Source: https://ux.jsonline.com/story/news/investigations/2016/08/13/landlord-games-perpetual-bankruptcy/88579982/
Timestamp: 2019-04-20 14:28:41+00:00

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Some Milwaukee landlords spend years in bankruptcy to shield themselves from debts.
City officials have not aggressively pursued collections -- even when granted permission by a judge.
Jesse Hyche of Mequon owes the City of Milwaukee more than $200,000 in building code fines for violations dating to 2001.
To keep the city and other creditors at bay, Hyche has turned to the courts for protection: He has been in Chapter 13 bankruptcy almost continuously since the elder George Bush was sworn in as president in January 1989.
In that time, Hyche, 65, was able to frustrate city officials as they struggled to seize his properties or force him to pay his fines.
In April, a Journal Sentinel investigation exposed how a group of city landlords have gamed the system for years to avoid paying hundreds of thousands of dollars in fines, even while they were paying cash at sheriff's sales to acquire more properties. They often allow the rental properties to decline, ducking fines and taxes until the city seizes the houses — and the landlords walk away from their tax debts.
The case of Hyche reveals a different strategy — one that city officials and the courts have allowed to continue for years.
Experts say the city could turn the heat up on people who repeatedly file for federal or state bankruptcy protection to avoid paying fines. But the city has failed to do so.
“Failure to file in good faith is grounds for a dismissal,” said Bruce Lanser, a veteran bankruptcy attorney who often serves as a court-appointed trustee overseeing cases.
When a bankruptcy case is dismissed, the debtor remains on the hook for all the debts, and creditors — such as the city — can take actions such as garnishments and seizures of assets to collect the money they are owed. But, when the city finally won court approval to go after Hyche for his fines, officials dropped the ball and failed to follow up.
Federal Chapter 13 bankruptcy provisions are meant as a temporary solution for those who can’t pay their debts. The filing provides debtors with protection from creditors while they make payments according to a court-approved plan.
Between Jan. 30, 1989, and July 5 of this year, Hyche filed for Chapter 13 bankruptcy six times and has spent all but about 22 months operating under the protection of the court, a Milwaukee Journal Sentinel review of federal court documents found.
Those filings stopped the city from even trying to collect the fines issued against Hyche for renting out substandard housing to low-income tenants. At one point Hyche owned about 40 central-city properties.
Crump called Hyche a “serial filer” — the same term used to describe him a decade earlier by now-retired bankruptcy Judge Russell Eisenberg.
Yet when then-Bankruptcy Judge Pamela Pepper gave the city a green light to go after Hyche for his debts, officials failed to take any action to collect the fines. The municipal court, which instituted the fines in the first place, did not even send the matter to its collection agency.
Since 2007, Timothy Brophy Jr. — once dubbed a slumlord by city officials — has used federal bankruptcy court, as well as municipal and Waukesha County courts, to delay paying down his city fines. Such debts do not accrue interest, so there is little consequence when payment periods are extended.
Brophy owes nearly $90,000 on 14 fines for violations dating to 2005.
Brophy, 46, gained notoriety that year when Milwaukee police arrested him for being $69,000 in arrears on fines, according to a Journal Sentinel report. Police found him hiding under the bed of an apartment he had rented out. He was released that evening after paying just $992 toward the fines.
When forced, Brophy was able to quickly pay larger amounts.
Earlier in 2005, after being arrested near his Whitefish Bay home at N. Lake and E. Silver Spring drives on 26 open warrants for nonpayment, Brophy paid $54,000 in fines and was released.
In 2007, a group of tenants alleged Brophy — who at one point owned an estimated 100 properties — cheated them out of their security deposits and won a $300,000 settlement in a class-action suit against him.
Soon he tried a new strategy.
In 2010, Brophy placed nearly $40,000 of his fines in Chapter 128 — a state-level form of bankruptcy that protects debts chosen by the person making the filing. In return, the debtor agrees to pay the protected bills within three years. Brophy, who lives in Sussex, has filed a Chapter 128 at least four times since 2010 — each time using the court to shield him from city efforts to collect some of his building code fines. He has never used the approach to shield other debts.
The first three cases were thrown out of court when he failed to keep up with his payments — and each time he quickly filed again.
Brophy paid down his debt by $1,400 when he filed the first time in 2010. Court records do not state how much he paid or how that case was resolved. In a second case, also filed in 2010, Brophy paid $1,400 toward his fines and court-related fees. Records show he paid $16,830 when he filed again in August 2011. That case was tossed in March 2013. He filed again that September, and paid an additional $8,448.
The amount he protected each time varied widely — from $25,000 to $60,000.
Brophy’s latest filing came in April 2015 — less than a month after the previous case was dismissed. That case, involving $38,463 in fines, remains open in Waukesha County Circuit Court.
In an interview with the Journal Sentinel, Brophy argued he was trying to pay the fines but simply has been financially unable to do so.
“If I wanted to play the system, I’d put it all into a bankruptcy and keep stretching it out and out and out,” said Brophy.
In the case of Hyche, he received a helping hand thanks to inertia at City Hall and the municipal court.
In 2010, Crump, who was the assistant city attorney on the Hyche bankruptcy, argued Hyche’s repeated filings were not in good faith and asked the judge to allow the city to bypass the bankruptcy and go after Hyche for the money he owed.
Pepper removed the bankruptcy protection Hyche had in regard to his city debts — an action that allowed the city to take additional action to collect the debt.Yet even though the city had fought Hyche for years, nothing happened.
While the city attorney brings court actions, collection responsibilities fall to the municipal court.
Sheldyn Himle, municipal court administrator since 2012, said the court had “no record of being notified” of Pepper’s decision.
But Pepper’s decision was issued in open court during a hearing attended by Crump. And court records also show the municipal court, the city attorney and city treasurer each was sent written notice of the order in October 2010.
City Attorney Grant Langley said he didn’t know what, if any, efforts were made to contact Harris & Harris, the Chicago collection agency used to chase down deadbeats. Officials from the company did not return calls, even though the city gave them permission to speak to a reporter about the matter.
In the case of Brophy, the city has not challenged any of his filings, even though they are specifically aimed at preventing collection by the city. A successful challenge would allow them to use methods commonly used in the business world, such as garnishments and seizure of assets.
Himle said she is unaware of the municipal court ever challenging a Chapter 128 filing by a person who owed it fine money.
“Why would we?” Himle asked, noting the Chapter 128 provision by its nature establishes a payment plan.
Repeated filings can be a clear sign that a debtor is not acting in good faith, said Mont Martin, an attorney who specializes in Chapter 128 filings.
“It’s unlikely that a person acting in good faith would file a case for the fourth time,” Martin said.
Susan Schuelke, who served as the court-appointed trustee for Brophy’s first three Chapter 128 filings, said in an interview she decided she would not oversee his fourth case.
“You’re not going to pull the wool over my eyes anymore,” she said.
In Hyche’s case, records show the city treasurer’s office did seize the rental homes he still owned at the time through tax foreclosure actions.
All told, the city has seized about 40 properties from Hyche, but that’s not necessarily a win for city taxpayers. At the time, according to testimony in the case, Hyche owed about $1 million in back taxes — and that debt was erased when the properties were taken by the city.
Stephens and Langley both point out that even if the fines remain outstanding, the city did succeed in getting Hyche and Brophy out of the landlord business.
“Our priority is the current people who are renting these properties and causing blight,” Stephens said.
Besides, Langley said, Hyche may have so many other debts that a city collection effort may be futile.
In his 2010 bankruptcy filing, Hyche said he had $168,000 in assets and $393,000 in liabilities.
Hyche reported he was being paid about $5,300 to maintain properties for other landlords and that he and his wife owned a home in Mequon and a rental property in the 6100 block of N. 35th St. in Milwaukee. Records show that property is currently owned by Hyche’s wife, Lucy, and has an assessed value of $36,200.
He told the court his eight vehicles were worth $2,500.
Hyche did not return messages left at his Mequon home — a property littered with two trucks and two vans that appear to be junk. Clifton Owens, Hyche’s lawyer, declined comment on the cases but said he would provide Hyche with a reporter’s phone number if he happened to see his client.
Hyche and Brophy both blamed the city building inspectors and municipal court judges for driving them into bankruptcy.
“I ask God — how does anyone right now in this economy ... could anyone expect to come in with $194,000,” Hyche said in the 2010 hearing.
Besides, he argued, his rental units were not that bad.
Brophy put the blame on Municipal Judge Valarie Hill for his repeated Chapter 128 filings.
In recent years, Brophy had owed more than $155,000 in fines, a figure now down to $88,864.
Brophy didn't put fines imposed by Municipal Judge Derek Mosley into his 128 filings. Instead, he is paying those down, albeit slowly.
Mosley “would work with you — he would work with your cash flow,” in determining a payment plan, Brophy said.
On the Mosley-issued fines, Brophy makes periodic payments, generally between $600 and $2,000. Even on those fines, some dating to 2006, he owes about $50,000.
As a judge, Mosley said he doesn’t know Brophy’s financial condition or if the ex-landlord could make larger payments. It’s up to the city attorney's office, Mosley said, to make a case to increase the payments if the office feels Brophy could pay more.
“I’m not a collection agency,” Mosley said.
After the Journal Sentinel’s investigation in April, Mayor Tom Barrett and other officials promised to ramp up efforts to go after landlords who were slowly paying building code fines or not paying them at all.
In June, the city attorney's office convinced Presiding Municipal Judge Phillip Chavez to put the kibosh on the easy-payment plan that Will Sherard, one of the city’s most notorious central-city landlords, had been using to pay his fines. Chavez had been allowing Sherard to pay as little as $100 every three months.
Instead, Chavez ordered Sherard to pay $39,728 in fines in 60 days and gave him one year to pay an additional $24,822. Sherard is appealing the order.
For years, delinquent landlords ran the risk of going to jail for not paying their fines. But judges changed the procedure in 2011, requiring that there be at least four interactions with police after a warrant for nonpayment of fines is issued before police can arrest a deadbeat.
In 1993, Hyche was sentenced to 60 days in the Milwaukee County House of Correction after being convicted of a misdemeanor for not telling tenants about the condition of the units they were renting. One house lacked running water.
Hyche wound up back in the House of Correction in 2010 after he was arrested for failing to pay his building code fines. He spent 10 days in jail then was released even though he had not paid his fines. Shortly afterward, those fines were included in a bankruptcy filing.
Hyche’s fifth bankruptcy case was dismissed — one month after he filed it — because he failed to take a required credit counseling class.
Two days after that bankruptcy was tossed, Hyche filed for bankruptcy for the sixth time. That case was dismissed last month because he failed to keep up with his payment plan.
The municipal court has given him until Sept. 9 to pay his fines.
Judges allow the small payments, as little as $100 every three months, because the landlords say they do not have the money to pay the fines quickly.
Other landlords simply make no payments on their fines because they have little or no fear of being arrested for violating court orders.
The landlords also frequently stop paying property taxes. After three years, the city seizes the run-down homes, erasing the tax debt for the landlord.
Meanwhile, these same landlords often pay cash to buy more properties at bargain basement prices at weekly sheriff’s sales of foreclosed properties.
They continue to collect rents while they allow the properties to deteriorate — racking up even more in fines.
To read the Journal Sentinel’s investigation into how Milwaukee landlords game the system to avoid paying fines, go to jsonline.com/landlordgames.

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