Investors accused of bid rigging made $10 million

Collecting unpaid tax and municipal debt a lucrative business

  • Friends help Vicki Valentine move items from her West Baltimore home the day before she is due to have her home seized after it was sold at a tax lien auction.
Friends help Vicki Valentine move items from her West Baltimore… (Photo by Lagan Sebert )
May 17, 2010|By Fred Schulte, Huffington Post Investigative Fund

Taking over the collection of unpaid tax and municipal debt cases became a lucrative business for two Baltimore real estate investors who made at least $10 million, largely from homeowners who paid to keep from losing their properties, according to federal prosecutors.

Baltimore County lawyer Harvey M. Nusbaum and his longtime investment partner Jack W. Stollof allegedly rigged the bidding for municipal liens and then used the court system to threaten homeowners with seizure of their properties unless they paid legal fees, interest and other charges, according to the government. Those fees often totaled 10 times the original debt.

The six-year conspiracy to stifle competition at tax sale auctions in Maryland led to a federal probe that resulted recently in Nusbaum and Stollof pleading guilty to felony charges of bid rigging in U.S. District Court in Baltimore.

"This was a crime of greed," prosecutors wrote in court papers.

Though many details remain under seal, prosecutors allege that from 2002 through 2007 the pair acted to corrupt nearly two dozen municipal tax sales in Baltimore and five other Maryland jurisdictions, including Montgomery and Prince George's counties in the Washington, D.C. suburbs.

Every year, local governments in Maryland sell investors the right to collect unpaid taxes and municipal fees, often for a few hundred dollars or less. Lien holders can sue to take the property of those who fail to pay them. The tax sale conspiracy deprived local governments of revenue from higher bids even as it enriched Nusbaum and Stollof, court records show.

Earlier this month, U.S. District Court Judge J. Frederick Motz sentenced Nusbaum, 72, to a year and a day in federal prison as well as an $800,000 fine. Stollof is awaiting sentencing.

Prosecutors won court approval earlier this year to seal records naming most of the co-conspirators and outlining their roles, citing an ongoing criminal investigation by the Justice Department's antitrust division in Washington.

But court filings provide a glimpse inside the plan that, prosecutors allege, evolved into a "gentleman's agreement" to split up the property liens for sale and refrain from bidding on liens assigned to other members of the conspiracy.

Nusbaum, a former Internal Revenue Service agent, filed some 6,000 lawsuits over the six-year period to foreclose on the property on which the men held liens, according to the government. He generated an estimated $6 million in legal fees as a result. The men split about $1.5 million in interest charges, according to prosecutors. A firm owned by Stollof's daughters made $2.5 million in title search fees.

Among the homeowners cited in the case were several Baltimore residents stuck with thousands of dollars in fees after they failed to pay water bills of a few hundred dollars. The case also cited the owners of a parking space at a North Bethesda condominium who paid $3,697 to redeem a $199.57 lien on the space, according to court records.

One man said he owed a water bill on a property on South Warner Street in Baltimore and ended up in the tax sale as a result, court documents show. He said that when he called the Nusbaum law office and demanded an explanation for $4,000 in charges, he was told: "You will pay, everybody does."

In another case cited by prosecutors, an 80-year-old widow with a $369.86 outstanding water bill sold in a 2005 Baltimore tax sale was billed more than $5,000, according to court records.

Stollof and Nusbaum's role in the tax sale business first came to light in 2007, when The Baltimore Sun exposed how three investment groups had won about two-thirds of the liens auctioned off. Later that year, the FBI raided Stollof's and Nusbaum's offices as part of the bid rigging investigation that prompted the criminal charges in 2009.

As he stood before Motz at the May 4 sentencing hearing, Nusbaum said he was "stunned" by the FBI raid because he didn't realize his conduct in bidding for tax liens had been illegal. He called it the "worst moment of my life."

Stollof also contends that he didn't know he was violating any laws. Legal papers filed by his defense team describe him as a "not highly educated man" who relied on lawyers around him for advice. Stollof, his lawyers wrote, "achieved his success through hard work, handshakes and honesty."

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