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Not a Proper Victim

By Margo Pierce · February 22nd, 2006 · All The News That Fits
Property flipping can be legal or illegal, depending on the circumstances. The legal kind -- purchasing a run-down house, rehabbing it with updates that add value and reselling it for a higher price -- adds value to the community and improves the neighborhood.

The illegal kind causes all kinds of problems and can destroy a community, according to State Rep. Steve Driehaus (D-Price Hill). He says those involved in flipping scams have a "callous disregard" for the havoc that follows in their wake.

"They treat this as if people don't live here, as if lives aren't impacted, as if school, businesses and institutions aren't impacted," Driehaus says. "They treat these properties as if there aren't lives involved. They see the assets that are there for the taking and they see it as their own private portfolio. Somebody's got to hold these folks accountable."

That's exactly what Price Hill Will (PHW) attempted to do when Ronald Trester pled guilty to tax evasion, bank fraud and conspiracy related to illegal property flipping. PHW petitioned U.S. District Susan J. Dlott to award it restitution because the property values near the flipped homes were adversely effected.

The group used a "conservative" method, a Chicago-based regression study, to prove that individual home foreclosures and vacancies resulting from flipped properties diminished the resale values of other properties within a one-eighth to one-quarter mile radii, according to Driehaus.

In a Jan. 20 order, Dlott agreed with the concept.

"There is little reason to doubt that defendant's fraudulent scheme has -- to some extent -- depressed property values and thereby harmed the residents of Price Hill and other targeted communities," she wrote.

But Dlott ruled she was unable to grant the petition because of the limitations of current law, ruling that communities "are not proper victims."

"As a matter of law -- and despite the considerable factual merits of Price Hill Will's claim that Trester's participation in the flipping scheme has harmed property values (and, by extension, other facets of life) in the affected neighborhoods -- the communities are simply not entitled to restitution," the ruling said. "Unfortunately, because it appears that Congress did not intend those communities to be treated as criminal 'victims' for the purposes of criminal restitution ... the court's hands are tied. In closing, the court can only commend the leaders of Price Hill, Price Hill Will, Price Hill Will's counsel at Legal Aid of greater Cincinnati ... for their obvious dedication to remedying the important and difficult problem highlighted in Price Hill Will's petition and testimony."

Some of the original defendants named in the petition settled out of court because they were worried about the potential outcome, Driehaus says. An undisclosed amount was added to a newly created community rehabilitation fund. It was designed to utilize restitution money and will be administered by the Greater Cincinnati Foundation to fund high-profile rehabilitation work by nonprofit groups as a means to support community development plans.

Driehaus is disappointed with the outcome, noting that giving a financial award to an adjacent property owner "doesn't necessarily restore the value to the neighborhood," but he's not giving up. He's discussing next steps with others serious about improving Cincinnati's neighborhoods.

One thing he's planning to do is address the shortcomings of various programs, such as the Community Reinvestment Act, in which banks are given tax credits for supporting projects in economically depressed areas. Driehaus says local and federal governments have a serious disconnect between their goals and the impact legislation has.

"There are unintended consequences when people don't think this stuff through," he says.

All The News That Fits: Leads, entrails and tales we couldn't get to.


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