Brian Eason

brian.eason@indystar.com

The spruce tree out front partially obscures the rusted gutters and boarded windows at 2628 E. Michigan St., but the debris scattered across the porch tells the story just as well. It’s been years since anyone has called it home.

In 2011, one owner walked away from a $3,300 tax bill and let the government take the house. Three years later, it was sold at a government auction for $3,804.

But despite the buyer’s claims that it would rehab troubled neighborhoods, the new owner, the San Diego-based Mt. Helix Real Estate Investment Fund, hasn’t taken any better care of it than the last.

The story of urban blight is all too familiar. Indianapolis is pockmarked with 6,800 abandoned homes that stunt property values, attract crime and destabilize neighborhoods. But one of the primary causes is mostly hidden. And it is, in large part, enabled by our own government.

An Indianapolis Star investigation has found that, increasingly, the empty house next door is not owned by a bank or an individual, but by one of many investors, often from out of state, who are enticed by the prospects of cheap homes that can be purchased — sight unseen and in bulk — at government tax sales.

A few big companies such as Mt. Helix have amassed hundreds of houses in Indianapolis’ poorest neighborhoods by taking advantage of government sales that have destructive, if unintended, consequences.

The Star found that oftentimes these companies don’t make the needed improvements or even maintain their homes. Many of the houses languish neglected and empty for years. Some for as long as a decade. And the system makes it easy for investors to walk away without paying their taxes. In some instances, homes go to tax sale again, and again, and again.

As the houses cycle in and out of the system, neighborhoods decline, and taxpayers pick up the costs.

The Star’s examination of eight years of tax sale data showed investors walked away from more than 6,000 properties and stiffed Marion County for at least $28 million in uncollected taxes. Meanwhile, our government spends millions every year cleaning up trashed properties, issuing code violations, subsidizing redevelopment and responding to emergency calls to unsecured empty homes.

The Star investigation also found numerous examples of investor-owned eyesores frustrating efforts to rehab neighborhoods.

“It’s just maddening,” said John Hay, executive director of Near Eastside Area Renewal, a nonprofit neighborhood rehab group. “It does not make sense. Even when you want to make a difference in a neighborhood, it’s beyond us. ... And somehow we’re upholding a process that contributes to blight and contributes to the demise of a neighborhood.”

That is not to say that companies and investors are entirely to blame for the city’s persistent abandoned homes problem — plenty of empty homes are the result of mortgage foreclosures — nor that investors or companies never fix homes. Plenty of them do. But experts in the fields of law, property taxation and redevelopment told The Star that tax sale systems like Marion County’s actually create disincentives to responsible behavior.

Investors are now responsible for at least 40 percent of the abandoned home problem, the Star found, and their influence is growing. While 57 percent of the properties at tax sale were last owned by an individual, more than 9 out of 10 buyers were investors.

Other cities and states across the nation have acknowledged the corrosive effects of the tax sale system, and been far more aggressive about seeking remedies. In many cases, experts told The Star, even those measures don’t go far enough. Some who have studied the problem nationally say the system’s use of tax liens — its key feature — has such a perverse effect on real estate markets it should be abolished.

Yet here, county treasurers have resisted relatively modest reforms. And stronger proposals have been stymied in the legislature under pressure from investor lobbying groups. Even the city, which has recognized the need for neighborhood revitalization and advocated for reforms, has failed to use all the weapons available. And it budgets far less for blight reduction than any major city in the region.

We’ve all heard the story of urban blight, of fear and frustration in our neighborhoods.

But it’s also a story of our government and the exploitation of a flawed tax collection system. It’s the story of how, with the government’s help, irresponsible investors are chipping away at our quality of life, one abandoned house at a time.

An invitation to crime

One of the hardest hit areas is a half square mile bordering the Crown Hill Cemetery, where investors own more than 400 homes. That’s close to 60 percent of the homes in the neighborhood, a Star analysis of property records found.

The correlation to crime is striking. There were 152 ambulance runs, 23 shootings and six homicides from January 2013 to August 2014, according to Indianapolis Metropolitan Police Department records. This Near-Northside neighborhood is one of six that the city has classified as hotspots for crime.

On a city inspection this summer, Michael Osborne, who runs the nonprofit Near North Development Corp., picked his way through cheap liquor bottles, pill bottles and trash outside one Crown Hill house. Inside, drywall and rubble covered an otherwise barren living room. There’s no furniture and no family photos. No sign that this was ever a loving home.

Upstairs, a discarded heroin needle lay on a torn cushion, a note written on the fabric in neat handwriting: “Hey y’all, leave room how you found it.”

Five feet away, feces was smeared on the white wall, beneath another message in black marker:

“Who cares if you s--- anywhere.”

Osborne, whose group is tasked with rehabbing the area, says 1 in every 4 houses in Crown Hill is vacant. But “these weren’t families forced out,” he said.

“The problem, honestly, was all the investors — buying up property,” he said. “That’s where the abandoned property in this neighborhood came from. It was not working families coming on tough times.”

IndyStar: Abandoned homes in Marion County

A business of neglect

Since the housing bubble burst in 2008, people, banks and companies have walked away from more than 10,000 Marion County properties, dumping them in tax foreclosure.

Investors descended on the city, gobbling them up for as little as $532.76. Some flipped the homes; others promised to rehab and rent them.

But many companies neglected even basic maintenance, such as cutting the grass or boarding up unoccupied homes. Since 2013, 10 companies alone received 2,546 code violation notices. And their unattended homes became a breeding ground for crime, attracting a staggering 3,673 police runs in a little more than two years.

Take CTL Global Holdings: The Singapore-based company bought 85 houses that racked up more than $34,000 in Code Enforcement fines since 2013. The company’s 160 violation notices are the sixth most in the city, code enforcement records show. And CTL is behind on taxes on many of its homes.

CEO Clara Tan Lisin emailed The Star a statement blaming embezzlers and the city for CTL’s problems.

“Our initial intention had all been wanting to build the city to renovate all the houses,” she said. “...I want you to know that we had all the intention to build things up, but our funds were embezzled and I find no help and support in Indy until lately.”

The Mt. Helix Real Estate Investment Fund, based on a swanky palm-lined San Diego street, bought more than 600 Indianapolis properties and has three times as many violation notices as any other owner. As of August, the company owed the city $352,577 in fines.

Its chief executive, Joe Nelson, says his company has done nothing wrong. He says prior owners are responsible for many of the 145 repair and demolition orders on Mt. Helix homes. The 107 building code violation notices — those he blames on shoddy contractors.

Nelson came here promising an urban renewal. Three years later, the company has fallen behind on taxes, ignored court-ordered repairs, been sued for unpaid bills by an Indianapolis contractor and is under investigation for allegedly ripping off tenants and the federal government.

One contractor, Engineered Construction Group, filed suit in Indianapolis — seeking $41,000 in unpaid bills on 13 properties the company helped rehab. At least three others retained Tucker, Albin & Associates, a Texas collection agency, to pursue past-due bills.

Each of the contractors reached by The Star told a similar story.

“They were paying their bills upfront for awhile and then I realized they were stringing me along,” said Rovin Carandang, owner of Engineered Construction Group. They missed payments and dodged calls, he said, leaving his company with little alternative but to sue.

The Indianapolis Housing Authority confirmed to The Star that a criminal investigation is ongoing in an attempt to recoup as much as $230,000 the company received in federal subsidies.

Investigatorydocuments made public by the IHA alleged that Mt. Helix accepted federal subsidies to keep rent down at three low-income properties, then jacked up the tenants’ rent anyway, in violation of a signed contract with the federal government.

Its reports also said at least five of the company’s homes flunked IHA inspections. One such home failed seven inspections, with residents complaining repeatedly that they had no heat. The government relocated the tenants at two houses where Mt. Helix failed to correct problems.

CashFlow Multiplying System

At a November 2011 seminar at Copthorne King’s Hotel in Singapore, Lisin of CTL let investors in on a money-making secret, according to company brochures.

She called it the CashFlow Multiplying System. With this one simple tip, they could pocket 600 percent returns on their investments in just two years.

In informational pamphlets, she boasted that she was mentored by none other than Bellum Tan, a self-styled financial guru who goes by the pseudonym Rich Dad Asia.

Their secret? Distressed American real estate.

“When the market crashed, millions were crushed,” one seminar advertisement reads. “... NOW IS THE TIME TO BUY.”

She promised to help clients set up U.S. bank accounts, offered “tax minimization advice” and said that, by using limited liability companies, their assets would be protected if an investment went sour.

In one set of transactions examined by The Star, she picked up seven homes then sold them to four LLCs set up for her investors.

Three of the seven homes are on the city’s abandoned property list. Since then, those homes have given up 12 percent of their assessed value, according to the county tax assessor. Today, more than half of the 64 homes the company still owns are abandoned.

Lisin initially agreed to an interview to discuss The Star’s findings but did not respond to follow-up messages.

Her only communication with The Star came in a short email that offered little clarity. It read in part: “The city had pushed us foreign investor away. I still believe in Indy, but someone has to do something. I do not know who but someone with authority definitely has to step in to help. A city cannot expect foreign invested funds and leave us strangled.”

Promises of urban renewal

At first, both Mt. Helix and CTL Holdings boasted publicly that they intended to improve life in neighborhoods hit hard by the housing crisis. But neither of them bought their houses from the Indianapolis agencies established to partner in such efforts — the city Land Bank and its successor, a nonprofit called Renew Indianapolis.

Across the country, such land banks pull blighted homes out of county property sales to ensure that they are demolished or rehabilitated.

When Mt. Helix and CTL first arrived in Indianapolis, city regulations allowed nonprofits to buy from the Indianapolis Land Bank at a discounted rate of as little as $1,000 a home. For-profit companies such as Mt. Helix and CTL were banned from that market.

But that didn’t stop them from acquiring former Land Bank properties.

Hay, of Near Eastside Area Renewal, told The Star that Mt. Helix offered him $1,000 for each home the nonprofit could liberate from the land bank’s grip and flip to Mt. Helix. But NEAR turned him down.

Other nonprofits had no such qualms.

One was an obscure group called Somebody Inc.

Nonprofits flipping houses

Ed Brown, who is now an Indianapolis Public Schools principal, formed a Martindale-Brightwood nonprofit by that name in 2010, a year after his own real estate investments went underwater, forcing him into bankruptcy.

Mt. Helix formed a partnership with Brown, which it ballyhooed as a boon to troubled areas.

To start, Somebody Inc. bought six houses from the Land Bank for $8,500 total and sold them to Mt. Helix for $33,000.

Brown declined to comment for this story. Small nonprofits like his don’t have to file detailed financial statements with the IRS, and the city requires no such reporting, making it difficult to tell whether Somebody Inc. fulfilled its charitable mission of “developing and operating affordable housing.”

Mt. Helix did rehab the homes. But, on a recent visit by The Star more than two years after those transactions, the front yard of one Mt. Helix home was covered in trash. Another was boarded up; the gutters were missing.

Today, nonprofits cannot flip houses purchased from Renew Indianapolis, the successor to the Land Bank. That change was the result of a city scandal.

The former Land Bank administrator, Reggie Walton, was convicted this year of fraud after taking bribes and directing properties to developers through a nonprofit named New Day Residential Development. New Day’s director, Randall Sargent, also was convicted for his role in the scheme.

CTL Global Holdings was one of the companies that purchased Land Bank properties from New Day. Lisin, CTL’s founder, was not accused of wrongdoing, and, in fact, no developers were charged; but the Land Bank was dismantled and new rules were adopted.

Now the rules mirror those of other cities, which limit the number of blighted properties any one business can purchase and require strict project agreements. For example, officials in Columbus, Ohio, told The Star Mt. Helix asked to buy all 1,200 blighted houses from their land bank, but the city insisted on starting small — five houses.

Its contract required that, within 60 days, all exterior code violations had to be corrected. Within six months, renovations had to be completed. If repairs weren’t done on schedule, Columbus could take the homes back.

Renew Indianapolis now has similar restrictions. Katy Bret, the executive director, said Mt. Helix met with her but ultimately didn’t apply for any houses. “I think they didn’t want to do our process.”

A government-run market

The single largest supplier of cheap homes to companies such as Mt. Helix is Marion County. Under state law, County Treasurer Claudia Fuentes allows companies without unresolved code violations to buy as many houses as they want.

No strings attached.

Some state governments, most notably Michigan’s, have done away with the tax sale system, largely because of its corrosive effect on real estate markets. And Indiana has adopted modest reforms.

But Fuentes and other county treasurers have fought more substantive changes, arguing that tax and surplus property sales are an essential tool in their effort to keep tax dollars flowing to local government agencies.

She says it would be unfair to add new restrictions on who can participate in that market.

“People say, ‘You’re going to get this investor or that flipper ... it’s bad, bad news,’ ” Fuentes said. “OK, if I have an auction, it is fair and open to all. Capital market at its best. Right?”

With no limits, Mt. Helix has bought 337 homes from the county since 2012 — many of them abandoned and falling apart. As of July, 150 of those homes were still abandoned, according to the city.

Frank Alexander, a professor at Emory Law School who has studied tax sales across the country, was not surprised to hear that investors like Mt. Helix were leaving houses empty.

“Indiana has a broken system,” he said. “It actually creates incentives for passive investors.”

He said government tax sales don’t function like normal markets. They’re designed only to collect taxes, not necessarily to seek a fair market price for the property. As long as the taxes come in, the government doesn’t mind giving up the homes for less than they are worth.

People often can pay $2,000 to buy a property that’s worth $10,000, said Alexander, co-founder of the Center for Community Progress, a blight advisory group. “Well, all I have to do is sell it for $6,000,” he said. “Then I get a 300 percent rate of return.”

Alternately, you could conceivably buy a house for $5,000, rent it and recoup your cost within a year.

Still, the pitfalls are numerous. And many lose out. One problem is renters in low-income areas tend to turn over quickly, said Hay, the Near-Eastside rehabber. Where a Downtown apartment manager might require a one-year lease, many low-income renters change homes in a matter of months.

That increases maintenance costs and reduces income, he said: “The turnover just eats everything up.”

Another problem: Many of these homes are so dilapidated, they require more rehab than investors expect. Some cut their losses and walk away. Some suck as much rental income as they can out of the property, then walk away, leaving the neighborhood worse off.

“When you’re dealing with the bottom of the market, it’s easy,” Alexander said. “If you have a willingness to walk away from your own investment."

Ties to a Ponzi scheme

Mt. Helix and one of its officers are now defending lawsuits from people who placed their money in the hands of a woman who was later convicted of fraud.

The lawsuits stem from a real estate Ponzi scheme perpetrated by a former Long Island lawyer name Alice Belmonte. She was convicted of defrauding investors of close to $4 million, disbarred and sent to prison.

At the time Belmonte was ripping people off, one suit claims, she gave the Mt. Helix Real Estate Trust a check for $358,705 and received nothing of value in return. Investors defrauded by Belmonte are arguing in her bankruptcy that the money belongs to them.

In another action brought by the bankruptcy trustee, Mt. Helix President Steven J. Lifton paid $70,000 to compensate Belmonte’s victims, according to U.S. Bankruptcy Court records. Lifton’s attorney told The Star that money was a personal loan from Belmonte to Lifton.

That attorney, Alan Marder from Long Island, also told The Star that Lifton had no involvement with the Mt. Helix Real Estate Trust, a separate entity from the Mt. Helix Estate Investment Fund. The two entities are both run by Nelson from the same San Diego address.

Neither Nelson nor Lifton was charged in connection with the criminal case against Belmonte.

According to another claim, Belmonte made at least three deposits, each exceeding $50,000, into Lifton’s personal bank account. That suit alleged that the victims’ money flowed from Belmonte “at the base of the conspiracy pyramid” through two companies and on to Lifton at the top.

Marder — of Meyer, Suozzi, English & Klein — told The Star that was the same money that Lifton paid in the bankruptcy case.

In court records, Marder argued that Lifton had no knowledge of Belmonte’s deceptions and filed to have the civil suits dismissed. Some were, but in the matter of Belmonte’s Ponzi scheme, the judge overruled Lifton’s objections, saying the “evidence raises questions” about his role. That matter is still pending.

A bankruptcy court will hear the case seeking money from Mt. Helix in July 2016. Nelson denies any wrongdoing, saying he was as shocked as anyone that a “well-respected” lawyer such as Belmonte was involved in such a scam.

“She had asked us to check into some real estate that she was buying for one of her investment groups in California,” Nelson said.

“We got paid for services, but that was that.”

‘It’s a matter of time’

A Mt. Helix attorney told a Marion Superior Court judge in November 2014 the company couldn’t perform basic repairs on its dilapidated homes. It was “out of funds.”

Three time zones and 2,000 miles away from Indianapolis, a marbled elevator lobby opens onto the fifth floor of the Mission City Corporate Center in San Diego where Mt. Helix is based.

When a Star reporter visited at 11 o’clock on a Tuesday morning in August, the glass office doors of the Mt. Helix Real Estate Investment Fund were locked. The receptionist’s empty desk was bathed in darkness, except for a glimmer of California sunshine streaming in through the windows.

Nelson, reached by phone, denied rumors that the company is pulling out of the Indianapolis market. He said, “It’s a matter of time to get to all of the properties.”

Meanwhile, another real estate investor claims on her LinkedIn page to have joined Mt. Helix as its Asia Pacific operations director.

She’s the creator of the CashFlow Multiplying System.

Clara Tan Lisin, the owner of the company with the sixth-most building code citations in Indianapolis, claims to be teaming up with Mt. Helix, the company with the most.

Star reporter Marisa Kwiatkowski contributed to this report.

Call Star reporter Brian Eason at (317) 444-6129. Follow him on Twitter: @brianeason.

The team

Brian Eason covers Indianapolis and Marion County government for The Star’s watchdog team. Prior to joining The Star in February 2014, the University of Missouri graduate was an investigative reporter in Mississippi, covering local government.

Steve Berta, editor on the project, is The Star’s Senior Content Coach, handling investigations and narratives. The Ohio University graduate has been a reporter, business editor, editorial writer and newsroom manager over a 35-year career.

Robert Scheer, a Star staff photographer since 1998, received a bachelor's degree in biology from Humboldt State University. His photojournalism work has taken him to Iraq, Greece, Brazil, Mexico and Canada.

How we did it

The Star conducted more than 50 interviews with public officials, developers, residents, experts and corporate executives; and analyzed data from numerous sources, including: Eight years of Marion County property sales data; more than two years of data from Code Enforcement, police, fire and medical services; Marion County property records; and property value data maintained by the Polis Center at Indiana University-Purdue University Indianapolis.

The Star also visited Baltimore and San Diego, examined blight reduction programs in five other cities, and reviewed hundreds of pages of academic articles and case studies.

DEFINITION OF ABANDONED HOMES: Throughout the series, the Star uses the city’s definition of an abandoned home: one that has been vacant and without utilities for more than a year. The homes listed in these stories as abandoned were in that condition as of July 2015, according to a database provided by the city.

Coming next in our series

Abandoned Indy is an occasional series exploring the causes of urban blight in Indianapolis neighborhoods, and the reasons it persists.

MONDAY: Who is Johnny Big Stuff, and why are taxpayers cleaning up his property?

TUESDAY: Fires, drugs and murders haunt one company’s empty homes.

NEXT: How the tax sale system contributes to the decline of neighborhoods.