Federal agents have raided two Baltimore County real estate businesses and seized a wide range of records as part of a criminal investigation into municipal auctions of property tax liens.
Search warrants show that the FBI obtained the records to support a probe into possible mail fraud and restraint-of-trade violations.
The Baltimore City office that oversees tax-lien auctions received a subpoena last month from the U.S. attorney's office and has turned over boxes of records, Stanley J. Milesky, chief of Baltimore's Bureau of Treasury Management, confirmed yesterday.
"We were asked to assemble records for a multiple-year period," Milesky said, adding: "I'm comfortable that there doesn't appear to be any impropriety on the part of the city."
Milesky refused yesterday to provide a copy of the subpoena. Linda C. Barclay, a lawyer for the city, said the document was not public because it was an "investigatory" record.
An affidavit outlining the rationale for the searches has been sealed in U.S. District Court in Baltimore, and FBI officials would not comment. "We don't confirm or deny investigations," said Marcy Murphy, a spokeswoman for the U.S. attorney's office in Baltimore.
The federal probe raises questions about how the annual tax sales are conducted. In these auctions, investors bid over the Internet for the right to collect back taxes or unpaid municipal fees from delinquent homeowners. The investors can then sue to take the house if the bills, plus interest and fees, aren't paid.
The system functions on the assumption that the bids are competitive. In Baltimore, the tax sale process is intended in part to find new owners for abandoned or dilapidated properties.
In past decades, these auctions often attracted scores of small-time investors hoping to pick up properties at a bargain price. But as rising real estate prices have made the properties worth far more than the debt owed, a few investment groups have come to dominate the process.
In last year's Baltimore tax sale, for instance, more than 100 companies or individuals bid for about 7,400 tax certificates sold to investors. But just three investment groups won more than two-thirds of the total, city records show. Two of those groups were the targets of simultaneous raids by the FBI on Aug. 9.
Agents searched a second-floor office suite at 3723 Old Court Road formerly used by real estate attorney Heidi S. Kenny and her investor husband, Steven L. Berman. Firms connected to the couple, Mid-Atlantic Tax Sale LLC and Fairtax LLC, bought about $2.4 million worth of liens in Baltimore last year, city records show.
The other office raided, on the second floor of 1700 Reisterstown Road, is the corporate address of several businesses represented by attorney and veteran real estate investor Harvey M. Nusbaum, state records show. Last year, according to city records, Nusbaum purchased more than 1,000 Baltimore tax liens through a firm called 2006 Baltimore City LLC, paying about $2 million.
At the Old Court Road office, FBI agents seized computer hard drives, photos of properties and banking ledgers of companies active in tax sales in Baltimore, several other Maryland counties and the District of Columbia.
Neither Kenny nor Berman could be reached by phone or fax. A reporter visiting the office suite and a second Berman business address in Cockeysville was told yesterday that no one at the office would comment.
FBI agents logged the removal of more than three dozen items from the Reisterstown Road office, ranging from phone records to corporate papers of firms bidding on properties in Anne Arundel, Baltimore, Prince George's and Montgomery counties. Among the records seized were copies of "correspondence between Harvey Nusbaum & Heidi Kenny," the warrants said.
"Mr. Nusbaum is cooperating fully with the investigation and is very confident that it will be resolved favorably," said Paul Mark Sandler, a Baltimore attorney representing Nusbaum.
Both Nusbaum and Kenny have represented large owners of ground rents in Baltimore. Entities associated with Nusbaum, a partner and family members have filed hundreds of lawsuits in recent years seeking to eject people from their homes for failure to pay rents of a few hundred dollars or less.
Kenny was criticized by the Baltimore City Clerk of Courts for filing ground rent lawsuits against deceased homeowners without going through the probate process - as well as for her attempt to eject a Canton man and his two sons from their home during the holiday season.
The third major investment group in Baltimore's tax sales is Sunrise Atlantic LLC, an arm of Fort Lauderdale, Fla.-based BankAtlantic. It purchased more than 2,800 liens last year, more than any other investment group.
"I can assure you we are not at the moment under suspicion," said Anthony De Laurentis, a Columbia attorney whose firm has bid on behalf of the bank in Baltimore and other parts of the state. "We're not the subjects of the investigation."