A six-year conspiracy by veteran real estate investors to rig bids and stifle competition at tax sale auctions made two chief organizers at least $10 million, largely from fees homeowners paid to keep from losing their properties, according to federal prosecutors.
Though many details remain under seal in U.S. District Court in Baltimore, prosecutors allege that from 2002 through 2007 the pair acted to corrupt nearly two dozen municipal tax sales in Baltimore and five other Maryland jurisdictions, including Montgomery and Prince George’s counties in the Washington, D.C. suburbs.
Every year, local governments in Maryland sell investors the right to collect unpaid taxes and municipal fees, often for a few hundred dollars or less. Lien holders can sue to take the property of those who fail to pay them.
The tax sale conspiracy deprived local governments of revenue from higher bids even as it enriched Baltimore County lawyer Harvey M. Nusbaum and his longtime real estate investment partner Jack W. Stollof, court records show.
“This was a crime of greed,” prosecutors wrote in court papers.
Both men have pleaded guilty to felony charges of bid rigging. On May 4, U.S. District Court Judge J. Frederick Motz sentenced Nusbaum, 72, to a year and a day in federal prison as well as an $800,000 fine. Stollof is awaiting sentencing.
Prosecutors won court approval earlier this year to seal records naming most of the co-conspirators and outlining their roles, citing an ongoing criminal investigation by the Justice Department’s antitrust division in Washington.
Yet court filings provide a glimpse inside the scheme that, prosecutors allege, evolved into a “gentleman’s agreement” to split up the property liens for sale and refrain from bidding on liens assigned to other members of the conspiracy.
According to the government, Stollof and Nusbaum bought thousands of municipal liens and then used the court system to threaten homeowners with seizure of their properties unless they paid legal fees, interest and other charges. These fees often totaled 10 times the original debt.
Nusbaum, a former Internal Revenue Service agent, filed some 6,000 lawsuits over the six-year period to foreclose on the property on which the men held liens, according to the government. He generated an estimated $6 million in legal fees as a result. The men split about $1.5 million in interest charges, according to prosecutors.
The homeowners cited in the case ranged from several Baltimore residents stuck with thousands of dollars in fees after they failed to pay water bills of a few hundred dollars to the owners of a parking space at a North Bethesda condominium. In that case, a $199.57 lien on the parking space cost $3,697 to redeem, according to court records.
In court documents, one man said he owed a water bill on a property on South Warner Street in Baltimore and ended up in the tax sale as a result. He said that when he called the Nusbaum law office and demanded an explanation for $4,000 in charges he was told: “You will pay, everybody does.”
In a second case cited by prosecutors, an 80-year-old widow with a $369.86 outstanding water bill sold in the 2005 Baltimore tax sale was billed more than $5,000, according to court records.
In another case, Rosa D. Carmon wrote that she had received a call from Stollof in October 2007, telling her he had bought a $346 water bill lien on a home she owned on Nuth Avenue in Baltimore. Her cousin was renting the property at the time and had failed to pay the bill.
Stollof later told the divorced mother of four that it would take $4,256 to redeem the property, according to Carmon’s affidavit. “I shared with him that I thought this was outrageous and that I didn’t have that kind of money,” she wrote.
Stollof and Nusbaum’s role in the tax sale business first came to light in 2007, when The Baltimore Sun exposed how three investment groups had won about two-thirds of the liens auctioned off. Later that year, the FBI raided Stolloff’s and Nusbaum’s offices and that of a third man as part of the bid rigging investigation that prompted the criminal charges in 2009.
As he stood before Motz at the May 4 sentencing hearing, Nusbaum said he was “stunned” by the FBI raid because he didn’t realize his conduct in bidding for tax liens had been illegal. He called it the “worst moment of my life.”
Stollof also contends that he didn’t know he was violating any laws.
Legal papers filed by his defense team describe him as a “not highly educated man” who relied on lawyers around him for advice. Stollof, his lawyers wrote, “achieved his success through hard work, handshakes and honesty.”