Article re tax lien managed properties in New Haven from the
New Haven Advocate.
The Breen Company was/is represented by the Marcus Law Firm.
Walter M. Spader, Jr., is an attorney with the firm and currently sits
on the board of directors of the National Tax Lien Association, an
industry trade association. Douglas Q Gale has served as its
treasurer.
The article is still available on line in the Archives of the New
Haven Advocate, search "breen":
http://www.newhavenadvocate.com/
New Haven Advocate (CT)
March 8, 2001
A dirty deal holds New Haven's neighborhoods hostage.
Mean, Lien & Breen
Paul Bass
To see how a political deal can hurt a neighborhood, visit Diane Curtis' block of Winthrop Avenue
just north of New Haven's Whalley Avenue. Like other pockets of the Edgewood neighborhood,
the block has resisted the decline that engulfed nearby stretches with burned-out buildings and
street crime. Working people have bought the close-together Victorian homes with their
sometimes-grand porches and architectural details. Just about all the homes give the message:
This is a block where people haven't given up.
One house says otherwise: 495 Winthrop. It's boarded up, but not well enough to keep out
determined intruders. Rotting porches. Broken glass and other trash all around. It takes just one
house like that, Curtis says, to discourage other people who might buy homes on the block and
keep it going in the right direction.
"They use it as a dump site. It attracts drug dealers. It looks like a disgrace when we're trying so
hard," says Curtis, a 38-year-old teacher's aide who bought a home a few doors down.
Curtis complains. With the help of City Hall's Livable City Initiative, or LCI, she has gotten the fire
department to reboard the windows. She gets the city to clean up the illegally dumped garbage
from time to time.
But Curtis and her neighbors haven't been able to get action from the one entity that can change
the mess. Nor has City Hall. Because the city gave control of the property to a New Jersey
company as part of a multimillion dollar deal in a way that enriched the politically connected but
left marginal or rundown neighborhoods hostage and powerless.
The company is Breen Capital. Breen doesn't even own 495 Winthrop Ave., so it technically has no
legal responsibility for it. It has a lien on the property for unpaid back taxes. A notorious local
slumlord owns 495 Winthrop. He abandoned it (and other hovels around town) years ago. He left
thousands of dollars in unpaid debts. Unable to collect, city government sold the tax lien--and
more than 1,000 other such claims on properties with unpaid taxes--to Breen in the mid-'90s for
quick up-front cash.
Now the city must contend with the downside of that deal. Breen moved to profit from the more
valuable properties, settling tax debts or foreclosing and selling them off. But it has left to fester
more than 300 of the most destroyed properties in struggling neighborhoods. It retains overriding
liens--and thus control--while tax debts multiply. Neighbors or not-for-profit developers who may
want to fix the homes can't get at them without paying Breen far more than the properties are
worth.
Now those frustrated neighbors and would-be rebuilders are watching hundreds of abandoned
houses in Fair Haven, Edgewood, the Hill, Dixwell, Newhallville, run down their blocks while stuck
in Breen's grip. The stalemate has hit the city at a critical time: During an upturn in the economy,
people are investing in these struggling neighborhoods again. But a recession looms. Time might
run out. The revival of the entire city is at stake.
Even city government's hands are tied thanks to Breen.
"Everywhere I look, Breen has a lien," says Nick Torneo, who monitors and sells off city-owned
property. Torneo estimates he has handled as many as 50 inquiries over the past six months about
buying neglected properties, only to discover the city couldn't move on the properties because of
Breen liens.
"You get to the point if there's a Breen lien on it, there are enough other properties you want to
work on" that you move elsewhere, says city economic development chief Henry Fernandez. "The
fact that Breen owns the liens has stopped development in some areas. But we're working in
other areas."
City Hall's DeStefano administration, while still proud of the overall deal it struck with Breen, is
working to solve the problem. In coming weeks city officials hope to close a new deal with Breen
to regain control of those 300-some properties (out of 850 on which Breen still holds liens) and
start to clean them up.
"Breen has been a problem for us. That's why we want to take them back," Mayor John DeStefano
says. "Thankfully, we're in a financial position to do that now."
DeStefano says the city's improved financial position over the past seven years (rising from
near-junk-bond-grade ratings to a much more solid BBB+) will enable it to swallow several million
dollars in lost potential revenue in this new Breen deal.
"The city should be commended for trying to address this," says Board of Aldermen President
Jorge Perez. Perez has seen the problem firsthand where he lives on Cassius Street in the Hill
neighborhood. Three years ago, the city had to demolish a house there after a fire. Since then, a
grocer next door to the lot has wanted to buy it for off-street parking. But Breen holds the lien. It's
unwilling to foreclose unless it has a buyer ready to pay far more than the property is worth. With
debts on the property now over $40,000, but the property worth far less, it remains stymied.
"I don't think anyone foresaw" these problems, says Perez, who as aldermanic finance chairman
worked on the original Breen deal. "Not to pass the blame. We were rookies at this. We were one
of the first cities to do it. We made some of the learning-curve errors. Maybe we could have done
it different, but we didn't. Now it's important to go back and fix those mistakes."
Told Them So
When the city struck the first of its three Breen deals in '95, someone warned them about those
mistakes. The warning came from Kevin Skiest.
Skiest came up with the idea of selling tax liens in the first place. He pushed it when he ran for
mayor as a Republican against Democrat DeStefano in 1993. Like any wise politician, DeStefano
stole his opponent's idea after winning office.
But his administration crafted a deal that differed in important details from Skiest's idea. Skiest
calls DeStefano's approach a "corrupt but profitable way of doing it for everyone but the
taxpayers."
In these deals, a city sells its hard-to-collect tax debt to a company for, usually, less than 100 cents
on the dollar. The reasoning: The city won't collect most of these taxes. So it gets much of the
money, anyway--in New Haven's case, about 67 cents on the dollar in 1995, nearly face value in '96,
around 65 cents in '97. The buyer figures it won't collect on all the liens. But it will collect on many.
In other cases, it will make big money on the whopping 18 percent annual interest it can charge
people struggling to keep their homes. When the company can no longer soak those homeowners,
it can usually foreclose on the houses and resell them to recoup some of the money.
Breen has every incentive to skim off the most valuable properties--and leave alone the least
valuable, on which debts have grown higher than any potential sales price. That's a fundamental
problem with tax lien sales that now plagues cities throughout the state. (See accompanying story,
"Bottom of the Barrel.")
More important, DeStefano's administration played politics in the Breen deal. It negotiated the deal
with the Marcus Law Firm, headed by then-Democratic State Chairman Ed Marcus. Marcus brought
Breen into cities with Democratic mayors, like Hartford and Waterbury. Breen owners gave
campaign contributions to local Democratic officials like DeStefano. And Marcus served as the
attorney for the deals.
Marcus' role generated early controversy because of his firm's strong-arm tactics with delinquent
taxpayers. Old folks struggling to keep their homes would receive notices to contact Marcus
about their debt--and find themselves charged an hourly fee just for asking questions. Huge fees
would mount, so that already strapped people would have a hard time paying off legal charges and
interest, let alone the original debt. (See The Foreclosure Treadmill," Advocate, July 2, 1998.
Conservative estimates are that Marcus pocketed more than $1 million on the New Haven deal.
DeStefano, however, has always defended the Breen deal as a win-win for the city. He notes that it
brought the city $18 million in cash at a time when it hadn't yet arisen from recession. The city
leveraged that into about $90 million from the state to rebuild public school buildings--starting a
program that, he plans to announce this month, will eventually total $1 billion and cover all 43 city
schools.
Plus, DeStefano credits the Breen deal with helping the city improve its overall tax collection rate.
The rate has risen from a low of 86.5 percent in the mid-'90s to 94 percent, according to DeStefano.
He predicts it will hit 95 percent in 2001.
DeStefano is more open to the criticism of Marcus' role. He claims he had no idea Breen planned
to hire Marcus when he began negotiations. "Marcus showed up after we met Breen." He says he
assumed Breen would hire several law firms to pursue liens instead of just the Marcus Law Firm.
"Breen thought it would have been beneficial to get deals throughout the state by hiring Ed,"
DeStefano says. "We all know Ed did that. It didn't help my constituents. If I had to do it over again,
it's something I would have done differently. We've had a lot of issues with Marcus. A lot of
taxpayers who have had problems called here."
Problems? "We have no awareness of 'lots of complaints' and have no awareness of any
substantive complaint made to this office notwithstanding the number of files handled," Ed
Marcus writes in response to written questions from the Advocate.
He says DeStefano originally recommended eight law firms to Breen. Those firms "evidently did
not perform to Breen's satisfaction. The fact is, there was competition and Breen decided to utilize
our firm."
Another problem with the tax lien sale: When Breen does sell a property, its incentive--unlike that
of City Hall, which would otherwise hold the liens--is to find the buyer who will pay the most, not
necessarily the one who will best serve struggling neighborhoods. That means Breen has sold
dozens of properties to some of the same out-of-town speculators that the city has been hounding
for harming neighborhoods and possibly engaging in mortgage fraud.
In any case, as Jorge Perez points out, that was then, this is now. And now the Breen deal has left
behind hundreds of crucial, abandoned properties.
In a (Can't-) Fix
Angelo Reyes knows about the Breen problem firsthand. He sees it holding him--and a stretch of
Fair Haven--back. If someone were to write a textbook about rebuilding city neighborhoods at the
turn of the 21st century, it would feature Reyes as the model. He doesn't run a poverty-pimping
neighborhood group that devours government money and pays lots of salaries. He's not political.
He learned (while in jail, from a crooked mortgage broker) about real estate, came home to Fair
Haven to go straight and started fixing up abandoned homes one by one on devastated or
marginal streets. He's done 12 so far and has others in the hopper. He has found people living in
the neighborhood to buy some of his homes and dozens of others, doing their paperwork and
linking them with mortgage brokers. They end up paying no more for their mortgages than they did
in rent. And because they live in the neighborhood, they have more of a stake in keeping their
homes nice. (For Reyes' story, see "The Right Way," Advocate, Aug. 24, 2000.)
Reyes' approach: Concentrate on mini-neighborhoods. He has already worked wonders around
lower Lombard Street, near the Quinnipiac Terrace projects.
"It takes one bad house to make two houses next to it look terrible and lose value," says Reyes,
who's 35. "Insurance companies will not give you great coverage if the house next to you is
boarded up or burned down."
Enter Breen. Reyes has started working on the blocks around the intersection of Ferry and
Lombard streets--prime Breen territory. He has contacted Breen's reps at the Marcus Law Firm
about burned-out hulks there (as well as a nicer empty home near the Quinnipiac River on
Lombard). Usually, he says, "I call and get a machine," but no call back. Or he'll find out that Breen
wants close to $50,000 for a house that will take another $85,000 to fix--and never be worth
anywhere near a $135,000 mortgage.
"Breen is holding on to everything," he complains. "They got that deal. Fine. It's been years. What
they're doing now is holding the city back. They're creating a monopoly. The city needs to get
those properties back" before taxes pile up even higher and make it harder for anyone to reclaim
the land.
The boarded-up house at 619 Ferry St. shows how the Breen problem is also Fair Haven's problem.
The city first targeted that house and others near it in 1995. A slumlord was illegally housing
dozens of Mexican and Guatemalan farm workers in each of the apartments, which were
dangerously out of compliance with the building code. The city took the slumlord to court;
eventually he lost control of his houses, leaving big back tax bills. Breen got the lien on 619 Ferry
and has sat on the house ever since, as the difficulties of reviving it mount.
Reyes holds Mayor DeStefano partly responsible. He says DeStefano's recent State of the City
speech inspired him because it focused on helping nonpolitical people rebuild neighborhoods.
Reyes is looking for the city not to pour money into his effort, but to remove the obstacles it
created. "You can talk the talk, but you've gotta walk it," Reyes says. "If you want to help the little
man like us, find a way to get this back and let us fix Fair Haven."
City Hall's LCI recently mapped out Breen's tentacles in Fair Haven. In that neighborhood alone, it
found more than 60 rundown properties tied up by Breen liens. Some are clustered near the
Chapel Street bridge over the Mill River, where the city plans to build a new school. It wanted to
use the school as a springboard to clean up housing in the immediate area. That plan will have to
wait for a resolution of the Breen mess.
On some blocks, like Diane Curtis' stretch of Winthrop Avenue, Breen controls but one
troublesome hovel. Sometimes it practically controls the street: It has controlled up to six
separate disasters on Stevens Street, a long one-block road in the Hill where organized neighbors
have struggled to keep up their own properties and keep out crime.
Jim Paley, the city's most successful not-for-profit housing developer, has contended with Breen
across town in Edgewood. Paley runs Neighborhood Housing Services of New Haven, which
renovates neglected but sometimes stunning old homes with the help of state tax credits, then
helps mostly blue-collar people find a way to pay for them. Paley says he doesn't fault the original
idea of selling tax liens. He just wishes he and others had had a chance to go through the list of
liens for sale first and remove potentially redevelopable homes. (Even then, it would have been
impossible to predict all the properties that would eventually cause problems or turn into good
candidates for renewal in a future market.)
Paley has spent the past year scurrying to find Breen-liened properties on which the debt hasn't
yet accumulated so high as to prevent a workable sale and renovation. Mayor DeStefano puts the
number of Breen-neglected properties at around 350; Paley found 18 he felt he could swing with
the help of state tax credits. Unlike Reyes, Paley was able to do business with the Marcus Law
Firm. Breen has been foreclosing on those properties and gradually selling them to Paley for an
average of $15,000 apiece. After paying off back taxes and Breen/Marcus legal fees and
gut-rehabbing the homes, Paley feels he can help people buy two-family homes for between
$120,000 and $150,000. Taxpayers will contribute an average of $40,000 for each home through tax
credits, a subsidy that would have been considerably lower without the Breen sales.
Paley says Breen has been easy to deal with. He says they agreed to take somewhat of a loss on
these homes. One of the homes he hopes NHS will obtain in the deal: 495 Winthrop.
Endgame?
It remains to be seen whether Breen will be as easy for City Hall to deal with on the rest of the
300-plus properties dragging down New Haven's neighborhoods. Breen has an incentive: It
probably can't suck any more exorbitant fees or lucrative resales out of the properties. Might as
well get rid of them now.
DeStefano says the city first raised the idea of reclaiming these liens about a year ago. He says he
hopes to seal the deal sometime this spring.
Under the original lien sale, the liens won't expire until 2005. That's why DeStefano wants to
negotiate now.
Under the complex terms of this negotiation, the city will end up with a check. That's because
while the city will buy back the liens, under the original deal, Breen owed the city money upon
closing out files on each property. DeStefano says he expects the city to pick up a few million
dollars. He says that final amount will fall "several million" below what the city would ideally have
received if it waited for Breen to close out all the liens. Thanks to now-healthy government
finances, the city can afford that hit in the cause of neighborhood renewal, DeStefano argues. He
says his administration will move swiftly to foreclose on those properties, then try to turn them
over, unencumbered by tax liens, to rebuilders.
Breen will continue skimming, holding on to liens on about 500 properties it still considers
worthwhile. It has taken Breen more than five years so far to close out on even fewer properties
than that. So the city may, with luck, take care of the worst detritus of the Breen shipwreck. But
look for the New Jersey firm and its carnivorous local lawyers to continue preying on New Haven
neighborhoods for years to come.
Paul Bass can be reached at pbass@newhavenadvocate.com
Bottom of the Barrel
Poor neighborhoods around the state
suffer from the liens of Breen.
By Carole Bass
Five years ago, tax lien sales were supposed to be the greatest urban innovation since the
streetcar. Now the sales have come back to bite poor neighborhoods in Hartford, Waterbury, New
Haven and elsewhere.
"I begged them five years ago not to do this," says Adele Strelchun, executive director of
Neighborhood Housing Services of Waterbury. "I worried that we were losing control of these
properties in the inner city."
Her nonprofit organization, which develops affordable housing, depends on buying properties
cheaply after government has foreclosed on them. Where the city has sold its tax liens--its claims
on tax-delinquent property--to private investors, turning abandoned hulks into new homes isn't so
easy. NHS has had to alter its strategic plan for an entire neighborhood because of the tax liens.
In Hartford, the city is in court with lien-holder Breen Capital over who has the right to foreclose
on a polluted former factory site in the North End. The city and neighbors want to clean up the land
and put it to some good use. Breen, they say, is among the stumbling blocks.
"There's probably no single company in the state that's creating as many problems for cities as
Breen," says Bill Breetz, a lawyer who's representing the city in the dispute. "If this sale of tax
liens continues," Breetz predicts, "it will become the greatest drag on distressed neighborhoods
across the state."
"I don't know anything about that," snaps Douglas Breen, a principal in New Jersey-based Breen
Capital. "I have no comment." Asked whether someone else at Breen could address the
neighborhood complaints, Breen says: "Your newspaper is fond of making up stories and then
trying to get people to react to it. I don't have any comment on it. Goodbye."
His Connecticut lawyer, Ed Marcus of New Haven, has a little more to say, accepting written
questions from the Advocate, and responding in writing. In response to a question about Breetz's
criticism, Marcus writes: "To the best of our knowledge in all cases Breen provided funding to the
municipalities with which it dealt that was of substantial help to those municipalities in meeting
budget deficiencies and/or, such as in the case of New Haven, having funds with which to
construct schools and the like."
When cash-strapped Connecticut cities started selling their tax liens in the mid-'90s,
municipal-finance gurus hailed it as a brilliant solution. The recession had hit hard. Property
owners were behind on their taxes, and cities were behind on collections. Cities forged a variety
of deals, but they all boiled down to the same thing: The city got cash up front, though usually less
than full value. Then it was up to the investors to make their money back by collecting the taxes or
foreclosing and selling the properties.
One of the most active lien-buyers in Connecticut was Breen Capital. With Marcus, then the state
Democratic Party boss, as its lawyer, Breen swung millions of dollars worth of deals in New Haven,
Hartford and Waterbury.
Even from the start, though, there were critics. In New Haven, delinquent taxpayers complained of
heavy-handed collection taxes and exorbitant legal fees charged by the Marcus Law Firm. Some
deals--including in New Haven and Jersey City, N.J.--promised the city additional money after
collections reached a certain amount. It soon became clear that Breen had little incentive to
collect more than that amount.
And a few people had the foresight to recognize what has become the biggest problem of all: What
happens to the properties at the bottom of the barrel.
When the lien sales closed, some people rushed to pay off their back taxes and avoid foreclosure.
Other debtors set up payment plans and started sending Breen checks every month--at 18 percent
interest.
Of those who didn't pay, Breen skimmed the cream from the top of the barrel, picking the most
valuable properties for foreclosure. Since they were worth more than their liens, Breen profited
by selling them.
That left the most rundown properties in the most rundown neighborhoods--the buildings that, in
many cases, had been owned by slumlords or speculators who never cared about the
neighborhoods in the first place, and who didn't hesitate to walk away from their investments
when the taxes got too high.
Breen hasn't walked away. But it also hasn't moved to foreclose on many of these problem
properties, since they're worth less than the liens. And the for-profit company is less inclined than
government lien-holders to sell the buildings at low cost to neighborhood or nonprofit groups that
want to fix them up. So, observers in Hartford, Waterbury, New Haven and Jersey City say, Breen
ends up sitting on some of the worst properties.
"I felt, this is a bad deal for somebody," says Neighborhood Housing Services' Strelchun. "How can
a company make money buying tax liens on property that isn't worth the amount of the lien?"
People on Pliny Street in Hartford's North End may not care whether Breen can make money from
its liens on the old Proctor-Silex factory site. They just want the place cleaned up.
Environmental investigators have found chromium 6, the cancer-causing metal that Erin
Brockovich made famous, on the property. Somebody may be willing to pay to clean it up. But the
financial mess could be even harder to fix.
Breen holds a lien worth more than $100,000. City Hall holds other liens worth hundreds of
thousands of dollars, for taxes that accumulated after Breen's purchase and demolition costs. The
city has moved to foreclose.
Bill Breetz, representing the city, maintains that the city's liens take priority. In his written
response, Marcus counters: "Breen's position simply stated is that state statutes make it clear that
one lien holder cannot foreclose out the position of another. If the City wanted to acquire the
property all they would have to do would be to pay Breen the amount of the lien and the issue
would be resolved."
Florence Ehibor-Cole is executive director and CEO of My Sisters' Place, which provides housing
and services to homeless women and children. My Sisters' Place's transitional living facility is next
door to the Proctor-Silex site, and Ehibor-Cole says they've been interested in the property for a
decade. Breen's lien is just "one piece of the puzzle" that has kept the organization from acquiring
the land, she says--but it's "a significant piece."
Breetz, who also represents My Sisters' Place in his capacity as head of the Connecticut Urban
Legal Initiative at the University of Connecticut School of Law, estimates 80 to 90 properties
around Hartford are stuck in the same kind of lien hole as Pliny Street.
"You're left with a situation where [Breen] say[s], 'Gee, we can't get our money back. Let's just sit
on 'em and see what happens,'" he notes. "Nobody has an incentive to do anything. The city of
Hartford doesn't have an incentive, Breen doesn't have an incentive. It's a Mexican standoff. My
guess is, the only solution" is legislative.
He'd like to see a law that would give lien-holders--"not just Breen," he emphasizes--two or three
years to foreclose or lose their claims. Otherwise, Breetz says, "we're in a situation where these
properties will never be put back in the stream of commerce."
Strelchun says she and another Waterbury nonprofit housing developer have proposed a bill to
do just that, sponsored by state Rep. Jeffrey Berger of Waterbury.
"Somebody's going to have to eat these liens eventually," Strelchun says.
Marcus says putting a time limit on foreclosures "makes no sense. ... [T]here is no reason that the
tax lien acquirer should have their rights taken away from them."
In general, Marcus acknowledges, "There is no question but that [lien-buyers] do not proceed on
liens where they feel it is not in their economic self-interest. A municipality, however, has the right
to proceed on subsequent liens to do whatever it is that they deem to be appropriate, including
proceeding with their own foreclosure, taking title to the property and selling it to neighborhood
people." All the city needs to do is pay Breen for "the lien for which, remember, they have already
been compensated"--presumably at face value, although Breen usually pays far less.
Not everybody paints Breen as the big bad wolf. Strelchun's organization has bought two or three
Breen-liened properties, and she says the company has been reasonable to deal with. The bigger
problem, she says, is the process: She has to hire an appraiser--which costs money--and prove to
Breen that a property with, say, $21,000 in liens is worth worth $9,000. "It takes time, and time is
money."
As a result, she's learned to steer clear of properties with privately held liens. That has forced
Neighborhood Housing Services to deviate from its strategic plan for Waterbury's
Walnut-Orange-Walsh neighborhood: Instead of acquiring the properties where NHS thinks it can
make the most difference, she buys the ones where the taxes are paid up.
One area where NHS is working contains an abandoned mixed-use building. "The bank offered it
to us for free," Strelchun reports. "I looked at the tax liens: $50,000." The building wasn't worth
anywhere near that. "So we have this ugly mixed-use building sitting there, right in the middle of
where we're building new housing and a community learning center."
The real nightmare for Waterbury, Strelchun says, is a separate batch of liens that were sold to a
different company. That company transferred the liens to a second outfit, which then went
bankrupt. Strelchun hoped the bankruptcy court in Florida would allow the city of Waterbury to
take the liens back. Instead, the court approved their sale to a third company.
In Jersey City, which pioneered bulk tax lien sales in 1993 but then took Breen to court over the
deal, the mere mention of Breen's name--as in, "I'm working on an article about Breen
Capital"--elicits groans from people taking telephone messages. "They're not nice people," says
the receptionist for a city councilwoman. (The councilwoman herself didn't return Advocate phone
calls.)
But Tom Nickerson, head of the Jersey City Episcopal Community Development Corp., reports that
"the only experience we've had with Breen is a positive one."
His nonprofit agency needed a building for an AIDS residence. Breen sold them a place for less
than the company had paid.
Nonetheless, "the tax lien issue has been a disaster for the city," Nickerson says. "When a city
sells its tax liens, it loses its ability" to transfer properties quickly to nonprofit developers. "It
slowed down the redevelopment of nonmarketable buildings." But he doesn't pin that on Breen.
Dominic Aprile does. The New Jersey lawyer represented Jersey City in its suit against Breen.
Among other things, the suit complained that Breen wasn't working hard enough to collect money
that would eventually go back to the City Hall.
While the legal issues were mainly about money, the city was also concerned about the broader
consequences of Breen sitting on properties, Aprile says.
"You can't leave these properties just not paying taxes and being vacant. When Breen was kind of
treading water and not making headway [on collections], the economics of the city were taking a
downturn because of these properties sitting idle."
Carole Bass can be reached at cbass@newhavenadvocate.com.
Copyright 2001, 2007, New Mass Media. All Rights Reserved.
March 8, 2001
A dirty deal holds New Haven's neighborhoods hostage.
Mean, Lien & Breen
Paul Bass
To see how a political deal can hurt a neighborhood, visit Diane Curtis' block of Winthrop Avenue
just north of New Haven's Whalley Avenue. Like other pockets of the Edgewood neighborhood,
the block has resisted the decline that engulfed nearby stretches with burned-out buildings and
street crime. Working people have bought the close-together Victorian homes with their
sometimes-grand porches and architectural details. Just about all the homes give the message:
This is a block where people haven't given up.
One house says otherwise: 495 Winthrop. It's boarded up, but not well enough to keep out
determined intruders. Rotting porches. Broken glass and other trash all around. It takes just one
house like that, Curtis says, to discourage other people who might buy homes on the block and
keep it going in the right direction.
"They use it as a dump site. It attracts drug dealers. It looks like a disgrace when we're trying so
hard," says Curtis, a 38-year-old teacher's aide who bought a home a few doors down.
Curtis complains. With the help of City Hall's Livable City Initiative, or LCI, she has gotten the fire
department to reboard the windows. She gets the city to clean up the illegally dumped garbage
from time to time.
But Curtis and her neighbors haven't been able to get action from the one entity that can change
the mess. Nor has City Hall. Because the city gave control of the property to a New Jersey
company as part of a multimillion dollar deal in a way that enriched the politically connected but
left marginal or rundown neighborhoods hostage and powerless.
The company is Breen Capital. Breen doesn't even own 495 Winthrop Ave., so it technically has no
legal responsibility for it. It has a lien on the property for unpaid back taxes. A notorious local
slumlord owns 495 Winthrop. He abandoned it (and other hovels around town) years ago. He left
thousands of dollars in unpaid debts. Unable to collect, city government sold the tax lien--and
more than 1,000 other such claims on properties with unpaid taxes--to Breen in the mid-'90s for
quick up-front cash.
Now the city must contend with the downside of that deal. Breen moved to profit from the more
valuable properties, settling tax debts or foreclosing and selling them off. But it has left to fester
more than 300 of the most destroyed properties in struggling neighborhoods. It retains overriding
liens--and thus control--while tax debts multiply. Neighbors or not-for-profit developers who may
want to fix the homes can't get at them without paying Breen far more than the properties are
worth.
Now those frustrated neighbors and would-be rebuilders are watching hundreds of abandoned
houses in Fair Haven, Edgewood, the Hill, Dixwell, Newhallville, run down their blocks while stuck
in Breen's grip. The stalemate has hit the city at a critical time: During an upturn in the economy,
people are investing in these struggling neighborhoods again. But a recession looms. Time might
run out. The revival of the entire city is at stake.
Even city government's hands are tied thanks to Breen.
"Everywhere I look, Breen has a lien," says Nick Torneo, who monitors and sells off city-owned
property. Torneo estimates he has handled as many as 50 inquiries over the past six months about
buying neglected properties, only to discover the city couldn't move on the properties because of
Breen liens.
"You get to the point if there's a Breen lien on it, there are enough other properties you want to
work on" that you move elsewhere, says city economic development chief Henry Fernandez. "The
fact that Breen owns the liens has stopped development in some areas. But we're working in
other areas."
City Hall's DeStefano administration, while still proud of the overall deal it struck with Breen, is
working to solve the problem. In coming weeks city officials hope to close a new deal with Breen
to regain control of those 300-some properties (out of 850 on which Breen still holds liens) and
start to clean them up.
"Breen has been a problem for us. That's why we want to take them back," Mayor John DeStefano
says. "Thankfully, we're in a financial position to do that now."
DeStefano says the city's improved financial position over the past seven years (rising from
near-junk-bond-grade ratings to a much more solid BBB+) will enable it to swallow several million
dollars in lost potential revenue in this new Breen deal.
"The city should be commended for trying to address this," says Board of Aldermen President
Jorge Perez. Perez has seen the problem firsthand where he lives on Cassius Street in the Hill
neighborhood. Three years ago, the city had to demolish a house there after a fire. Since then, a
grocer next door to the lot has wanted to buy it for off-street parking. But Breen holds the lien. It's
unwilling to foreclose unless it has a buyer ready to pay far more than the property is worth. With
debts on the property now over $40,000, but the property worth far less, it remains stymied.
"I don't think anyone foresaw" these problems, says Perez, who as aldermanic finance chairman
worked on the original Breen deal. "Not to pass the blame. We were rookies at this. We were one
of the first cities to do it. We made some of the learning-curve errors. Maybe we could have done
it different, but we didn't. Now it's important to go back and fix those mistakes."
Told Them So
When the city struck the first of its three Breen deals in '95, someone warned them about those
mistakes. The warning came from Kevin Skiest.
Skiest came up with the idea of selling tax liens in the first place. He pushed it when he ran for
mayor as a Republican against Democrat DeStefano in 1993. Like any wise politician, DeStefano
stole his opponent's idea after winning office.
But his administration crafted a deal that differed in important details from Skiest's idea. Skiest
calls DeStefano's approach a "corrupt but profitable way of doing it for everyone but the
taxpayers."
In these deals, a city sells its hard-to-collect tax debt to a company for, usually, less than 100 cents
on the dollar. The reasoning: The city won't collect most of these taxes. So it gets much of the
money, anyway--in New Haven's case, about 67 cents on the dollar in 1995, nearly face value in '96,
around 65 cents in '97. The buyer figures it won't collect on all the liens. But it will collect on many.
In other cases, it will make big money on the whopping 18 percent annual interest it can charge
people struggling to keep their homes. When the company can no longer soak those homeowners,
it can usually foreclose on the houses and resell them to recoup some of the money.
Breen has every incentive to skim off the most valuable properties--and leave alone the least
valuable, on which debts have grown higher than any potential sales price. That's a fundamental
problem with tax lien sales that now plagues cities throughout the state. (See accompanying story,
"Bottom of the Barrel.")
More important, DeStefano's administration played politics in the Breen deal. It negotiated the deal
with the Marcus Law Firm, headed by then-Democratic State Chairman Ed Marcus. Marcus brought
Breen into cities with Democratic mayors, like Hartford and Waterbury. Breen owners gave
campaign contributions to local Democratic officials like DeStefano. And Marcus served as the
attorney for the deals.
Marcus' role generated early controversy because of his firm's strong-arm tactics with delinquent
taxpayers. Old folks struggling to keep their homes would receive notices to contact Marcus
about their debt--and find themselves charged an hourly fee just for asking questions. Huge fees
would mount, so that already strapped people would have a hard time paying off legal charges and
interest, let alone the original debt. (See The Foreclosure Treadmill," Advocate, July 2, 1998.
Conservative estimates are that Marcus pocketed more than $1 million on the New Haven deal.
DeStefano, however, has always defended the Breen deal as a win-win for the city. He notes that it
brought the city $18 million in cash at a time when it hadn't yet arisen from recession. The city
leveraged that into about $90 million from the state to rebuild public school buildings--starting a
program that, he plans to announce this month, will eventually total $1 billion and cover all 43 city
schools.
Plus, DeStefano credits the Breen deal with helping the city improve its overall tax collection rate.
The rate has risen from a low of 86.5 percent in the mid-'90s to 94 percent, according to DeStefano.
He predicts it will hit 95 percent in 2001.
DeStefano is more open to the criticism of Marcus' role. He claims he had no idea Breen planned
to hire Marcus when he began negotiations. "Marcus showed up after we met Breen." He says he
assumed Breen would hire several law firms to pursue liens instead of just the Marcus Law Firm.
"Breen thought it would have been beneficial to get deals throughout the state by hiring Ed,"
DeStefano says. "We all know Ed did that. It didn't help my constituents. If I had to do it over again,
it's something I would have done differently. We've had a lot of issues with Marcus. A lot of
taxpayers who have had problems called here."
Problems? "We have no awareness of 'lots of complaints' and have no awareness of any
substantive complaint made to this office notwithstanding the number of files handled," Ed
Marcus writes in response to written questions from the Advocate.
He says DeStefano originally recommended eight law firms to Breen. Those firms "evidently did
not perform to Breen's satisfaction. The fact is, there was competition and Breen decided to utilize
our firm."
Another problem with the tax lien sale: When Breen does sell a property, its incentive--unlike that
of City Hall, which would otherwise hold the liens--is to find the buyer who will pay the most, not
necessarily the one who will best serve struggling neighborhoods. That means Breen has sold
dozens of properties to some of the same out-of-town speculators that the city has been hounding
for harming neighborhoods and possibly engaging in mortgage fraud.
In any case, as Jorge Perez points out, that was then, this is now. And now the Breen deal has left
behind hundreds of crucial, abandoned properties.
In a (Can't-) Fix
Angelo Reyes knows about the Breen problem firsthand. He sees it holding him--and a stretch of
Fair Haven--back. If someone were to write a textbook about rebuilding city neighborhoods at the
turn of the 21st century, it would feature Reyes as the model. He doesn't run a poverty-pimping
neighborhood group that devours government money and pays lots of salaries. He's not political.
He learned (while in jail, from a crooked mortgage broker) about real estate, came home to Fair
Haven to go straight and started fixing up abandoned homes one by one on devastated or
marginal streets. He's done 12 so far and has others in the hopper. He has found people living in
the neighborhood to buy some of his homes and dozens of others, doing their paperwork and
linking them with mortgage brokers. They end up paying no more for their mortgages than they did
in rent. And because they live in the neighborhood, they have more of a stake in keeping their
homes nice. (For Reyes' story, see "The Right Way," Advocate, Aug. 24, 2000.)
Reyes' approach: Concentrate on mini-neighborhoods. He has already worked wonders around
lower Lombard Street, near the Quinnipiac Terrace projects.
"It takes one bad house to make two houses next to it look terrible and lose value," says Reyes,
who's 35. "Insurance companies will not give you great coverage if the house next to you is
boarded up or burned down."
Enter Breen. Reyes has started working on the blocks around the intersection of Ferry and
Lombard streets--prime Breen territory. He has contacted Breen's reps at the Marcus Law Firm
about burned-out hulks there (as well as a nicer empty home near the Quinnipiac River on
Lombard). Usually, he says, "I call and get a machine," but no call back. Or he'll find out that Breen
wants close to $50,000 for a house that will take another $85,000 to fix--and never be worth
anywhere near a $135,000 mortgage.
"Breen is holding on to everything," he complains. "They got that deal. Fine. It's been years. What
they're doing now is holding the city back. They're creating a monopoly. The city needs to get
those properties back" before taxes pile up even higher and make it harder for anyone to reclaim
the land.
The boarded-up house at 619 Ferry St. shows how the Breen problem is also Fair Haven's problem.
The city first targeted that house and others near it in 1995. A slumlord was illegally housing
dozens of Mexican and Guatemalan farm workers in each of the apartments, which were
dangerously out of compliance with the building code. The city took the slumlord to court;
eventually he lost control of his houses, leaving big back tax bills. Breen got the lien on 619 Ferry
and has sat on the house ever since, as the difficulties of reviving it mount.
Reyes holds Mayor DeStefano partly responsible. He says DeStefano's recent State of the City
speech inspired him because it focused on helping nonpolitical people rebuild neighborhoods.
Reyes is looking for the city not to pour money into his effort, but to remove the obstacles it
created. "You can talk the talk, but you've gotta walk it," Reyes says. "If you want to help the little
man like us, find a way to get this back and let us fix Fair Haven."
City Hall's LCI recently mapped out Breen's tentacles in Fair Haven. In that neighborhood alone, it
found more than 60 rundown properties tied up by Breen liens. Some are clustered near the
Chapel Street bridge over the Mill River, where the city plans to build a new school. It wanted to
use the school as a springboard to clean up housing in the immediate area. That plan will have to
wait for a resolution of the Breen mess.
On some blocks, like Diane Curtis' stretch of Winthrop Avenue, Breen controls but one
troublesome hovel. Sometimes it practically controls the street: It has controlled up to six
separate disasters on Stevens Street, a long one-block road in the Hill where organized neighbors
have struggled to keep up their own properties and keep out crime.
Jim Paley, the city's most successful not-for-profit housing developer, has contended with Breen
across town in Edgewood. Paley runs Neighborhood Housing Services of New Haven, which
renovates neglected but sometimes stunning old homes with the help of state tax credits, then
helps mostly blue-collar people find a way to pay for them. Paley says he doesn't fault the original
idea of selling tax liens. He just wishes he and others had had a chance to go through the list of
liens for sale first and remove potentially redevelopable homes. (Even then, it would have been
impossible to predict all the properties that would eventually cause problems or turn into good
candidates for renewal in a future market.)
Paley has spent the past year scurrying to find Breen-liened properties on which the debt hasn't
yet accumulated so high as to prevent a workable sale and renovation. Mayor DeStefano puts the
number of Breen-neglected properties at around 350; Paley found 18 he felt he could swing with
the help of state tax credits. Unlike Reyes, Paley was able to do business with the Marcus Law
Firm. Breen has been foreclosing on those properties and gradually selling them to Paley for an
average of $15,000 apiece. After paying off back taxes and Breen/Marcus legal fees and
gut-rehabbing the homes, Paley feels he can help people buy two-family homes for between
$120,000 and $150,000. Taxpayers will contribute an average of $40,000 for each home through tax
credits, a subsidy that would have been considerably lower without the Breen sales.
Paley says Breen has been easy to deal with. He says they agreed to take somewhat of a loss on
these homes. One of the homes he hopes NHS will obtain in the deal: 495 Winthrop.
Endgame?
It remains to be seen whether Breen will be as easy for City Hall to deal with on the rest of the
300-plus properties dragging down New Haven's neighborhoods. Breen has an incentive: It
probably can't suck any more exorbitant fees or lucrative resales out of the properties. Might as
well get rid of them now.
DeStefano says the city first raised the idea of reclaiming these liens about a year ago. He says he
hopes to seal the deal sometime this spring.
Under the original lien sale, the liens won't expire until 2005. That's why DeStefano wants to
negotiate now.
Under the complex terms of this negotiation, the city will end up with a check. That's because
while the city will buy back the liens, under the original deal, Breen owed the city money upon
closing out files on each property. DeStefano says he expects the city to pick up a few million
dollars. He says that final amount will fall "several million" below what the city would ideally have
received if it waited for Breen to close out all the liens. Thanks to now-healthy government
finances, the city can afford that hit in the cause of neighborhood renewal, DeStefano argues. He
says his administration will move swiftly to foreclose on those properties, then try to turn them
over, unencumbered by tax liens, to rebuilders.
Breen will continue skimming, holding on to liens on about 500 properties it still considers
worthwhile. It has taken Breen more than five years so far to close out on even fewer properties
than that. So the city may, with luck, take care of the worst detritus of the Breen shipwreck. But
look for the New Jersey firm and its carnivorous local lawyers to continue preying on New Haven
neighborhoods for years to come.
Paul Bass can be reached at pbass@newhavenadvocate.com
Bottom of the Barrel
Poor neighborhoods around the state
suffer from the liens of Breen.
By Carole Bass
Five years ago, tax lien sales were supposed to be the greatest urban innovation since the
streetcar. Now the sales have come back to bite poor neighborhoods in Hartford, Waterbury, New
Haven and elsewhere.
"I begged them five years ago not to do this," says Adele Strelchun, executive director of
Neighborhood Housing Services of Waterbury. "I worried that we were losing control of these
properties in the inner city."
Her nonprofit organization, which develops affordable housing, depends on buying properties
cheaply after government has foreclosed on them. Where the city has sold its tax liens--its claims
on tax-delinquent property--to private investors, turning abandoned hulks into new homes isn't so
easy. NHS has had to alter its strategic plan for an entire neighborhood because of the tax liens.
In Hartford, the city is in court with lien-holder Breen Capital over who has the right to foreclose
on a polluted former factory site in the North End. The city and neighbors want to clean up the land
and put it to some good use. Breen, they say, is among the stumbling blocks.
"There's probably no single company in the state that's creating as many problems for cities as
Breen," says Bill Breetz, a lawyer who's representing the city in the dispute. "If this sale of tax
liens continues," Breetz predicts, "it will become the greatest drag on distressed neighborhoods
across the state."
"I don't know anything about that," snaps Douglas Breen, a principal in New Jersey-based Breen
Capital. "I have no comment." Asked whether someone else at Breen could address the
neighborhood complaints, Breen says: "Your newspaper is fond of making up stories and then
trying to get people to react to it. I don't have any comment on it. Goodbye."
His Connecticut lawyer, Ed Marcus of New Haven, has a little more to say, accepting written
questions from the Advocate, and responding in writing. In response to a question about Breetz's
criticism, Marcus writes: "To the best of our knowledge in all cases Breen provided funding to the
municipalities with which it dealt that was of substantial help to those municipalities in meeting
budget deficiencies and/or, such as in the case of New Haven, having funds with which to
construct schools and the like."
When cash-strapped Connecticut cities started selling their tax liens in the mid-'90s,
municipal-finance gurus hailed it as a brilliant solution. The recession had hit hard. Property
owners were behind on their taxes, and cities were behind on collections. Cities forged a variety
of deals, but they all boiled down to the same thing: The city got cash up front, though usually less
than full value. Then it was up to the investors to make their money back by collecting the taxes or
foreclosing and selling the properties.
One of the most active lien-buyers in Connecticut was Breen Capital. With Marcus, then the state
Democratic Party boss, as its lawyer, Breen swung millions of dollars worth of deals in New Haven,
Hartford and Waterbury.
Even from the start, though, there were critics. In New Haven, delinquent taxpayers complained of
heavy-handed collection taxes and exorbitant legal fees charged by the Marcus Law Firm. Some
deals--including in New Haven and Jersey City, N.J.--promised the city additional money after
collections reached a certain amount. It soon became clear that Breen had little incentive to
collect more than that amount.
And a few people had the foresight to recognize what has become the biggest problem of all: What
happens to the properties at the bottom of the barrel.
When the lien sales closed, some people rushed to pay off their back taxes and avoid foreclosure.
Other debtors set up payment plans and started sending Breen checks every month--at 18 percent
interest.
Of those who didn't pay, Breen skimmed the cream from the top of the barrel, picking the most
valuable properties for foreclosure. Since they were worth more than their liens, Breen profited
by selling them.
That left the most rundown properties in the most rundown neighborhoods--the buildings that, in
many cases, had been owned by slumlords or speculators who never cared about the
neighborhoods in the first place, and who didn't hesitate to walk away from their investments
when the taxes got too high.
Breen hasn't walked away. But it also hasn't moved to foreclose on many of these problem
properties, since they're worth less than the liens. And the for-profit company is less inclined than
government lien-holders to sell the buildings at low cost to neighborhood or nonprofit groups that
want to fix them up. So, observers in Hartford, Waterbury, New Haven and Jersey City say, Breen
ends up sitting on some of the worst properties.
"I felt, this is a bad deal for somebody," says Neighborhood Housing Services' Strelchun. "How can
a company make money buying tax liens on property that isn't worth the amount of the lien?"
People on Pliny Street in Hartford's North End may not care whether Breen can make money from
its liens on the old Proctor-Silex factory site. They just want the place cleaned up.
Environmental investigators have found chromium 6, the cancer-causing metal that Erin
Brockovich made famous, on the property. Somebody may be willing to pay to clean it up. But the
financial mess could be even harder to fix.
Breen holds a lien worth more than $100,000. City Hall holds other liens worth hundreds of
thousands of dollars, for taxes that accumulated after Breen's purchase and demolition costs. The
city has moved to foreclose.
Bill Breetz, representing the city, maintains that the city's liens take priority. In his written
response, Marcus counters: "Breen's position simply stated is that state statutes make it clear that
one lien holder cannot foreclose out the position of another. If the City wanted to acquire the
property all they would have to do would be to pay Breen the amount of the lien and the issue
would be resolved."
Florence Ehibor-Cole is executive director and CEO of My Sisters' Place, which provides housing
and services to homeless women and children. My Sisters' Place's transitional living facility is next
door to the Proctor-Silex site, and Ehibor-Cole says they've been interested in the property for a
decade. Breen's lien is just "one piece of the puzzle" that has kept the organization from acquiring
the land, she says--but it's "a significant piece."
Breetz, who also represents My Sisters' Place in his capacity as head of the Connecticut Urban
Legal Initiative at the University of Connecticut School of Law, estimates 80 to 90 properties
around Hartford are stuck in the same kind of lien hole as Pliny Street.
"You're left with a situation where [Breen] say[s], 'Gee, we can't get our money back. Let's just sit
on 'em and see what happens,'" he notes. "Nobody has an incentive to do anything. The city of
Hartford doesn't have an incentive, Breen doesn't have an incentive. It's a Mexican standoff. My
guess is, the only solution" is legislative.
He'd like to see a law that would give lien-holders--"not just Breen," he emphasizes--two or three
years to foreclose or lose their claims. Otherwise, Breetz says, "we're in a situation where these
properties will never be put back in the stream of commerce."
Strelchun says she and another Waterbury nonprofit housing developer have proposed a bill to
do just that, sponsored by state Rep. Jeffrey Berger of Waterbury.
"Somebody's going to have to eat these liens eventually," Strelchun says.
Marcus says putting a time limit on foreclosures "makes no sense. ... [T]here is no reason that the
tax lien acquirer should have their rights taken away from them."
In general, Marcus acknowledges, "There is no question but that [lien-buyers] do not proceed on
liens where they feel it is not in their economic self-interest. A municipality, however, has the right
to proceed on subsequent liens to do whatever it is that they deem to be appropriate, including
proceeding with their own foreclosure, taking title to the property and selling it to neighborhood
people." All the city needs to do is pay Breen for "the lien for which, remember, they have already
been compensated"--presumably at face value, although Breen usually pays far less.
Not everybody paints Breen as the big bad wolf. Strelchun's organization has bought two or three
Breen-liened properties, and she says the company has been reasonable to deal with. The bigger
problem, she says, is the process: She has to hire an appraiser--which costs money--and prove to
Breen that a property with, say, $21,000 in liens is worth worth $9,000. "It takes time, and time is
money."
As a result, she's learned to steer clear of properties with privately held liens. That has forced
Neighborhood Housing Services to deviate from its strategic plan for Waterbury's
Walnut-Orange-Walsh neighborhood: Instead of acquiring the properties where NHS thinks it can
make the most difference, she buys the ones where the taxes are paid up.
One area where NHS is working contains an abandoned mixed-use building. "The bank offered it
to us for free," Strelchun reports. "I looked at the tax liens: $50,000." The building wasn't worth
anywhere near that. "So we have this ugly mixed-use building sitting there, right in the middle of
where we're building new housing and a community learning center."
The real nightmare for Waterbury, Strelchun says, is a separate batch of liens that were sold to a
different company. That company transferred the liens to a second outfit, which then went
bankrupt. Strelchun hoped the bankruptcy court in Florida would allow the city of Waterbury to
take the liens back. Instead, the court approved their sale to a third company.
In Jersey City, which pioneered bulk tax lien sales in 1993 but then took Breen to court over the
deal, the mere mention of Breen's name--as in, "I'm working on an article about Breen
Capital"--elicits groans from people taking telephone messages. "They're not nice people," says
the receptionist for a city councilwoman. (The councilwoman herself didn't return Advocate phone
calls.)
But Tom Nickerson, head of the Jersey City Episcopal Community Development Corp., reports that
"the only experience we've had with Breen is a positive one."
His nonprofit agency needed a building for an AIDS residence. Breen sold them a place for less
than the company had paid.
Nonetheless, "the tax lien issue has been a disaster for the city," Nickerson says. "When a city
sells its tax liens, it loses its ability" to transfer properties quickly to nonprofit developers. "It
slowed down the redevelopment of nonmarketable buildings." But he doesn't pin that on Breen.
Dominic Aprile does. The New Jersey lawyer represented Jersey City in its suit against Breen.
Among other things, the suit complained that Breen wasn't working hard enough to collect money
that would eventually go back to the City Hall.
While the legal issues were mainly about money, the city was also concerned about the broader
consequences of Breen sitting on properties, Aprile says.
"You can't leave these properties just not paying taxes and being vacant. When Breen was kind of
treading water and not making headway [on collections], the economics of the city were taking a
downturn because of these properties sitting idle."
Carole Bass can be reached at cbass@newhavenadvocate.com.
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