GRAND RAPIDS — A West Michigan real estate firm has moved to settle a federal civil lawsuit alleging it engaged in racketeering and other fraudulent activities by charging higher rents at properties once intended for affordable housing.
Eenhoorn LLC, a Grand Rapids-based property management and real estate investment firm, began settlement discussions in late September after charges surfaced that it violated the Racketeer Influenced and Corrupt Organizations (RICO) Act, according to court documents filed with the U.S. District Court for the Western District of Michigan.
The settlement discussions stem from a case filed this March by John Smith, a staff attorney at Legal Aid of West Michigan, on behalf of Dianen Rozanski, a former tenant of one of Eenhoorn’s apartment properties in Kentwood. The company served Rozanski with an eviction notice when she was late on paying three times after Eenhoorn raised her rent, according to court documents.
Attorneys for both parties confirmed to MiBiz that settlement discussions are ongoing, but declined further comment.
“It’s a fairly straightforward resolution and we just want to get it right,” said Michael Roth, a partner at Varnum LLP in Grand Rapids who is representing Eenhoorn.
Roth declined to provide a specific timeline for when details of the settlement could be finalized.
As MiBiz previously reported, the RICO case came after allegations that Eenhoorn engaged in a Deed in Lieu of Foreclosure scheme at multiple properties it owned through various entities. The deed in lieu of foreclosure process allowed the company to strip away the Low Income Housing Tax Credits (LIHTC) associated with the properties, freeing the owners to charge higher market-rate rents for the apartments.
Previously, Eenhoorn executives said the properties had fallen into dire straits financially. They described as “bogus” the claims that the foreclosures were “planned” or done to kick out low-income tenants.
Eenhoorn is owned by Paulus Heule, a West Michigan businessman who holds the title of Honorary Consul to the Kingdom of the Netherlands in West Michigan.
In the lawsuit, Legal Aid and Rozanski claim Eenhoorn or Eenhoorn-related entities used the deed in lieu of foreclosure process at least seven times at other properties in four states, including Ohio, Wisconsin and Indiana.
Housing advocates fear the moves could displace poor families during a time in which affordable housing has become hard to find in cities like Grand Rapids.
“We’re losing a very precious resource there. We’re losing very specific types of low-income housing,” Smith told MiBiz for a previous report.
Eenhoorn and its attorneys filed a motion to dismiss the case in May. In an Oct. 3 court filing announcing that both parties had agreed to general terms of a settlement in mid September, the defendants requested the court hold off on a decision to dismiss the case for 30 days, pending the ongoing discussions.
The lawsuit also names the Michigan State Housing Development Authority (MSHDA) as a defendant, “solely to establish its interest in the property at issue,” Smith said. The agency administers LIHTC, the competitive federal tax credit most commonly used for affordable housing developments in the state.
MSHDA and federal agencies began investigating the use of the planned foreclosure process last year. As MiBiz previously reported, Kevin Elsenheimer, the former MSHDA executive director, sent a letter to the U.S. Internal Revenue Service asking for guidance about how to prevent companies from using planned foreclosures to charge higher rents at their properties.
“There are some legal issues here and it raises concerns,” Clarence Stone, MSHDA’s director of legal affairs, said in January.
Stone neither confirmed nor denied that MSHDA was investigating Eenhoorn.
“The purpose of LIHTC is to provide affordable housing,” Stone said at the time. “If you have planned foreclosures, that policy objective is being thwarted.”