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Sale Of Tax Liens Scaled Back

City Revises Scope Of Proposal After Snubbed Bidder Complains

June 13, 2007
By JEFFREY B. COHEN, Courant Staff Writer

The city of Hartford was close to selling millions of dollars in tax liens to the third-highest bidder before the high bidder cried foul, suggested undue influence, and caused the city to reopen the process.

In recent letters to the city, Daniel Papermaster - attorney for Heartwood 16 LLC, a subsidiary of Bank Atlantic - said his client was "very concerned about the fairness and integrity of the selection process."

"Heartwood questions whether the selection was subject to undue influence by third parties," Papermaster wrote.

One of the city's principal reasons for not going with Papermaster's client was that it owed the city money. That's not an argument that sat well with city council President John Bazzano.

"We were going to forgo $3 million because someone owed us $14,000," Bazzano said. "It makes no sense to me. The fact of the matter is we are a cash-strapped city and we need every dime we can get."

"You sit down with people, you try to work it out, and you get the best deal possible for the city," he said.

When property owners fail to pay their property taxes and the city decides it can no longer collect the old debt, it places a lien on the property. Often, the city packages some of those liens together and sells them to private collectors - accepting less money than it would collect were it to pursue the debts on its own, but avoiding an often lengthy legal process.

Earlier this year, the city put out a bid to sell outstanding tax liens - about $21.7 million in all. It was an unusual move that caught some city insiders off guard. The city doesn't normally sell liens in such large amounts, they said.

The city received bids from four bidders, including Heartwood 16 and American Tax Funding LLC, both of Florida. Heartwood 16 bid $20.4 million; American Tax Funding bid $17.6 million.

After deciding that American Tax Funding was best suited for the project, city staff then negotiated with the company to sell it a smaller portion of the liens - $5.2 million.

"They did it based on the outstanding liens and took the older ones first and determined this was the amount that we wanted to try to obtain to make this year's budget work," said Lee Erdmann, the city's chief operating officer. "It's mostly a budget matter."

City officials negotiated only with American Tax Funding, Erdmann said. "They just asked the firm that they were recommending, and that's when the challenges began," he said.

In a letter dated May 21, Papermaster questioned why the city wouldn't award the bid to the company that was offering to pay nearly $3 million more. That letter also said that one aspect of the city's bid - requesting experience in three other Connecticut municipalities - "was tailored to benefit one of the other bidders."

A city staff memo dated May 29 made the official recommendation to proceed with American Tax Funding, and said, among other things, that Heartwood 16 had been disqualified because it owed money to the city.

City attorney John Rose replied to Papermaster on May 30, saying he was "satisfied that there was no wrongdoing, no favoritism, no corruption or fraud associated with the selection of a bidder other than your client."

"Even more to the point," Rose wrote, "I am satisfied that there were relevant factors considered concerning your client which would justify not awarding it the contract."

Papermaster then responded on June 5, addressing the tax and other concerns, and he said that any disputed amounts could be deducted from the company's overall bid.

"In these difficult financial times for the City, we can not understand why the city would choose to [forgo] $3 million that would help the City greatly," Papermaster wrote.

Papermaster's second letter included information about back taxes his client owed that hadn't previously been provided to the city, Erdmann said. Once provided with that information, and with a payment for the back taxes, city officials began to rethink the process, Erdmann said.

"We've asked them both to submit their last, best offers for that $5 million amount," Erdmann said. Those bids - sought from only these two bidders - are due Thursday, he said.