Poverty landlords Janet Dawson and Michael Steinbach found a way to make money in the recession—stop paying the bank, let properties deteriorate, but continue collecting tens of thousands of dollars a month in checks from New Haven’s housing authority.
The Housing Authority of New Haven (HANH) is sending Section 8 federal rent subsidy checks to Dawson’s and Steinbach’s various corporate entities for at least 73 rental apartments, according to HANH. That amounted to nearly $80,000 paid out by HANH to the two for the month of October alone.
Meanwhile, lenders are foreclosing on their homes across town. And even though Dawson and Steinbach stopped paying their mortgages on the properties, that hasn’t stopped New Haven’s housing authority from continuing to send them rent checks.
Tenants continue to live in some of the buildings being foreclosed on. They pay their portions of rent to the landlords, too.
And another arm of government, City Hall’s Livable City Initiative (LCI), was chasing after Dawson and Steinbach to make sure their buildings were safe.
Call it one of the more curious side stories of New Haven’s foreclosure crisis—how problem landlords can get mortgages to fix up houses that remain blighted, stiff their lenders, yet continue to rake in government cash.
That’s the situation, for instance, at five properties which the Independent visited and examined court and city records about: on Orchard Street in Dwight, Stevens and Redfield Streets in the Hill, Dover Street in Fair Haven, and West Hazel Street in Newhallville.
The slumlord team emerged in the mid-1990s buying up multifamily houses in New Haven for next to nothing and renting them, in dilapidated conditions, to whoever would live there. They own hundreds of properties.
Dawson and Steinbach used to operate under the corporate umbrella of now-defunct Apple Management LLC, which painted most of its houses a bright red. The color is now peeling off many of those properties as they’ve transferred title to new corporate entities.
“They’re literally painting the town red with blight,” says Rafael Ramos, head of code enforcement for LCI. (Click here to read an earlier New Haven Advocate story about Apple’s practices.)
In some cases, Dawson and Steinbach took out mortgages on the houses for ten or more times their purchase price, and never paid a dime of the loan. When banks issued foreclosure summonses, they stalled the lawsuits for as long as three years and continued to collect rent from unsuspecting tenants the whole time.
That’s what happened in the case of five houses whose files were examined by the Independent, except that the government was paying most of the rent under the federal Section 8 program.
Most of the lawsuits are still pending. Landlords have the right to collect until the lender takes over the properties.
Housing authority Executive Director Karen DuBois-Walton was asked why her agency is keeping the landlords in business.
“I have a concern about the quality of the house, not the foreclosure status,” said DuBois-Walton (who moonlights as Mayor John DeStefano’s reelection campaign treasurer). “All we would be involved in is making sure that the house is passing code. I just need to know that it’s safe and decent housing.”
Records show every single one of these five houses has failed multiple Section 8 health and safety inspections.
“if you’re a landlord, you are obligated to provide safe, decent housing for your tenants and that’s what Section 8 is supposed to confirm,” said Carla Weil, executive director of the Greater New Haven Community Loan Fund. “This is probably less-monitored now than it has been in the past [because of shrinking city coffers].”
“When people use real estate as their means of making a living, they have a responsibility to do it in a manner that’s responsible to their tenants and that’s not always the case,” Weil said. “If you’re making money, we understand that’s part of the goal. But it shouldn’t be at the expense of your tenants.”
Reached at her office at 238 Butler St. (pictured) Monday afternoon, Dawson refused to comment on her business practices or be photographed.
“You guys always write bad stuff about us,” she said. “Just write whatever you want.”
A petite woman with long, blond hair and tanned skin (Dawson and Steinbach used to live in New Haven; they now live in Fort Lauderdale, FL), Dawson instructed her three-person office staff at Butler Street not to speak to reporters.
An album with a red velvet cover sits on the table in the lobby of her office with pictures of various properties. Several of them have foreclosure lawsuits pending against them. The property pictured in the album, 50-52 Blake St., has Section 8 tenants and has had a foreclosure lawsuit pending on it since 2009.
Asked whether those properties were being advertised for immediate rental, Dawson responded by taking away the album.
Here’s how she and Steinbach operated on five of the Section 8 properties on which lenders are foreclosing:
Janet Dawson’s name first shows up in land records for this property in September of 1995, when she acquired it from People’s Bank for $8,000. Over the next several years she took out a series of mortgages on the property increasing in value from $48,100 to nearly $180,000.
You wouldn’t know that from looking at the house.
For most of the time Dawson has owned the house, tenant Jennifer (who declined to give her last name in an interview) said, she was living there with several kids. How the property could have increased so much in value is anybody’s guess, she said. She has lived with rodents, roaches, exposed pipes, and pulled-out walls, none of which were ever fixed.
According to an appraisal document from 2010 that was included in court foreclosure filings, an “external inspection” of the property found the house to be worth $83,000.
“We’ve been trying to move out of this house for years,” said Jennifer. But finding another four-bedroom apartment in the city isn’t easy.
She declined to let a reporter take any pictures of the infractions, but yearly inspection reports required by the federal Department of Housing and Urban Development (HUD) for Section 8 properties cite rotted sink bottoms, broken glass, holes in walls and ceilings, and entire floors in need of replacement. In 2009, the city’s health department sent a notice to Dawson for toxic levels of lead in more than 20 places throughout the house.
In May of 2010 Wells Fargo Bank sued Dawson, claiming she owed $143,000 and hadn’t paid. More than a year of legal wrangling later, tenants were still living there. HANH was still paying Dawson $1,254 a month in rent.
In July the government refused to pay any more rent, because the property had failed three health inspections in the span of several weeks and Dawson didn’t respond to any of LCI’s demands to fix the problems.
Now Jennifer and her family have to move out or they’ll lose their Section 8 voucher. It’s their responsibility to find a new place.
“In spite of all this foreclosure, the rental market is still quite tight,” said the Loan Fund’s Carla Weil. “You can tell people to just get up and move, but it’s not always that easy.”
How did Dawson manage to collect rent on a property in foreclosure for over a year, on the government’s tab?
In part by dragging out the foreclosure process.
It took months for the bank to get a formal response from Dawson (who has a listed address in Connecticut while living in Fort Lauderdale) on the Orchard Street property foreclosure, according to the court file. Wells Fargo Bank tried to force a default. Dawson’s attorney, William Carter, finally replied in September, about five months after the lawsuit was filed.
“A large volume of pleadings were due to the court over the course of two weeks when the office was short-staffed due to transitions,” Carter’s statement read, explaining why he hadn’t answered earlier.
Carter, who is based in East Berlin, Connecticut, did not respond to several phone messages seeking comment.
On the same day he filed his reply, Carter filed a formal answer to the foreclosure suit, listing two “special defenses”: First, that the bank never gave Dawson a copy of the foreclosure notice. Second, that “the Defendant is a victim of an unprecedented and historic, economic predicament,” having received no public assistance compared to the bank’s $25 billion federal bailout.
Those were among the last documents filed in the suit, which is still pending. Others have been adjudicated, but not without even more complex legal wrangling.
First County Bank started its lawsuit against Dawson for failure to pay $187,600 toward the mortgage she took out on this house in October of 2009. But it was only two weeks ago that the house was taken over and tenants living on the first floor, whose $1,180 per month rent was being paid largely by HANH, actually moved out.
Court records show tactics indicating Dawson tried to stall the suit, including filing for bankruptcy twice. Attorney Carter also asked for 60-day time extensions, claiming he needed more time to meet with Dawson because she lives out of state and because First County Bank had six foreclosure lawsuits against her which “emanate from complex transactions.”
In July of this year, the plaintiffs suddenly changed: First County Bank assigned the mortgage Dawson owed to a newly created company, Elite Property Investments LLC. It was that company that finally foreclosed on 176 Dover on Oct. 19, 2011.
The tenants living on the first floor knew they needed to move out this time around. The tenants on the second floor didn’t; their rent is also being paid by the government in a Section 8 subsidy program administered by a contractor, J D’Amelia & Associates.
That tenant, who declined to give her name, said she wasn’t informed of any foreclosure lawsuit.
Two years ago, she said, “I had heard through the channels that this house was in foreclosure.” So she called Dawson’s local office and asked if it was true.
“They said, ‘Oh no no no,’” she recalled. “They told me to keep paying my rent. They kept telling me they were going to evict me [if she didn’t pay].”
Section 8 tenants pay a portion of their rent; the government subsidizes the rest.
So the tenant kept paying. A few months ago, a lawyer suggested she look at the actual land records, which showed the house indeed was in foreclosure. So she called the office once again.
“I told them, I want my money back,” she said. “That’s when they got quiet.”
Amy Eppler-Epstein, a lawyer with New Haven legal aid, said she’d rather see Dawson try to keep the properties than let the banks foreclose on them. And Dawson wouldn’t have much chance at keeping them if she weren’t getting any rental income from the properties. Eppler-Epstein said.
“I think the foreclosure crisis is a real one for lots of landlords. And having them wholesale lose 80 properties to banks for foreclosure is much more of a nightmare than having them fighting them and trying to keep them,” she said. “Having properties owned by a landlord, whether a good one or a mediocre one, can often be better than being owned by the bank.”
No tenants interviewed described Dawson or her affiliates as even “mediocre.” The tenant at 176 Dover also dealt with dilapidated conditions that were just patched over in order to barely pass Section 8 health inspections, she claimed.
176 Dover wasn’t due for an inspection this year, since a new federal rule allows inspectors to skip a house if it passed its last two inspections. But when the LCI’s Rafael Ramos found out the house was in foreclosure, he decided to pay a surprise visit this month.
“We’re going to make this landlord fix this,” he said to the tenant as he looked around the apartment. His biggest concern: a hole in the basement chimney “big enough to put my head in it.” If anyone tried to turn on the oil, the entire basement would fill up with smoke.
“The fire department’s going to be here,” said Ramos. “I need that taken care of today.”
The third floor of the building has been empty for a while. In February of 2010—while the foreclosure lawsuit was still going—Dawson sued those tenants for not paying their rent, and won.
Janet Dawson and Michael Steinbach won a suit against the tenants at this property for not paying their rent in 2008. About a year later, Steinbach was sued for failing to pay the mortgage. It took two years for the court to issue a $180,000 judgment, plus a $345 appraisal fee and $1,200 in legal fees. In October the property was foreclosed on by Elite Property Investments, LLC, with legal delaying tactics identical to those in the suit for 176 Dover St.
During that time Steinbach received $1,249 per month for rent from HANH. He made the bare minimum of fixes after inspectors failed the house multiple times for exposed wires and floors in danger of collapse.
An appraisal report included in the court filings from June 2011 value the house at $60,000, noting “the dwelling’s roof appears to be at the end of its life condition on the main portion of the house.”
The same month, inspectors failed the house three times in four weeks. HANH stopped paying Steinbach rent in September and tenants moved out about two weeks ago.
Around the time the foreclosure lawsuit was filed, Michael Steinbach quit-claimed the property to Apple Holdings LLC, meaning he transferred rights to it for a dollar. That’s a typical move for landlords dealing with properties in foreclosure.
Steinbach and Dawson quit claim their properties back and forth among dozens of limited liability corporations that they have created, with names such as Mad Max LLC, Pretty Pee LLC, EZ Mortgage LLC, Boo Betty LLC and Misty Girl LLC.
Some of those LLCs are intermediaries in an elaborate series of quit-claims. The only transactions on record for Apple Holdings, LLC, for instance, are nine quit-claims that occurred on 10/9/2009 (176 Dover and 42 Stevens are two of the properties the company quit-claimed on that date).
“When you start to see these very complicated transactions, it does make you wonder,” said Weil. “There’s nothing about these transactions that’s going to benefit the tenants.”
In 1997, Dawson took out a $35,400 mortgage on this house. Two mortgages later she was able to borrow $120,000, in 2007. According to land records, the assessed value of the house in 2010 was $59,290 plus $19,530 for the land it sits on.
Section 8 tenants moved in on March 1, 2009. Nine months later, Deutsche Bank filed the first of three foreclosure lawsuits against Dawson for the house, for $120,000. The judgment is still pending, with records indicating that the foreclosure mediation time period has expired.
Last year, inspections failed the house for floors in danger of collapse. In April 2010, the ceiling fell in the bedroom of a young girl living there and the floor in the bathroom was sinking, according to inspectors.
Meanwhile, the housing authority is paying $696/month rent to a company called Diamond Properties Management, LLC. That’s yet another entity Dawson created.
266-268 West Hazel
The housing authority pays Diamond Properties Management $1,180/month for tenants who live on the first floor of this house. Michael Steinbach quit-claimed it from a man named Brett MacGray in 1998 for a dollar.
By 2005 Steinbach had a mortgage out on the property for $196,000. He was sued in November of 2009 for failure to pay. The lawsuit is still pending.
The tenants who live on the second floor are also Section 8 tenants, through J D’Amelia and Associates. Nicole Dennis, Dennis’s boyfriend, and their six kids have been trying to move out for years, but are having trouble finding another four-bedroom apartment, they said.
The kids in the family don’t walk to the bathroom; they run. That’s because the floor outside the bathroom slopes so sharply downward that smaller people can’t help but pick up speed when they approach.
“In my opinion they should just tear the whole thing down,” Dennis said. She has holes in her walls from rats that chewed through and vents that Diamond’s maintenance staff apparently removed and never replaced.
A year ago, she recalled, she was put up in a hotel on the government’s tab after she tried to turn on the heat and nothing happened.
“They’d taken away the furnace and never told me,” Dennis said. “I’d gone without a furnace the whole summer.”
So far, the house has failed two health inspections in the past month. If it fails another one, tenants may be forced to move out.