It was either the East Bay real-estate crime of the century, or one of the smartest, boldest business moves a landlord ever made.
As the global economy was imploding in 2008, local investor Michael Marr began scooping up foreclosed homes at public auctions, often for less than half their current market value. By 2012, Marr had purchased hundreds of properties. He flipped some of his auction winnings as housing prices began their meteoric climb again. But the rest — a giant collection of ramshackle bungalows, mid-century block apartment buildings, back-lot annexes and funky duplexes located mainly in Oakland's flatlands — are rental properties managed by one of Marr's companies, Community Realty. And, thanks to soaring rents, Marr's properties have generated unusually big investment returns. Definitely a smart business move.
Marr owns approximately 333 Oakland houses and apartment buildings, according to Alameda County records, making him the fourth largest property owner in the city, outranked only by the city of Oakland, the state of California, and the Oakland Housing Authority. His company claims to have invested more than $300 million in East Bay real estate, with 1,300 rental units under management.
If Marr's empire was a Monopoly board game, he'd definitely have the most little green houses.
But local tenants have grown increasingly frustrated with Marr's property-management company, due to what they say are bruising rent increases and substandard living conditions, and now a small contingent of fed-up renters are petitioning the City of Oakland to intervene with help.
Things got worse for Marr in 2011, when the FBI raided his offices as part of a probe into what federal agents have characterized as a "conspiracy" to rig foreclosure auctions. They say Marr scooped up distressed housing at below-market prices and cheated lenders, banks, indebted home owners, and taxpayers. A federal grand jury indicted Marr and eleven other East Bay real-estate investors in 2014, alleging they made a pact not to compete with one another at foreclosure auctions.
Instead, the feds say they gathered on the steps of Alameda County's Rene C. Davidson Courthouse and at other auction sites, and bought real estate at purposefully "suppressed" prices, divvying the spoils among themselves later at secretly held "secondary auctions."
So, which was it: business brilliance or a criminal conspiracy?
'This is Outrageous'
Billy Martin lives in a small two-bedroom, ground-floor apartment in a three-unit building, tucked behind a house on a long lot in deep East Oakland. Community Realty bought the grey stucco triplex, along with a separate house at the front of the lot, in 2014 for $385,000, two years after Deutsche Bank foreclosed on the original owner. Martin, with his gravely voice and a gleaming golden Bluetooth always plugged in his ear, wants the government to suspend all of Marr's assets and prevent his company from raising rents during the fed's trial. "They should freeze everything he's doing until after he's out of court and there's a final decision about whether or not he's guilty," Martin said.
Dozens of investors in Northern California already pleaded guilty to organizing similar bid-rigging schemes at foreclosure auctions. But Marr and his associates insist they are innocent, that he's a federal scapegoat instead of going after the after banks. He's hired expert white-collar defense attorneys to fight the feds, all the way through a jury trial if necessary.
But a growing number of Marr's tenants are beginning to complain about big rent increases and issues such as missing windows, bedbugs, mysteriously disappearing rent checks, and shady eviction practices. Some of these renters are fighting Marr's company before Oakland's rent board. Others have written to Oakland Mayor Libby Schaaf and City Attorney Barbara Parker, asking them to intervene by sending building inspectors.
Martin thinks Marr will be found guilty. "So, in the meantime, what he's doing to people like me, well, it shouldn't be legal."
What's Martin's beef? He says that one of the first things Marr did after purchasing his building was to make substantial repairs on two of the empty units on the property. Marr didn't do much to improve the specific unit Martin lives in, he claimed. Then came surprising news: Marr sent a letter demanding a 75 percent rent increase, raising Martin's rent from $800 to $1,400 a month.
"My wife works two jobs, my job is part-time, so we could afford some raise in the rent," he said. "But this is outrageous."
The fifty-year-old, who lives with his wife and two sons, grew up in Oakland and has seen a lot of things change. But he said he's never seen the city's housing situation so out of control. "If he prices us out, we don't have anywhere to go," Martin said.
Martin's next-door neighbor Willie Packnett is facing an even bigger rent increase — a $1,000 monthly bump, which Marr's company demanded in June of last year. "We're getting squeezed out," said Packnett, who moved to Oakland in 1977 after he got out of the military.
Packnett's two daughters, and their two children, live with him. "One of my grandchildren has sickle cell anemia," he said. "The other has asthma." He explained that it now seems that the only affordable place for people like him is far outside of Oakland, in places like the Central Valley. But he fears that moving would negatively impact his grandchildren's health.
Martin and Packnett have filed petitions with the city's Rent Adjustment Program, seeking to halt the increases. They pleaded their case to a hearing officer, and the city ruled in their favor.
"There should be a limit to how much your landlord can increase your rent," Packnett said in his living room a few weeks ago.
There is in fact a limit to rent increases in Oakland, but it only applies to apartment buildings built before 1983. Marr's company is appealing the rent-board decision on the grounds that the units in question were constructed in 2003, which would allow an increase of any amount. Packnett and Martin feel like they're going lose on appeal.
Marr's attorney for Community Realty, Timothy Larsen, didn't dispute that Marr is asking for big rent increases. But Larsen said the increases are legal, and that Marr's company bought the building with unnamed investors who assumed the rents being paid by the existing tenants were much higher.
"My clients are not the sole owners and have other investors involved, decisions are not being made solely by my clients," Larsen wrote in an email.
Ironically, Packnett actually helped build the house he lives in. And Martin lived on the property in an older cottage that was demolished to make way for the new three-unit building. Their previous landlord hired Packnett as part of the construction crew in 2003.
The two men think that Marr's company is passing along the costs of upgrading the other two units on the property to them, even though they gain no benefit from that work. And they suspect something else also: Martin said it seems like Marr might be squeezing his rental properties for cash, in order to pay his legal bills to fight the federal government's bid rigging case. The two are now trying to figure out how Marr's legal problems with the feds might relate to their situation.
In Martin's petition to the rent board, arguing against the $1,000 rent increase, Packnett wrote that he's working to find out whether his apartment is a part of the federal investigation. "If so, I think no decisions should be made until this case with Marr is over," he wrote.
"I think Oakland rent control should check into this incident."
Bedbugs, Mold, Evictions
Maria Naborh also lives in one of Marr's properties, and she alleges that his company has been unresponsive to substandard living conditions.
Naborh, her husband, and their two kids used to reside in an apartment on 98th Avenue. But the family sought more space, so last year they moved into a single-family home owned by Marr near the San Leandro border. They had to sell one of their cars to raise $3,000 for the security deposit and first month's rent of $1,800.
When she first saw the little house, she knew it would take a lot of work to make it habitable. But when they finally moved in, Naborh said there was mold in the carpets, no refrigerator, cracked and dirty floors, missing cabinets, and rat feces in the kitchen and living room.
But the biggest problem resulted from two used sofas and the soiled carpet, which was left in the house when her family moved in. After a few weeks in their new home, she and her husband began itching at night and feeling little pains in their arms.
They soon discovered that the house had become infested with bedbugs.
Naborh insisted that the pests were lodged in the furniture and carpet. She threw away clothing, cleaned the house incessantly, but the insects kept coming back.
She explained how, for more than eight months, they complained to one of Marr's employees about the insects, but that Community Realty did not take care of the problem.
Marr's attorney Larsen said the bed bugs were likely the tenant's fault. "Obviously no landlord is going to bring bed bugs into their unit. It's usually the case that they are brought in by the tenants themselves, or they had a friend or neighbor come by, or it's not a detached unit, and someone down the hall or upstairs did it," he explained.
Larsen said in cases of bed bugs and other pests, Marr has always worked fast to resolve issues.
"My clients have a contract with Applied Pest Management to treat any pest complaints received from tenants," Larsen wrote in an email. "Numerous reports and work orders can show they are extremely proactive and aggressive when it comes to treating pest control issues in our units." Larsen also said that the Naborh's hadn't contacted Community Realty about the bed bugs until a year after they moved into the house.
Alameda County Superior Court records show that Marr and his company have been sued four times by other tenants, who have alleged similar problems with his buildings.
One of the cases involved a building owned by Marr on 96th Avenue, where tenants alleged leaky ceilings, wet sub-flooring, mold, gas leaks, rodents, bed bugs, a broken security gate, and numerous other problems. Oakland Building Department records confirm that the building has been the subject of multiple complaints. For example, on September 14 of last year, building inspectors flagged the property for "blight" because of "insufficient garbage bins," causing trash to pile up in common areas.
Denielle Allen is another one of Marr's tenants who thinks authorities should pay more attention to how he runs his rental properties. She's a working mom with two boys, and moved from Alameda into an East Oakland duplex owned by Marr in 2012. She said her problems with Marr began in the fall of 2013, when she tried to get a broken window and plumbing problems fixed. "It was like pulling teeth to get things done," Allen said about the window, which leaked water into her children's bedroom.
After three months of no response from Community Realty, Allen said she called Oakland's building department and had inspectors come out. The inspectors cited Marr's company for the code violations, according to city records. Afterward, Community Realty fixed the window.
Attorney Larsen argued that his client is a good landlord who provides affordable rental housing for Oakland residents, and that Marr's company tries its best to address every issue reported by tenants.
"I know he's never denied anyone a repair," Larsen said in response to allegations.
Allen said Community Realty responded to the window incident by filing an eviction lawsuit against her. It alleged that she hadn't paid her rent. Allen said she obtained a copy of her rental payment and showed it to Community Realty, and they subsequently withdrew the eviction lawsuit.
But then they filed another, she said.
She says there has been a pattern of her rental payments going "missing" in Community Realty's offices. This forced her to check court records on a weekly basis, to make sure her landlord wasn't filing new eviction lawsuits against her — which she would only have five days to respond to or risk being thrown out of her home.
She suspects her landlord wants her to move out. "I'm paying $1,440, but I'm sure they could get $2,300 in the current market," Allen said. "But it's rent controlled."
"As you know, there's two sides to every story," was Larsen's response to Allen's case.
According to Larsen, "Allen had a long history of paying rent late." Larsen said she never provided proof that her rent payments were lost by Community Realty.
This past December, Allen sat in the back of a downtown Oakland federal courtroom and watched as U.S. Justice Department prosecutors squared off against Marr's attorneys in a preliminary hearing. Allen listened attentively as the attorneys argued about how soon Marr's trial should commence, and how both sides will use a custom database to organize millions of pages of documents, which the feds say proves the bid-rigging conspiracy. After the hearing, Allen and a few organizers with the housing-rights group Alliance of Californians for Community Empowerment stood in the courthouse lobby, not far from where Marr and his attorneys huddled. She told the ACCE organizers that she thinks the City of Oakland, or another authority, should take a close look at how Marr is managing his rental properties.
In October of last year, Allen also wrote Schaaf and Parker requesting that the city look into the conditions of Marr's rental properties and take action if warranted. "I have been greeted with multiple eviction proceedings in retaliation for asking for repairs," Allen wrote.
"Please stop ignoring the problem and passing responsibility around."
Alex Katz, a spokesman for Parker, wrote in an email that the city has met with some of Marr's tenants about allegations of substandard living conditions and other problems. "We are looking into the complaints," Katz wrote.
Conspiracy or friendly joint-business venture?
The issue of whether or not Marr is a good or a bad landlord could be a moot point by the end of the year: The fate of his real-estate empire depends on the outcome of the federal government's antitrust case against him.
He has been charged with one count of bid-rigging, which carries a sentence of up to ten years in prison and a fine of $1 million. He's also been charged with six counts of mail fraud. Each charge carries 20 more years and another million-dollar fine.
But Martha Boersch, Marr's attorney in the federal lawsuit, called the government's case weak.
"He's innocent, and so are the other defendants," Boersch said, referring to Javier Sanchez, Gregory Casorso and Victor Marr, three of Marr's business associates who are standing trial alongside him. "They were simply doing what people have done in America for hundreds of years: buying property and sometimes reselling it. There was no bid-rigging at these markets."
In a motion filed with the federal court in March, Boersch argued that FBI investigators may have found evidence that Marr and others made joint bids and cooperated in other ways at foreclosure auctions. But prosecutors have incorrectly characterized this as "rigging" the auction to suppress competition. By teaming up, she contends that Marr and others actually made the foreclosure auctions more competitive.
"[J]oint bidding can be pro-competitive by allowing individual bidders to pool their resources, efforts, knowledge, or appetite for risk, to make acquisitions together that they could not or would not make independently," wrote Boersch, and several other attorneys, in a court motion. "If anything, their 'secondary auctions' performed like an efficiency-enhancing buying collective that actually encouraged competition."
According to Boersch, the real-estate auctions during the foreclosure crisis were "completely dominated" by Wall Street. "The banks controlled every aspect of the foreclosure auctions in Alameda and Contra Costa counties," she explained to the court. The banks set the minimum-bid prices, but declined to offer bidders like Marr any relevant information regarding the physical condition of properties, whether they were occupied by former owners or tenants, or other crucial factors that would affect the price.
And, in addition to selling the foreclosed homes, the banks were also buyers in this market, meaning that Marr's competition included not just other scrappy investors like himself, but also the very banks that held all the information about the real estate up for grabs, she said. "The banks in effect were both the exclusive supplier of foreclosed properties and the defendants' largest, most powerful, and most successful direct competitor," Boersch wrote to the court.
U.S. attorney Albert Sambat fired back against this argument, however, in an opposition brief submitted to the federal court last month. According to Sambat, the characterization of the banks as "power buyers that withheld information in order to gain advantage at the auctions" is misleading. The banks were only buyers of foreclosed real estate at the auctions in the event that bidders such as Marr didn't purchase the property.
As to whether Marr was jointly bidding with others to acquire properties that he could not acquire on his own, Sambat wrote that there is no evidence he pooled his resources to acquire shares in individual properties up for sale along with other bidders, as the term joint-bidding would imply. Instead, he had a prior agreement to "refrain from bidding against one another for selected properties and instead designated which conspirator would win the public auction."
Mark Abueg, a spokesman for the Department of Justice, said he couldn't provide any more information about the government's case against Marr because it is still pending. But DOJ records show that 56 people have already been charged and pleaded guilty to bid-rigging at foreclosure auctions in Northern California.
Marr's tenants aren't waiting around for his trial date later this summer. Last month, several of Marr's tenants and a dozen supporters gathered in the parking lot of the Farmer Joe's supermarket in Oakland's Dimond District. They circled around tenant Martin, who explained what was about to happen.
"What we're gonna do is, a few of us will walk in advance of the group and go into the office, and I'll ask for the head manager, and we'll give him our demands," Martin said.
Everyone nodded in agreement. He then read the group's demands off a sheet of paper.
They included an immediate rent freeze for all of Marr's properties, pending the conclusion and final verdict of the federal indictment; a commitment to selling his properties to the Oakland Land Trust, a nonprofit property manager that provides permanently affordable housing; and immediate resolution of five specific complaints regarding rent increases, mold, and bed bugs.
"Everyone ready?" Martin asked. The group nodded in unison and started marching up the street toward the office of Community Realty.
Martin and two organizers with ACCE walked ahead of the group and knocked on the door. A man answered, peering out cautiously, his eyes darting past Martin toward the sidewalk where he could see a few of the protesters. He came outside and listened as Martin told him about the big rent increase he was facing and the other complaints. He finished by reading the tenants' demands, and then handed over a letter addressed to Marr, accusing him of exploiting the foreclosure crisis and mistreating tenants.
The man, who identified himself as the manager of the office, took the letter and said he'd pass it off to Marr, along with the tenants' request for an in-person meeting.
After a few minutes, the protesters walked back down Fruitvale Avenue and debriefed. "They accepted the letter," Martin told the group. "We should know soon what's going on."
Just a few days later, tenant Naborh said a pest exterminator showed up at her home to try to take care of the bugs and rodents. But she said most of the livability issues around her home still haven't been resolved.
And, as of last week, Martin and Packnett said they were still facing rent increases. They sat in Packnett's living room on a recent weekday evening mulling their options. Give up? Move away?
"Investigate," Packnett said. "That's what the authorities need to do."
"We're going stand up and fight it," Martin said.