Cary Spivak, and Kevin Crowe

Milwaukee Journal Sentinel

Problem landlords who owe back property taxes or building code fines would be prevented from buying more rental properties on the cheap at sheriff's sales, under a package of legislation that will be introduced early next year.

"We are fighting this battle on a daily basis," Mayor Tom Barrett said in an interview in his City Hall office. "It's a ground war, with people who are trying to hide assets, avoid fines, not comply with orders."

State Rep. Evan Goyke, a Milwaukee Democrat whose district includes the near west side, Sherman Park and Washington Heights, said the damage caused by mortgage foreclosures and disreputable landlords is obvious.

"You could see all the green board-ups on city block after city block," Goyke said.

An ongoing Journal Sentinel investigation has shown how some landlords let properties fall into disrepair and don't pay property taxes or Municipal Court fines issued for a variety of building code violations. These same landlords then go to the weekly sheriff's sales and purchase new properties on the cheap to be rented out to low-income residents.

In Milwaukee County, properties that are foreclosed for failing to pay mortgages are auctioned off each Monday morning at the sheriff's sales held in the basement of the Public Safety Building. Few questions are asked of the bidders, who are required to put down 10%. Cash or a cashier's check are the only payments accepted. The remainder — again in cash or a cashier's check — is due a few weeks later, after a judge approves the sale.

"We want to make sure that individuals are not using (sheriff sales) as a money-making scheme while neglecting to pay the debts they owe to our city and to our state," Goyke said.

The bills being prepared by Goyke and city officials would :

Authorize counties to offer foreclosed properties for sale on the internet — a move designed to increase the number of people bidding in the hopes of keeping properties out of the hands of slumlords. "That would take the sheriff sales out of the basement of the safety building and open up the bidding," said Kimberly Montgomery, a city lobbyist.

Require that people who buy properties at sheriff's sales disclose in a sworn statement whether they owe any delinquent property taxes or Municipal Court fines for building code violations to Wisconsin courts or municipalities. Those who have delinquent bills would not be allowed to purchase properties.

Require owners of Limited Liability Companies that purchase properties at sheriff's sales to disclose the names of the major owners of the LLCs. If any of those owners owe back property taxes or court fines, the LLC would be banned from buying at the sales.

Empower the city to identify owners of numerous nuisance properties and make it easier for the city to seize those properties and place them in receivership.

"It would create a definition of a habitual nuisance owner," said Jennifer Gonda, the city's chief lobbyist. "It would improve our ability to acquire not just properties that are considered nuisances, but other property that's owned by that habitually nuisance owner."

Heiner Giese, attorney for the Apartment Association of Southeast Wisconsin, said that the association may oppose a proposal to make it easier to seize property.

"At first blush, I don't think we'd be in favor of that," he said.

The association, however, would likely be open to the idea of putting the sheriff's sale online, Giese said.

Barrett's Democratic administration has often had trouble getting bills through Gov. Scott Walker and the Republican-controlled Legislature. To hear city officials describe it, it's been one step forward, two steps back.

Last year, the city convinced state lawmakers to enact a law requiring that deeds for properties purchased at sheriff's sale be immediately publicly filed with the county. The move came after a Journal Sentinel investigation in 2015 showed veteran landlords Mohammad Choudry, Will Sherard and others were buying rental properties and often not filing deeds, leaving the original owners with a trail of delinquent taxes and municipal court fines.

In October, the city sued Choudry for $1.25 million in a civil action that accused Choudry of racketeering. The city said Choudry used straw buyers and other schemes to purchase properties at sheriff's sales and then rented out unsafe and uninhabitable houses and apartments while not paying hundreds of thousands of dollars in fines and delinquent property taxes. Meanwhile, he replenished his stock of inner city properties at the weekly sheriff's sales.

The city also charged Choudry did not file deeds for the properties he purchased, harming the previous owners.

"We used the tool we were able to obtain from the legislature to help file that case," Barrett said.

In November, 77 Choudry properties were placed in a court-ordered receivership and five of those properties were boarded up by the city, said Preston Cole, commissioner of the Department of Neighborhood Services.

Some of the properties were in dire need of repair and some lacked furnaces and other basics required to make a rental unit habitable, Cole said.

"They're in various states," Cole said. "None of these are sexy properties...(some were) almost unrentable."

Still, the properties that could be rented generated about $42,000 in rental income in November. "One of the interesting things we see out of that case is that we now see the cash that is generated" by renting out central city properties, said Cole.

The bid to convince state lawmakers to give Milwaukee and other municipalities new powers comes just one year after those lawmakers limited the power of municipal building inspectors — a move Barrett sharply criticized.

State Sen. Frank Lasee, a De Pere Republican, was the key sponsor.

"Act 176 was a step backward," Barrett said referring to the law that limited the city's ability to target neighborhoods for inspection, cut the amount of fees the city could collect from problem landlords and banned the city from collecting detailed information about the operators of rental properties.

"I call it the absentee landlord bill," Barrett said.

The city expects to see a $1.9 million revenue drop in fees collected from landlords whose properties are inspected monthly because they fail to fix violations, according to Department of Neighborhood Services data. Meanwhile, the department expects to see a 7.9% increase in complaints received in 2016.

In an effort to drum up GOP support, Goyke invited Rep. Terry Katsma to tour his district and see a sheriff's sale in action. Katsma, a Republican from Oostburg in Sheboygan County, said he's open to working with Goyke on legislation that would put sheriff's sales online, but he hadn't seen any specifics yet.

"Certainly, we'd want to take a look at that to see if that would be a more efficient way of handling that process," he said.

But Katsma said that he wouldn't want to do anything that would place too many limitations on who can bid at sheriff's sales, even if those bidders might cause headaches for city neighborhoods.

"If they're the highest bidder on the property...then the (lender) is coming out better," Katsma said. "There has to be a balance in that whole process."

Gonda, the city lobbyist, said the bills are targeting one specific group of bidders who attend the sheriff's sale.

"What we hope to characterize this as really honing in on a small group of individuals who are gaming the system," Gonda said.