs linked to Rashaed were sold to one of the new LLCs this year, city and county records show.
The top LLC in the group is named EMR Management LLC, and Rashaed is listed on state records as the organizer of the company and was briefly its registered agent. Halbrooks declined to confirm whether Rashaed has an ownership in EMR or any of the other new LLCs.
The other LLCs will either own, manage or collect rent generated by the properties.
As it stands now, Rashaed’s name frequently appears on state documents where he is listed as the registered agent for the old LLCs. He is not, however, the registered agent for the new LLCs.
Instead, Tiffany Thomas, a leasing agent at Rashaed’s Horizon Management rental office at 2976 N. King Dr., is the registered agent on all the new LLCs. She also is the contact on most of the properties already sold to a newly created LLC.
When a reporter attempted to interview Thomas at the rental office, a woman in the office shouted: “Tiffany has no comment. You could leave now.”
While each of the new companies list the Horizon rental office as the location of the registered agent, about half use a Shorewood address as their principal office. The address is home to a UPS store, which rents out boxes similar to a post office box.
Halbrooks said Rashaed LLCs are paying down the court fines and back taxes owed by the entities. On Nov. 15, Halbrooks sent the city attorney's office a list of 25 Rashaed LLCs with names of people authorized to accept documents on behalf of the companies.
In one instance, two of Rashaed's LLCs reached an agreement with the city's bill collectors on how to pay off $43,000 in municipal court fines. The city took the action in the wake of the Journal Sentinel investigation.
"Even the worst in the world deserve another chance, and we're far from the worst in the world," Rashaed said in a short telephone interview that ended with him threatening to sue a reporter.
Halbrooks said the reorganization will make it easier for process servers and city officials to find Rashaed or a representative of his businesses. He said repeatedly "transparency" was a goal of the reorganization.
Others doubt that.
Richard Ruffin, who said he has seen similar structures during his 30-year career as a criminal investigator for the IRS and more recently as a private investigator, said the result will be simple.
"It will take more time and effort to push through all the paperwork to figure out who is at the top of the food chain."
Read the investigation
To read the Milwaukee Journal Sentinel's "Landlord Games" investigation, which examines how Milwaukee landlords game the system amid inaction by city officials, go to jsonline.com/landlordgames.