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Calling Sanford Capital “the owner of one of the most notorious slum properties” in the District, D.C. Attorney General Karl Racine is asking a federal judge to dismiss the company’s recent request for Chapter 11 bankruptcy at its forsaken Terrace Manor property in Ward 8.
A week after an LLC owned by Sanford filed for bankruptcy—jeopardizing the rights of about 13 tenants who still live in Terrace Manor’s 11 buildings—Racine’s office challenged that action in a new court motion. The attorney general argues that Terrace Manor LLC’s request to restructure is made in “bad faith” and is merely a strategic legal attempt “to further evade its obligations as a landlord to provide safe and habitable housing to its tenants.”
Sanford Capital has racked up more than 100 housing-code violations at Terrace Manor, and more than 1,000 across its almost 20 properties in the District. Taken together, those citations amount to $539,500 in potential fines, according to Mayor Muriel Bowser‘s administration, which inspected the company’s portfolio last month. Lack of heat, broken locks, and pests are common.
Last week, Sanford’s principal and co-founder Aubrey Carter Nowell applied for Terrace Manor LLC’s bankruptcy just hours after Racine’s office asked the D.C. Superior Court to hold the company and its affiliates in civil contempt, as well as to appoint a receiver to rehabilitate the run-down complex. The Chapter 11 request also came on the heels of a motion by Racine earlier in March to make Nowell and the company’s head property manager personally liable for damages.
In the new court motion, Racine says the bankruptcy filing “is a thinly veiled effort to obstruct and delay the District’s ongoing enforcement action, evade the commitments made in the Abatement Plan, frustrate the rights of Debtor’s tenants under the District’s Opportunity to Purchase Act, and allow the Debtor to sell Terrace Manor apparently in order to make millions of dollars while its tenants go without utilities and live in slum-like conditions.” Sanford drew up a contract last year to sell the property for $5.8 million to developer Sofonias Astatke.
Nowell’s attorney in the Chapter 11 matter, Brent C. Strickland, has not responded to requests for comment. His attorney in the D.C. Superior Court case launched in October, Stephen Hessler, declined to comment last week.
But court records show the company is aggressively opposing Racine’s litigation. Sanford wants the District’s lawsuit to be automatically stayed as a result of the bankruptcy filing. In reply, D.C.’s lawyers have argued that their case is exempt from stays due to bankruptcy, and that Sanford is pursuing the restructuring of Terrace Manor LLC as a “haven for wrongdoing.”
During a February inspection, the Department of Consumer and Regulatory Affairs found raw sewage leaking from a pipe in the basement, among other issues. Yet Terrace Manor LLC stated in its bankruptcy filings that it does not own “any real property … that needs immediate attention,” including property that “poses or is alleged to pose a threat of imminent and identifiable hazard to public health or safety.”
Dozens of tenants left the 11-building complex after Sanford bought it in 2012, and those remaining say the company has tried to force them out through neglect. A bankruptcy sale would eliminate their right, under D.C.’s Tenant Opportunity to Purchase Act, to select a buyer in the current sale.
Sanford Capital has also stated it has less than $3 million in debt on Terrace Manor, $2.8 million of which it owes to EagleBank. This means Sanford stands to profit greatly from selling Terrace Manor for $5.8 million. EagleBank gave Sanford a refinanced mortgage for the complex last May following an original lawsuit Racine lodged against the company over a different property it owns in Congress Heights.
“In these circumstances, there is no justification for bankruptcy protection, where the Debtor’s assets far outweigh any reported liabilities and Debtor cannot explain the need for reorganization at this time,” Racine’s office says. “There is simply no reason why the sale of the property cannot proceed outside of these bankruptcy proceedings.”
A hearing on Terrace Manor is scheduled in bankruptcy court for April 17, but the attorney general has asked the D.C. Superior Court to hold an “emergency hearing” on its motions for receivership and contempt before April 14, arguing that those remedies are “absolutely necessary.” In addition, a hearing on Racine’s motion to dismiss Terrace Manor LLC’s bankruptcy request is set for May 4.