INVESTIGATIONS

Controversial landlord Nicholas Rezny bought homes as taxes, fines piled up

Cary Spivak
Milwaukee Journal Sentinel

In 2015, a company linked to Nicholas Rezny, the landlord who City Hall says should be probed by the FBI, bought a Milwaukee home for him to live in and he purchased a potential retirement home in Florida — even though he was already building up a substantial back tax bill, courthouse records show. 

Nicholas Rezny is a major Milwaukee landlord and real estate investor. He has drawn the suspicion of the Milwaukee City Attorney's Office for what officials there say may be a Ponzi operation. Rezny denies the allegation.

In April 2015, Rezny was a partner in a purchase of a $330,000 home in West Palm Beach, Fla., and just six months later a limited liability company created by Rezny and his wife, Emma Rezny, bought their home in Milwaukee's Washington Heights neighborhood, also for $330,000.  

The Milwaukee home was sold to a Rezny friend earlier this month.

Meanwhile, a tax lien filed last year shows that the couple owe the IRS $223,168 for 2014 and 2015 income taxes. In addition, court records show limited liability companies linked to Nicholas Rezny owe about $30,000 for back property taxes and code violation fines dating back to 2013.

"It raises a lot of red flags," said Ald. Michael Murphy, whose district includes the Washington Heights home. "Most normal people would pay their taxes before they buy more properties."

Those transactions are in addition to the real estate moves by the dozens of LLCs that Rezny owns or is linked to. Rezny has an ownership or management interest in about 225 rental units in the Milwaukee area through dozens of LLCs and his American Community ReDevelopment Group LLC. State records link him to about 80 LLCs, though many are inactive.

The Milwaukee city attorney's office called on federal authorities to look into Rezny's operations, saying in a letter that Rezny “may be engaged in criminal conduct regarding interstate securities fraud involving real estate located in the City of Milwaukee."

Assistant City Attorney Heather Hough described Rezny's operation as "akin to a mortgage Ponzi scheme" in a letter to authorities.

Aldermen and other city officials are concerned about landlords who control scores of LLCs, many of which owe back taxes or fines, and create new LLCs that purchase other properties. A Common Council committee was charged with studying the issue after the Milwaukee Journal Sentinel last year reported the practice and the ways landlords use LLCs to keep their identities secret.

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In an email interview, Rezny defended the property purchases and acknowledged that he is looking to raise $600,000 to pay his taxes and other debts. Meanwhile, the 33-year-old landlord who has bragged that he is "the biggest person people haven’t heard of under the age of 40,” blamed his financial woes on lawyers who are suing him, city officials who said his business should be investigated and the Journal Sentinel for writing a story that detailed his business operation.

"My business is nearly dead in the water," Rezny wrote. "Sales will happen and I know things will move forward because truth always wins."

The interview was conducted via email last week because Rezny said he was in North Carolina and could not get cellphone service. 

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"All of the immediate discussions I had with potential buyers prior to the MJS article coming out are now off the table," Rezny wrote. "When Heather Hough publicly labeled my business as being some sort of 'mortgage Ponzi scheme' it scared off all of my current potential buyers because they now fear that buying a piece of real estate could mean being labeled as a Ponzi scheme which — take it from me, is probably the most damaging thing that can be said against a business person."

State, federal authorities alerted

Rezny's businesses collect millions of dollars from financial backers to buy and renovate rental properties. Rezny sometimes retains an ownership interest in the properties, guarantees to pay dividends to his backers — even when properties are vacant — and demands that a company he owns manages the properties for a fee. He cuts off dividends if his management company is fired.

"It appears that Mr. Rezny purchases properties in the name of one LLC, takes out a mortgage from a private individual or IRA then sells that property to a different Rezny LLC for a profit to pay off the mortgage. The nature of these transactions seem to be akin to a mortgage ‘Ponzi scheme,' " the city attorney's December letter to the FBI and U.S. attorney's office said. 

Federal authorities are reviewing the matter.

Purchases downplayed

In his emails, Rezny downplayed the 2015 purchases of the Milwaukee and Florida homes.

Referring to the Milwaukee house, Rezny wrote that he "paid my down payment in 2015 prior to owing 2015 taxes that I do now."

The tax liens show that Nick and Emma Rezny owe $47,748 for 2014 federal income taxes plus $175,419 for 2015 taxes.

Records in the Milwaukee County Register of Deeds Office show the house in the 2000 block of Hi Mount Blvd. was sold June 5  to Nick Daar, friend and business associate of Nicholas Rezny. Daar paid $412,000, $82,000 more than the Rezny LLC paid less than two years earlier.  

Rezny said he sold the home because he could not obtain new financing and did not want to continue paying 15% interest on his existing loan. "My friend Nick Daar bought it. ... He's letting me continue living with him for the next year," Rezny wrote.

Daar did not return calls for comment.

As for the Florida property, Rezny initially wrote that a friend of his paid for the property and that Rezny agreed to renovate it.

"When we flip it, we are splitting the profits ... 90% to him and 10% to me."

Told that friends of his said that Rezny often referred to the Flordia house as a retirement home, Rezny wrote that he scrapped that plan because he is being sued personally and "my ability to gain financing is zilch."

The deed for the Florida property lists Rezny and The Enriquez Trust as buyers of the West Palm Beach property. The deed lists Wilson Enriquez, a lifelong Rezny friend, as trustee for the trust that is based at Rezny's former Milwaukee residence. Enriquez did not return calls for comment.

Rezny and/or his LLCs have been involved in at least nine lawsuits since 2013, including three suits pending against him by ex-investors who charge fraud, misrepresentation and misuse of their money. Rezny has filed suits against the investors charging them with defamation, breach of contract and failure to pay him money owed.

Rezny expressed particular anger about a pending lawsuit filed by Jay and Nancy Patel, former investors who charge that Rezny defrauded them out of more than $1 million.

He complained that lenders cut him off from future financing because he is named personally in the lawsuits. "Had Patels only sued our LLCs we would have had financing in place for all our properties last fall," Rezny wrote. "Instead our only option is to find buyers for our real estate and hope to do partnerships when we sell it."

Michael Huitink, the Patels' attorney, said the lawsuit named Rezny personally because "we consider many to most of Mr. Rezny's LLCs to be alter egos set up to avoid liability."
 

Cary Spivak can be reached at cspivak@jrn.com and twitter.com/cspivak.