Milwaukee is looking to force landlords to pay taxes and stop gaming the system
City Hall is looking to close a door on problem Milwaukee landlords who game the property tax system by paying just one out of every three years of property taxes owed, the deputy city treasurer told a Common Council committee Monday.
The city now seizes property if it is three years behind on property taxes through a procedure known as an "in rem," or tax foreclosure.
For years, some central city landlords have intentionally paid just one out of every three years owed. Meanwhile, the landlord lets the property deteriorate while milking it for rent money. When the property can no longer provide adequate rent, the landlord stops paying taxes and lets the city seize it — a move that erases the tax debt while giving the city title to a rundown house or duplex.
To play the game a landlord must pay the "trigger year" taxes, Deputy Treasurer Jim Klajbor told members of the Common Council's committee on Redevelopment of Abandoned and Foreclosed Homes. The trigger year is the oldest bill owed by the landlord.
The city's goal is to set up a system that will prevent "the bad actors like (Will) Sherard from just paying the trigger year and escaping," Klajbor said, referring to Will Sherard, long known as one of the city's most notorious central city landlords.
The proposed ordinance would allow small landlords and people in owner-occupied homes to defer a tax foreclosure provided they met certain conditions, such as keeping the property up to code, according to a draft of the ordinance.
However, the proposal posted on the city's Web site does not specifically ban large landlords from paying one out of every three tax bills. It does ban the large landlords from deferring a tax foreclosure when they are three years behind.
Contacted Monday, Sherard, 76, declined to say whether he ever paid minimal taxes to avoid foreclosure. Klajbor is "going to have to show me the evidence," Sherard said. "You can't scandalize a person's name," Sherard said, adding, "You should not defame a person's name if you do not have any foundation."
Sherard's Morocco Investments LLC owes $10,980 in back taxes on a property that is headed for tax foreclosure. Last year he and his company owed $20,025 in delinquent taxes.
The practice of paying one out of three years property taxes was outlined last year in an ongoing Journal Sentinel investigation that showed several methods that some central city landlords use to avoid paying property taxes and building code fines. Meanwhile, the same landlords can be spotted on Monday mornings at the Safety Building adding to their inventories by buying buildings at the weekly sheriff's sale of foreclosed properties.
In response to the series, Ald. Terry Witkowski in January called for the creation of a task force to look into the issues spotlighted by the investigation. Among the issues Witkowski said should be studied is the use of limited liability companies to shield landlords from taxes and fines. Limited liability companies, or LLCs, are popular with business owners nationwide because they allow company owners to keep their identities secret while protecting their personal assets from liabilities owed by the LLCs.
Instead of creating a task force the matter was sent to the existing committee on Redevelopment of Abandoned and Foreclosed Homes. Political bickering prevented the committee from taking up the matter until Monday.
COMPLETE COVERAGE: Landlord Games watchdog reports
Witkowski told committee members Monday that after the stories appeared there "seemed to be absolutely no action going on" at City Hall to attack the problems. He said it appeared that city agencies and departments are more active now, though he added that "I'm not sure we have a handle on the whole scope of the problem."
On the tax issue, Klajbor said the city is trying to walk a line that would allow it to prevent problem landlords from gaming the system, while also giving responsible property owners who hit bad times a break.
He said the proposed ordinance would allow a person who hit financial hardship to defer the tax foreclosure if they met "certain conditions," but the ordinance would prevent landlords who are gaming the system from delaying foreclosure of their properties.
"It's a sticky wicket," Klajbor said. "We want to help out the little guy, if you will, and prevent the bad actors from also playing the system."
He said he hopes the city has an ordinance to present within the next month or so.
In a related matter, Jennifer Gonda, the city's chief lobbyist, said a bill designed to prevent landlords who owe property taxes or building code fines from purchasing properties at sheriff's sales will likely be introduced soon. The state legislation would also prevent bidders connected to LLCs that owe back taxes or fines from purchasing properties at the sales.
Kevin Crowe of the Journal Sentinel staff contributed to this report.
Cary Spivak can be reached at cspivak@jrn.com and twitter.com/cspivak.