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Gone Baby Gone

In the wake of the housing crisis, a new breed of real estate investor is destroying America's cities.

The vacant lot in Baltimore where 1906 Boone Street once stood. Photograph by Alan Chin

When it was still standing, 1906 Boone Street was a classic example of a Baltimore row house: three stories tall and only 15 feet wide, with a curved bay window in front and a narrow garden out back. Built in 1920, it featured a red brick facade, five bedrooms, and a claw-foot tub in the second-floor bathroom. Karen Saunders, who now lives two doors down, remembers living in the house as a child in the 1960s. Lewis Mitchell, a Coast Guard welder, purchased the house next door 21 years ago. Together with his brother, who lives one house over, Mitchell spent more than a year cleaning, painting, and repairing his new home. “I build ships,” Mitchell says. “I figured I could do a house.”

But even as Mitchell and his brother spackled walls and patched leaks, 1906 Boone sat vacant—a moldering eyesore that dragged the entire neighborhood down with it. Whenever it rained, water would collect in the abandoned row house and seep into Mitchell’s basement. To discourage break-ins, he hung his mother’s curtains in the upstairs windows at 1906. But with no one tending to it, the house eventually collapsed in on itself. When I visited the property, it looked like a stage set for an apocalypse film, its walls and floors partially demolished, its roof open to the sky. Bird droppings covered the stairwell. The bathtub was still there. Exposed, squatting precariously on a jagged scrap of what used to be the second floor, the tub felt somehow obscene: a ruin-porn image of a city in crisis.

In cities from Baltimore to Phoenix, vacant houses attract crime, serve as breeding grounds for rats and dumping grounds for trash, strain fire and police services, and gut local property values. “There’s a general reduction in quality of life around these properties,” says Kim Graziani of the Center for Community Progress, a nonprofit organization that studies run-down houses across the country and works to turn blighted properties into neighborhood assets. “You find increased rates of fear, anxiety, and depression among people who live adjacent to vacant and abandoned properties. There’s a loss of neighborhood fabric.”

One day, around eight years ago, Mitchell came home from the shipyard to find a piece of yellow plastic nailed to the front door of 1906 Boone, one of those FOR SALE—NO CREDIT CHECK! signs that have become ubiquitous in poor neighborhoods. Mitchell figured maybe he’d buy the house and fix it up, the same way he’d renovated his own home. But when he called the number on the sign, he didn’t reach a Baltimore resident who had inherited the place from his elderly parents, or even a local bank that had repossessed the house. Instead, he wound up talking to a woman from a company in Texas that offered to sell him the property for $30,000—nearly ten times what he thought it was worth. Whoever the real owner was remained a mystery.

The Community Law Center, a local legal services group, launched an investigation into 1906 Boone and hundreds of other vacant properties around Baltimore. The hunt took more than a year. In many cases, the identity of a property owner was hidden behind a maze of shell companies; an operation called Baltimore Return Fund LLC, for example, had purchased 1906 Boone at a city tax sale for $5,452. Eventually, the investigation revealed a Texas-based web of nearly a dozen LLCs—limited liability companies, a form of legal tax shelter—that controlled more than 300 properties in Baltimore. Nearly all had been purchased at tax sales, often online, between 2001 and 2010. Most sold for less than $5,000. Many were vacant and in bad shape.

As it turned out, all the properties—and the various LLCs that owned them— were the responsibility of one man: a Houston millionaire named Scott Wizig, who had made his fortune as a real estate speculator. Few people in Baltimore had ever heard of Wizig; it’s unclear, in fact, whether he ever visited his properties in the city. But over the course of a decade, Wizig appeared to have become the biggest private owner of derelict houses in Baltimore. How he did it, and why no one was able to stop him, explains much about the current state of America’s cities.

The housing crash of 2008, combined with the relative ease of buying property online, has ushered in a new era of real estate speculation. With millions of homeowners unable to pay their mortgages and taxes, abandoned properties are increasingly put up for auction in online tax sales, enabling out-of-state investors to snap up houses, sight unseen, in vacancy-plagued cities like Baltimore, Cleveland, and Indianapolis. The market is huge. Nationwide, according to the Center for Community Progress, more than 4.7 million properties currently stand empty—a number that surged by almost half between 2000 and 2010.

Despite earnest narratives about young homeowners working to rebuild American cities one DIY project at a time, many buyers in online tax sales are absentee real estate speculators buying in bulk. A Singapore businessman recently bought 414 properties during a single auction in Detroit; a Hong Kong billionaire named Jimmy Lai owns so many vacant houses in the city that they’re known as “Lai-sores.” At a Houston tax sale I attended in 2015, amid the crowd of mom-and-pop buyers—a young couple pushing a stroller, an old man in baggy camo shorts—veteran investors with briefcases full of cash stalked the bidding floor. “There’s a whole lot of money here,” said John Osenbaugh, a Houston real estate agent. “This guy who looks like a bum could be carrying several hundred thousand dollars.”

Part of the popularity of tax sales can be chalked up to unaccredited “schools”—like the erstwhile Trump University—which promise would-be investors they can get rich quick by buying up abandoned properties on the cheap in distressed cities. At the same time, the internet has made it possible to impulse-buy a house as easily as a flat-screen TV. Such schemes have inspired investors in England to purchase vacant properties in Cleveland over eBay, and a Colorado pawnbroker to close on homes in Buffalo via PayPal.

For investors, there are myriad ways to make money off a building you bought for less than the cost of a used car. You can rent it out and make back your investment within a year—as long as you don’t spend much, if anything, on repairs. You can sell to desperate homebuyers—offering them financing at exorbitant interest rates, or including contract provisions that allow you to seize the property after one or two missed payments. You can seek out blighted areas near hospitals or universities, betting that an expanding institution will eventually gobble up the neighborhood and pay you handsomely for your roofless, collapsing investment. Or you can sell to other speculators. “That’s the ‘there’s a sucker born every minute’ variation of the real estate game,” says Alan Mallach, a senior fellow at the Center for Community Progress. “You buy really cheap and then sell at a markup to other investors much less sophisticated than you are.”

In theory, tax sales are supposed to replenish city coffers and transfer vacant homes from delinquent owners to people who will actually improve the properties. But the mass purchasing of distressed homes by faraway investors is having the opposite effect. According to a case study of Cleveland by the Joint Center for Housing Studies at Harvard University, properties owned by out-of-state and high-volume investors are far more likely to remain empty, have delinquent tax bills, violate local building codes, and ultimately require demolition.

Scott Wizig developed an eye for opportunity early on: As a kid, he sold lemonade to construction workers and repaired bikes to resell in his neighborhood. After high school, he convinced his parents to let him raid his college fund to buy his first foreclosed property. “No other realtor wanted to mess with it, because the price was so minimal—$5,000 or $8,000,” says Shad Bogany, a Houston realtor who helped the teenaged Wizig make his initial real estate purchase. But the late 1980s turned out to be an opportune moment to get into the market. Houston was ravaged by the oil bust; the Houston Chronicle called it “a time of bankruptcies and foreclosures, FOR SALE signs and empty office towers, loan defaults and failed banks.” When the city began to boom again, Wizig’s investments paid off handsomely.

In 2000, after going into business as a real estate investor, Wizig turned his attention to Buffalo, where more than 15 percent of all housing units were vacant. That October, Wizig came to town with more than half a million dollars in hand, which he used to buy 284 run-down properties at tax auction for an average price of less than $2,200. Wizig’s two-day buying spree was remarkable enough to merit an article in the Buffalo News. “He had stacks of cashier’s checks in all different denominations, ready to be signed,” Bruna Michaux, the city’s senior tax administrator, told the paper. “And I mean stacks.”

At first, Buffalo was optimistic about the out-of-town investor; in a depressed market, speculation can seem like a form of flattery. But the hope quickly evaporated, as Wizig’s rental properties began racking up hundreds of code violations. The state filed suit against Wizig and NY Liberty Homes LLC, the entity that bought and managed the properties, alleging that some of the buildings weren’t hooked up to the sewer system; others had no heat. What’s more, the state asserted, Liberty’s rental agreements illegally required tenants to pay for their own repairs and charged them double for any repairs Wizig performed. By the time Wizig reached a settlement with the state, he was being called the most prosecuted landlord in the history of Buffalo.

Wizig’s business associates attribute his difficulties to regional differences in regulation. “Scott’s business plan doesn’t fit every state,” says Bogany. “In those Eastern cities, there are a lot of rules and regulations. If you’re trying to foreclose on somebody or evict somebody, it’s a much harder process. They’re not as business friendly as we are here in Texas.” Wizig wound up selling 98 of the troubled properties in Buffalo for $1 to a nonprofit called the Nonprofit Training Institute. But the move ended up being an elaborate game of pass the buck: The group, which never fixed up the properties, no longer appears to exist. It currently owes the city of Buffalo $949,250 in fines for housing code violations.

I first saw Scott Wizig at the Houston tax auction in July 2015. There was a Vegas-y feeling in the air—the locked briefcases full of cash, the sheen of sweat on upper lips, the rush of a lot of money being moved around quickly all contributed to a shared sense of anticipation and precarious high spirits. The owner of 1906 Boone Street was standing near the back of the room, sporting a healthy tan, a salmon-colored polo shirt, khaki shorts, and black running shoes with neon-pink highlights. He was presiding over a table of young women who were researching properties on computers. I watched him buy a house for $16,000, a process that appeared to take no more than ten minutes.

Scott Wizig has made a fortune buying derelict properties.
Dave Rossman

Wizig wouldn’t speak with me for months. When he finally agreed to, he didn’t want to discuss how he profits from buying up distressed properties. By the time we spoke, he was trying to rid himself of his Baltimore properties, just as he’d done before in Buffalo. He presented his work as a form of charity: In his view, he helps the city by selling homes and providing financing to people who otherwise couldn’t afford them. (The Houston Press has reported on his company’s sales of legally uninhabitable houses to undocumented immigrants.) He donates to local minority youth groups and hosted a book signing last year for Martin Luther King III and Representative John Lewis.

I asked him about a word—“slumlord”—that his critics sometimes throw around. “I have a hard time understanding that,” he told me. “ ‘Slumlord’ means we’re promoting to people, selling to people who live in unsafe conditions. We’re not in the rental business in Baltimore—we’re not selling these houses to consumers.”

It’s true that in Baltimore, unlike in Buffalo, Wizig focused on selling his properties to other investors rather than renting them out to low-income tenants. But to those who live next to his unmaintained properties, the precise shading of his business model offers little comfort. The dilapidated homes owned by Wizig’s web of LLCs continue to put a strain on the surrounding neighborhoods, attracting rats and trash and crime. To help neighbors fight back, the Community Law Center convinced the Maryland state legislature to allow nonprofit groups like the CLC to sue the owners of problem properties. “It’s empowering, in that it allows communities to take code enforcement into their own hands,” says Kristine Dunkerton, the group’s executive director.

In 2013, six community organizations sued Wizig and nine of his LLCs, claiming that his method of buying vacant properties and failing to maintain them “established a pattern and practice that threatens the welfare of the communities’ neighborhoods.” But after a judge ordered Wizig to clean up dozens of homes, seven of the LLCs filed for bankruptcy, essentially halting the lawsuit. In 2015, the community groups finally reached a settlement that required the defendants to fix, sell, or demolish dozens of vacant properties around the city, including 1906 Boone Street. The LLCs also agreed to pay $85,000 to the community groups—money used to form a new group to combat the problem of vacant housing in the city.

It was a huge victory for the community activists. Nothing like it had ever happened in Baltimore before—a neighborhood coming together and making an absentee owner clean up properties. Dunkerton praises the community leaders for their “initiative, persistence, deep desire to improve their neighborhood, and love for the city.” The lawsuit empowered and energized the communities, and gave them a sense of hope. “It was never about getting money,” she says.

In some ways, however, the victory is purely symbolic. It’s simply not feasible for community groups to identify every delinquent owner, let alone take them to court. It took the CLC years to break through the carefully cultivated anonymity of Wizig’s shell companies and hold him responsible for the properties he owned. And while some cities have begun experimenting with strategies to make cheap properties less appealing to distant speculators—by using receivership, say, to seize unmaintained properties from delinquent owners—investors have little reason to avoid risky assets, especially when the risk is largely borne by local neighborhoods the investors will never see. There’s still plenty of profit to be made from the pain of America’s cities; last year’s tax sale in Detroit, for example, was the city’s biggest ever.

Last summer, a year after the CLC settled its suit against Wizig, the demolition of 1906 Boone was finally complete. But by then, the damage had been done. When people say a single vacant house can undermine an entire block, they’re usually speaking metaphorically. But here, the destabilization is literal. Every time Lewis Mitchell looks out his window, he sees what might happen to his own home. Most of the houses across the street are already in various states of collapse, victims of the domino effect that a single ruined house can inflict on its neighbors. Only four people still live across from Mitchell. The empty lot left where 1906 Boone once stood may mean that he and the remaining homeowners on the street will face a similar fate in the next few years.

What gnaws at Mitchell is the fact that things didn’t have to end up this way; a different kind of future could have been possible for 1906 Boone. Mitchell’s own house was vacant when he bought it 21 years ago and fixed it up. He had wanted to do the same thing for 1906—he had some money saved up, and plenty of renovation experience. But the very attributes of the property that threatened the community in Baltimore—the abandonment and neglect evident in every sagging floor and broken window—are what made it so attractive to an investor in Houston. Urban blight is a market. By the time Mitchell saw the FOR SALE sign on 1906 Boone, the house was already long gone.