A tax-delinquent landlord has found a way to keep local authorities from seizing his assets: federal bankruptcy.

The target of Ohio’s first-ever joint effort by a county auditor, land bank and prosecutor to collect a public debt, Gary Thomas outmaneuvered tax captors last week by sliding four of his most troubled companies  into bankruptcy, moving 27 properties worth $897,760 beyond the reach of officials trying to take them to recoup $465,192 in unpaid taxes.

The bankruptcy proceedings could last years. The bundle of rental properties has an outstanding public and private debt of $766,460, according to the filings. Lined up to collect are banks, silent investors, private lenders charging high interest rates, Akron’s water and sewer departments, housing and health code inspectors and Summit County Fiscal Officer Kristen Scalise.

Scalise, who chairs the county land bank, teamed up with the quasi-public agency’s executive director, Patrick Bravo, 15 months ago to chase down the last of more than $1 million in public debt Thomas had racked up in the previous decade. The plan was to push more than 100 of his tax-delinquent properties swiftly into foreclosure, forcing Thomas to pay up or lose them all.

Thomas paid thousands in taxes to redeem several properties, selling others to private investors, including 401k accounts held by retirees. So far, he’s walked away from $100,000 worth of property with $125,000 in fees and penalties effectively erased by the land bank and fiscal office, public records show. He let another 12 properties go to the land bank by not bidding on them at sheriff’s sale last week.

The land bank is taking another dozen of his foreclosed properties, which no one bid on last week.

But Thomas has fought to keep 69 units, many generating tax-free income, at least at the moment, for his personal retirement.

In a sheriff’s sale at the county courthouse in August, he outbid the land bank to keep a South Akron bar where two men died in gunfire last year. Then he missed a deadline Monday to pay what he had bid. Now he’s arguing in court that he only needed to pay off the taxes and mortgage. The county, arguing that he must pay his full bid amount, has filed a contempt notice to ban Thomas from future sheriff’s sales, though only three of his properties remain to be sold at auction.

Last week, 51 units were up for public sale. For local authorities, the auction would be the pinnacle of a lengthy effort to extract unpaid taxes from one of the top tax delinquent property owners in the county.

But on the eve of the auction, Thomas said he filed for bankruptcy to force the county to put him on a scheduled tax repayment plan.

“It stops the entire process now that he’s filed bankruptcy,” Scalise said of efforts to foreclose on the 27 properties. “It basically ties our hands.”

The legal maneuver by a man who said he’s never used his law degree for anyone but himself is the latest twist in a decade-long effort to collect at least $1.14 million in unpaid taxes on 222 properties Thomas or his friends, family and associates have owned, sold or rented to some of Akron’s poorest residents.

Scalise said it’s “laughable” to hear Thomas complain of being “ganged up on.” Her office has offered Thomas multiple opportunities to make monthly payments, but the “chronic abuser of the system … has continuously defaulted … and is therefore prohibited from any future contracts,” she said.

The county has brought in third-party debt collectors to go after Thomas. But he said he’d rather pay the private debt collectors an 18 percent penalty and get to invest his tax money today instead of paying taxes.

The tax dollars support public schools, libraries, police, fire and more.

“I’ve got several other properties — some I pay taxes on, some I don’t,” Thomas said of the network of at least 23 businesses he’s created to own or manage rental units for himself or investors.

Thomas bought many of his properties in the wake of the housing foreclosure crisis with no record of ever paying property taxes on many of them. Several of his tenants have said he’s made no effort to repair the properties. Some others say repairs are made only after threatening to involve an attorney.

In interviews with the Beacon Journal, Thomas said he shuffles his properties from one limited liability company to another to protect his revenue-generating properties from the troubles of those that face enforcement action or bank foreclosure. That allows him to make the legal argument that his companies are individually responsible, not him or any of his other businesses.

He said he’s done nothing “nefarious.”

“The last time I looked, it’s America; you can have as many companies as you want,” Thomas said.

But his bankruptcy filings and other legal documents indicate affiliations between the troubled companies he’s trying to keep separate from other real estate businesses that benefit him.

On each of the four requests to seek federal bankruptcy protection, Thomas lists no affiliated companies, only connecting the dots between the four companies in a separate motion that could save his $150-an-hour attorney time by arguing the cases jointly. Thomas is listed in every case as the “100 percent” controlling manager. The four companies, like many of his other businesses, share a physical address on Cotter Avenue, a legal address that is Thomas’ home in Wadsworth or an Akron post office box where tenants can drop off rent checks.

He’s kept the companies legally separated, avoiding the definition of affiliate under bankruptcy law as an “entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor.”

But one of the companies seeking bankruptcy protection, Marcia Realty, is owned by another of Thomas’ businesses, TXS Property Services. Sitting beside Thomas at the sheriff’s sale last week was attorney Robert Neiman,who filed the paperwork to create Marcia Realty. Thomas used TXS to place winning bids on seven properties owned by TXS and auctioned in the foreclosure action.

However, the assets of TXS may not be subject to the bankruptcy of Marcia Realty. “It all depends on how contracts are drafted as to whether liability would extend to the parent company,” Michael Demczyk, an attorney who has practiced bankruptcy law for 37 years in Stark and Summit counties, said of how a judge would likely interpret the law in any bankruptcy case. “Generally [parent and subsidiary companies] are separate and distinct entities.”

The bankruptcy filings also show how Thomas uses rental income to reward tax-free investments benefiting his personal retirement. Gary L. Thomas Roth LLC, one of the companies for which he's seeking bankruptcy protection, put $20,000 in his individual retirement account in the past year, according to the filing. Another company put that exact amount in a bank account that shares the name of yet another real estate company, Capital Funding, which Thomas uses for properties not in the bankruptcy case.

 

Reach Doug Livingston at 330-996-3792 or dlivingston@thebeaconjournal.com.