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Minneapolis Files Lawsuit to Stop Foreclosure Fraud Scheme in North Minneapolis

City Joins Neighbors and Residents to Stop Fraudulent “Flipping”

April 2, 2008 (MINNEAPOLIS) -- Minneapolis Mayor R.T. Rybak and other city leaders today announced that the City is joining three north Minneapolis neighborhoods in a lawsuit against a fraudulent real estate scheme that has worsened the foreclosure crisis in Minneapolis.

The suit seeks redress from TJ Waconia, which engaged in a complex and fraudulent residential real estate scheme that converted owner-occupied homes to rental units, most of which have since been foreclosed and many of which are vacant. TJ Waconia’s practices have left many north Minneapolis homeowners unable to sell their homes or owing significantly more for their homes than they are worth.

Minneapolis is bringing two causes of action against TJ Waconia. One is under the Minnesota Tenant Remedies Act for violation of housing and other codes and seeks the appointment of an administrator to manage the properties to remedy code violations and mitigate costs. The second cause of action is under the Minnesota Prevention of Consumer Fraud Act and seeks to recover monetary damages as well as injunctive relief against TJ Waconia to prevent it from continuing its fraudulent activities.

Plaintiffs include the City, Folwell Neighborhood Association , McKinley Community, Webber-Camden Neighborhood Organization, Family Housing Fund, Greater Metropolitan Housing Corporation and local residents.

“TJ Waconia has caused significant and undeniable damage to the City, to our renters, to our homeowners, and to the neighborhoods of north Minneapolis,” Mayor Rybak said. “We’re fighting to take back these properties and regain control to rehabilitate homes, to put these homes back in the hands of sound homeowners, and to repair the community.”

“The City is stepping forward with our partners, our residents and our neighborhoods to address these fraudulent, damaging and unacceptable real estate practices in Minneapolis,” City Council President Barbara Johnson (Ward 4) said. “We’re sending a message to other investors that we’re aggressive in confronting fraudulent behavior and will not tolerate it.”

“TJ Waconia has stripped our neighborhoods of people and value,” said Council Member Diane Hofstede, who represents north and northeast Minneapolis. “We are filing this lawsuit to stop them from destroying our community and to send the message that these types of investors are not welcome in our city.”

“The foreclosures and vacated dwellings resulting from TJ Waconia have caused damage to the City including increased costs for inspection of buildings for code violations, boarding vacant buildings, providing increased police and fire protection, acquiring and rehabilitating vacant buildings, and providing maintenance such as garbage removal and weed-cutting,” said north Minneapolis Council Member Don Samuels (Ward 5). “We deserve redress for these costs.”

From 2003-2006, TJ Waconia purchased and flipped 140 north Minneapolis homes, 88 in three neighborhoods of Folwell, Webber-Camden, and McKinley. TJ Waconia’s systemic, targeted, and intentional over valuation of these homes used fraudulent appraisals to falsely inflate property values in north Minneapolis. Of 140 TJ Waconia homes, at least 108 are vacant and 89 have been sold through foreclosure.

TJ Waconia concentrated its practices in specific blocks of north Minneapolis, such as the 3200 block of Humboldt Avenue North, the 3300 block of Dupont Avenue North, the 3500 block of Aldrich Avenue North, the 3900 blocks of Colfax and Dupont Avenues North.

The City of Minneapolis has incurred damages as a result of TJ Waconia’s practices:

• City inspections staff responding to code violations

• Securing vacant and abandoned homes

• Acquiring and rehabilitating vacant homes

• Responding to increased criminal activity in vacant homes

• Increased costs due to unpaid water bills and garbage removal

• Administrative and legal services related

• Finding new homes for renters displaced by foreclosures

Neighboring homeowners have incurred direct and indirect costs due to TJ Waconia:

• Proximity to a vacant home has a significant impact on property values. This negative impact is multiplied when there are multiple vacant homes on a block, such as TJ Waconia has created.

• Property owners in the areas where TJ Waconia properties are concentrated have seen their property values decline as a result of TJ Waconia activities.

• Property owners in the areas where TJ Waconia properties are concentrated have experienced increased criminal activity and neighborhood unsightliness, which causes property values to further decline.

Renters have been harmed as a result of TJ Waconia’s foreclosures:

• Every home TJ Waconia flipped was used as rental property, resulting in 140 rental families without landlords.

• Loss of landlord results in property neglect, utility shut-offs and un-recovered damage deposits for renters.

• TJ Waconia’s failure to pay rental licenses forced renters out of their homes.

Neighborhood and community groups have spent thousands of dollars and countless hours attempting to remedy the problems caused by TJ Waconia:

• Funds were spent to acquire and rehab foreclosed TJ Waconia homes.

• Time and money were spent to research and track fraudulent TJ Waconia activity.

• Time and money spent by these organizations to investigate and fight TJ Waconia’s fraudulent practices could have been spent on other community improvement projects.

The lawsuit will be filed to the Hennepin County District Court. For copies of the complaint filed, go to the Hennepin County District Court.

89 of the homes purchased and flipped by TJ Waconia have been sold through foreclosure. Most of those homes are now vacant and abandoned, such as:

3234 Humboldt Avenue North: vacant and boarded

3229 Humboldt Avenue North: vacant and boarded

3300 Dupont Avenue North: vacant and boarded

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