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Published: 2/8/2010

Sold again, property deteriorates while bouncing from owner to owner

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

IT WAS advertised on the Internet auction site eBay as an investment property - a "huge duplex" on a Toledo block that has a pair of newly constructed houses.

The two-family house at 641 Palmwood Ave. attracted 18 offers, including a winning bid of $2,325, according to eBay.

But in this auction, the losers may have been the winners.

Six weeks after the sale and nine days after new owners took title to the house, a review of court files, property records, and documents at the city of Toledo's division of housing code enforcement paints a picture of a long vacant house that has bounced from owner to owner with no one taking responsibility for restoring it to habitability.

The records open a window into a world of real-estate investment promoters who use the Internet and other means to advertise strategies for getting rich by buying up dirt-cheap houses in the Midwest and East.

Since late 2007, the property at 641 Palmwood, once home to a prominent member of Toledo's African-American business community, has changed hands six times.

The last sale, on Jan. 29, took place just two days after the owners failed to appear at an arraignment hearing in Toledo Municipal Court on charges that, despite repeated citations, they failed to clean up the property.

Because charges were pending, the sale was not legal, said Larry Anderson, an administrator in the Department of Neighborhoods. He and department colleagues said, however, that the most likely outcome is a $250 fine against the sellers.

The house, built in 1887, sold for $940, records at the Lucas County Auditor's Office show, despite information on eBay about the winning bid. The selling price for the property over the last two years never topped $1,000, according to the records. Often, the price was listed as $1.

In all but one of the deals, the new owners did not live in metro Toledo. Most often they were obscure shell companies with alphabet-soup names, from places like Reno, Orem, Utah, North Hollywood, Calif., and Columbia, S.C.

Real estate investor Tyrell Gray, through a company in Utah called Go Invest Wisely LLC, owned the Palmwood Avenue house for five months last year before selling it in May.

He didn't return calls requesting comment.

Web site junkhouseriches.com lists him as its co-founder. The site reveals him to be a young, good-looking man who is said to have graduated from Utah State University. It says he was a mortgage officer before moving into real estate full time in 2003 "by building custom homes and developing properties during the real estate boom."

He and his business partners have snapped up nearly $150 million in bank-owned houses, the Web site claims. They make money by fixing up houses for rental and then reselling them to investors, the site states. Also available are unrepaired houses that produce no revenue - or, in the language of the promoters, "are not yet cash flow."

Records at the Department of Neighborhoods code enforcement division show that the Palmwood property fell into the latter category.

Inspection reports and photos show little evidence of renovation work.

Mr. Gray's group paid $500 for the house in December, 2008, and then sold it for $1,000 five months later, county records show.

In contrast to the property description on eBay, the house is flanked by vacant houses. Feral cats darted between open basement windows in the Palmwood property and a neighboring abandoned house one day last week.

Numerous windows of the sky-blue house are broken, and they are only partially boarded over. Cold air poured from inside the house through a small broken window in the front door.

A thin plastic "for sale" sign that was once affixed to a front window lies in weeds in the front yard.

Property taxes have gone unpaid since December, 2007, with the balance now at $1,800, county records show.

Toledo inspectors have ticketed different owners 10 times since late 2006 for various housing-code violations.

Municipal crews have been sent out frequently to board up windows, cut grass, and pull weeds including on Sept. 16 and Dec. 16, records show.

Owners have been billed but have rarely paid.

At one point, when city clerks got behind in billing, a prior owner was billed in December for $142 in work performed two years earlier.

The most recent past owner, a shell company called Below Market Properties LP in Reno, was charged Dec. 16 in Toledo Municipal Court with housing code violations.

The action came after the firm was ticketed for the third time and was fined $300 for code violations, records show.

The current situation is a big comedown for a house that from World War II to 1987 was the residence of Harold and Florence Payne. The Paynes operated Fashion Cleaners - for many years from their Palmwood Avenue residence.

Mr. Payne, who played the banjo and other stringed instruments, was a sometimes accompanist of Toledo jazz piano great Art Tatum, who once lived nearby.

The newest owners are Brian and Kristen Cherry, of Arcanum, Ohio, near Dayton. No telephone listing was available for the pair who bought the house Jan. 29.

The address for them listed on county property records is the upper unit of a modest duplex in an older residential section of the village that is just east of the Indiana border. They could not be reached for comment.

Signing the deed turning over the property on behalf of Below Market Properties was Mary Steinborn, a Los Angeles area real estate investor who has posted videos on YouTube.com describing her strategy.

"I work with investors around the country," Ms. Steinborn said in one video in which she discussed buying and rehabilitating homes for rental purposes.

She is president of Los Angeles-based Stelliam Corp., which is general manager of Below Market Properties, former owner of the house on Palmwood.

In an e-mail response to questions from The Blade, she said the firm spent $2,500 cleaning up the property, paying nuisance fines, and conducting the eBay sale.

The new owner, she said, is aware of legal problems involving the house and has promised to begin repairs immediately. "I was very direct and open with the buyer," she said.

Her firm became obligated to buy the dwelling through a relationship with another firm, she said. But, she said, it typically targets houses in better condition in more stable neighborhoods.

She claimed that she tried to cooperate with Toledo officials but had trouble reaching inspectors.

City officials said last week that, now that the property has changed hands, they will try to get the new owners to bring the house up to code. Municipal laws prohibit the transfer or sale of houses with uncorrected code violations.

Officials in the Neighborhoods Department said they have filed charges in the past when vacant houses have been sold in violation of the law.

Most often, however, they issue a $250 ticket to the seller. They were uncertain how often sellers pay up.

Other recent owners of the Palmwood property include Thor LLC, of North Hollywood, Calif., which owned the property for two months last year, Commodore Housing LLC., Columbia, S.C., owner for less than one day, Thomas Pitzen, of Toledo, one year, and Stanley Eurydice, Sherwood, Ariz., two years.

Individuals typically are shielded from responsibility for unpaid bills and other actions of limited liability companies they own, said Josh Murnen, an expert on housing and land-use issues at nonprofit Advocates for Basic Legal Equality Inc. in Toledo.

Piercing the shield, he said, involves a complicated legal test showing that the company is an "alter ego" with "no separate mind, will, or existence."

A more effective strategy for dealing with problems like those created on Palmwood Avenue is more vigorous enforcement of existing statutes, he added.

In certain situations, he said, laws allow for court-appointed receivers to take control of buildings deemed public nuisances.

Also, he said, limited liability companies that own vacant properties are required by municipal law to register names and contact information.

But, Mr. Murnen said, the laws either are not being enforced or are laxly enforced.

"The problem is not passing anything new," he said. "It's getting the city to step up and enforce what exists."

The issue isn't so much a lack of will by municipal officials as a "difficult funding situation," the lawyer added.

Abandoned houses are commonplace across Toledo. The list scheduled for demolition by municipal crews has reached 480, officials said.

Out-of-town ownership can complicate problems with vacant houses, said Terry Glazer, chief executive of the nonprofit United North neighborhood association.

A $10,000 house in Toledo probably looks appealing to investors in California, where few dwellings sell for less than $100,000.

"They think they can make money quick," Mr. Glazer said. "But in Toledo there are a significant number of properties at the lower end of the price range, particularly houses that are in disrepair and are not habitable."

Mr. Anderson, of Toledo's Department of Neighborhoods, said it is not commonplace for houses to change hands as often as the Palmwood Avenue dwelling has.

But the number of such situations is growing, he said.

"It's become more prolific with … the Internet and infomercials," he added.

"What you get is a lot of out-of-town LLCs working in this business to try to make a quick buck."

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.



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