MIAMI MIRROR TRUE REFLECTIONS

Before the Deal of a Lifetime. All photos by Michael Trainer

1020 6th Street, 1,990 sq. ft. multifamily dwelling on 5,000 sq ft.

THE SOUTH BEACH DEAL OF A LIFETIME

From $110,000 to $1,500,000
July 22, 2013 Miami Beach real estate investor Arthur D. Porosoff made the deal of a lifetime in September 2012 when he bought the blighted, two-story multifamily residence sitting on a 5,000 sq. ft. lot at 1020 6th Street in South Beach for $110,000 from Juan Luis Maldonado, Jr. on a short sale approved by Bank of America. South Beach streets are paved with gold for savvy investors, but the average Joe would be blessed by fickle Lady Fortuna to find a mere studio for $110,000 anywhere near that prime
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location, the block adjacent to the new shopping center at Alton and Fifth Street. Porosoff said his ballpark price is $1.5 million. Our photographer spoke with Porosoff after noticing the property was sold. He said it was the deal of a lifetime. He boasted that it took two years to complete the transaction, and that he has done many realty deals in the past thanks to favors from city officials, implying that they helped him secure the property dirt cheap. Porosoff, when questioned about the low purchase price, said he only wished it was $110k, that it was actually unimaginable, and that he absorbed liabilities the seller had. He certainly owes thanks to Melinda Payan, who was the listing agent for the property. Payan owns The Truth About Lending company, which specializes in the negotiation short sales for homeowners. The suggestion that the city had anything to do with negotiating or setting the value is completely false, she said. On a short sale the b ank is the only one that determines the value. After seven months of negotiating with Bank of America I finally got the short sale approved on the property. There were three different appraisals on done, and at the end of the day the bank determined the value based on their licensed appraisers. When asked for the value of the bank appraisals, she informed us that banks do not disclose appraisal values in short sales. That is, the appraisals are proprietary. As for the suggestion of impropriety, it appertained to alleged cooperation or negligence of city officials in allowing the property to become an eyesore endangering the public. Our suggestion was to impose several hundred thousands of dollars in fines on the property and to foreclose or seize it, which would have a profound effect on its valuation. Payan initially contacted us after reading our 2012 article on the troublesome property, An Appearance of Impropriety, to inform us that the owner had an active contract to stay with an investor who planned to fix up the property and restore it to good condition. She said Bank of America had sent their appraiser out to the property to appraise it, but since they were unable to access the first floor of the building, they claimed that they could not appraise the house so there is nothing they can do but close to file. She did not accept that excuse because there were other ways to view and appraise the property. Actually, loosened boards could have been pulled back for access. I have forwarded a copy of your article to the asset managers at Bank of America and I believe that will help a lot, Payan said. If Bank of America prevents the sale, I will be down there standing with signs in front of the building and calling the local news. We have to take our town back and clean it up one property at a time. We asked her about the $110,000 selling price after the transaction took place. $110,000 is what it sold for, she said, but keep in mind it was technically a tear-down that could not be torn down because of the historic nature. The property was just a shell the entire inside was gone, no electrical, drywall, et cetera, in really bad shape. The buyer took responsibility for part of the liens, the bank paid a portion. As far as fines go I know we received
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MIAMI MIRROR TRUE REFLECTIONS

payoff letters or demands in writing from the city that were forwarded to the banks and it was a pretty hefty figure. Still, it was one hell of a deal, for which the fines were relatively insignificant. Porosoff secured the property, cleaned it up, painted the exterior, and erected a big sign: FOR SALE Arthur Porosoff PA Marcus & Millichap 786.522.7058. There was no permit sticker on the sign. It was removed a few days later. The property had become the shame of South Beach as more and more traffic flowed nearby due to the completion of the new, conveniently located shopping center including a Publix supermarket. City officials were woefully negligent for two years, until our expose was published, allowing the property to become an unsecured garbage dump and hangout for criminals and vagrants. The citys Compliance Division claimed it was having a terrible time locating Maldonado, the local developer who bought the property from Michael Plotkin and family for $750,000 in 2007. The latest Miami Dade County appraisal has the building valued at $40,000 and the land at $600,000 for tax purposes. County Property records revealed that Maldonado owned several properties, and that he had been involved in real estate for some time. Apparently he was underwater or belly up. BAC Home Loans Servicing, LP, Bank of Americas residential mortgage servicer , posted a Notice of Abandonment and Intent to Maintain on the building after our article was published, but it was soon taken down. A Vacancy Posting Notice from the bank itself was tacked on the building shortly thereafter and was also taken down. Conditions worsened. We noticed that BAC had already filed a Notice of Cancellation with Florida Department of State declaring that it was no longer transacting business in Florida, and had initiated hundreds of foreclosure actions from July 11, 2011 to August 11, 2011. On April 29, 2012, Sun Sentinel reported on property code violations involving abandoned homes, claiming that it had uncovered case after case in which banks launched foreclosure lawsuits but then stalled or avoided taking ownership. In effect, the banks legally sidestepped responsibility for the empty homes, causing great harm to neighborhoods. The so-called bank walkaways were no longer maintained by their legal owners. The crackheads and vagrants hanging around and within the 1020 6th Street abandoned property were polluting the entire neighborhood, once known as the Seventh Heaven Crackhood. Several originated from a partially vacated building on the next corner, where squatters, including a man just released from prison for raping a little girl, were arrested as a result of our reports. The ex-con had knocked down a wall on the top floor and set up a penthouse for himself, stealing electricity from a utility pole. That corner building is now fully vacated and is under renovation by a developer. A man next door on Michigan Avenue had a sock stuffed in his mouth and was murdered, the case remaining unsolved today. Many of the criminals in the area were undocumented aliens from Guatemala and Honduras. The crackhead crew was led by a large Dominican woman who previously dealt drugs and turned tricks in a car parked in front of a Michigan Avenue bodega frequented by undocumented people who enjoyed playing its gambling machine. She was seen being put into police cars, but the police department had no record of her. She eventually moved from the abandoned building on 6th Street into a cash-rent studio at 626 Euclid Avenue, where she ran a little night club and made other tenants miserable with loud music, shouting, and drunken brawls. She liked to show off rolls of cash, and bragged about paying off cops. The landlord reluctantly ordered her out after the property was twice
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visited by the crime suppression unit. He had to call the police when she confronted him and demanded a thousand dollars cash back. Since then the police department has done a good job of cleaning up the drug-and-derelict ridden neighborhood. The fines on the 6th Street abandoned property totaled about $27,000, of which a $20,000 lien is scheduled to come up for reduction or elimination before a Special Master in August 2013. The citys sanitation department was finally given a takewith order to clean up the property in January 2012. A Sanitation supervisor who was present for the massive cleanup said the building had been a longstanding problem, but Sanitation had not been given a takewith order from Compliance, despite email to the top three guys at Compliance. Instead, for example, a takewith had been issued for a toilet that was placed in the back yard by the fence of the property next door. A corruption theory was alleged in regards to buildings all over the city: unbilled sanitation cleanups, deals not to file liens, and the fixing of liens by special masters or municipal magistrates charged with enforcing city ordinances. We reported the deplorable situation to the police department, noting that there was a 14-Day Fire Notice posted on the building. The Notice was removed from the building the next day. We asked the city managers office for a copy of the removed Notice, figuring that the fines related to the Notice would be several hundred thousand dollars. The city manager was not responsive. Manuel W. Diaz, a Miami Dade County Ethics Commission investigator, picked up our report and determined in his April 17, 2012, investigative report that then Assistant City Manager Hilda Fernandez had indeed not been responsive to our public information requests. That neglect was a violation of state law that carries a criminal penalty but the penalty is seldom if ever imposed because such laws are liberally interpreted to mean that they are there not to punish but to encourage voluntary compliance. His investigation turned up the record wanted, or rather the computer record of the notice posted on the building of which the city does not keep a copy of same. Apparently the fire violations were for a lack of egress from the building due to boarded up doors and windows, and for the non-maintenance of a fire extinguisher. The violation had allegedly been voided on the day written because the building was abandoned. Yet people were able to enter the building by pulling back the boards, and were in fact squatting inside the building from time to time. Further, combustible trash and garbage was piled up waist high next to the building. Apparently, however, the fire code does not prohibit such hazards in order to protect squatters and neighborhoods from fire. Diaz found no evidence that officials were exploiting their positions for their own benefit or that of others. To the best of our knowledge, he did not question the Sanitation employees who broached the theory that officials were probably doing just that in respect to multiple properties. Therefore we referred our public reports to law enforcement. As for the remaining, $20,000 lien for building violations, a notice of a mitigation hearing to be held before the Special Master on August 1, 2013, was seen on the building at 1020 6th Street on July 8, 2013. It was addressed to the former owner, and it was removed the next day. That violation, numbered CE10005482, was dated April 9, 2010, and had been given Special Master case number JC11000294. The fine ran at $100/day, beginning May 10, 2011, reaching a cap of $20,000, the maximum fine allowed for the violation, on November 26, 2011, and was recorded as a lien against the property. No action on the case may be taken by the Special Master other than to mitigate, that is, to reduce or eliminate the amount due once there is full compliance. Our
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request for the status of the case, as to whether the fine has been mitigated or if the case is to be heard as notified, had not be answered by press time. The ordinance allowing for mitigation requires the Special Master to consider the gravity of a violation, the promptness of compliance, the good faith actions taken to correct the violation, and the amount of equity in the property relative to the amount of the lien. Although the property at 1020 6th street obviously does not deserve mitigation at all under the expressed standards, and the Special Master might have authorized the city attorney to foreclose on the lien three months after it was unpaid, a nice Special Master may mitigate or eliminate the $20,000 fine based on some cock-and-bull story. The new owner certainly deserves recognition for securing and cleaning up the property, and he can complain that he was delayed in that endeavor for two years, but he must have personally known the seller with whom he had the longstanding contract and they could have arranged for full compliance with codes. The fine attached to the property should be collected in full. After all, the new owner has equity well in excess of a million dollars considering his estimate of its market value. The municipal special master agency is an alternative to municipal code enforcement boards authorized by the Florida Constitution and Statutes for the purpose of placing the power of enforcement in local hands. However, like all governmental powers, the power of mitigation is an opportunity for abuse including moral and criminal corruption when not accounted for. In fact, the unreasonable mitigation of fines, unwarranted case dismissals, permit fee concessions to developers, and otherwise lax enforcement of the municipal code is conducive to and condones noncompliance, and has been a pressing issue for some time in the City of Miami Beach. The plethora of complaints generally fell on deaf ears or was given a show hearing or two. Indeed, the subject of mitigation has been controversial, with claims that the laws are selectively enforced, that city officials are harsh on relatively innocent violators while going easy on some of the worst offenders. Favoritism, however, is difficult to prove since the city does not regularly account for reductions and writeoffs of its fees and fines. City Attorney Jose Smith called the proposal to do so moronic, and said that all that was need is to follow the law. That is, city officials have absolute discretion to behave as they please in regards to the reduction or writeoff of fees and fines and the like, and police investigators have determined that they are immune from criminal prosecution for providing incentives to developers. To be fair to the American Way, we offer that what looks like moral or criminal corruption may simply be an indiscreet way of conducting business as usual. The nature of the business became obvious because the city allowed the property to become a disgraceful nuisance. The prospect of a huge private profit on the unseemly situation would naturally arouse jealousy and suspicion about the real estate transaction. Business as usual does favor the few who have favorable access to public officials and information. However that may be, we by no means intend to demean Porosoff and the special qualities that can make a millionaire out of any poor, shrewd slob who can lay his hands on a hundred grand or so. Is not that what makes American great? ##

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