PHILADELPHIA - In September 2012, the City of Philadelphia and a holding company called Kenpor L.P. struck a deal: The city would help Kenpor acquire about 100 properties from foreclosure after Robert Coyle, convicted of fraud, defaulted on $10 million in mortgages in 2009. In return, Kenpor would pay the city $300,000 and, over time, put $630,000 in escrow to start rehabilitating or demolishing the properties.
It was a glimmer of hope for Kensington and Port Richmond, where nearly 300 properties were snarled in the foreclosures. But today, each of Kenpor's properties has code violations (one has 20), the city has not been paid, the escrow account is largely unfunded - and Kenpor wants out.
At a status hearing Tuesday before Common Pleas Court Judge Annette Rizzo, Kenpor's lawyers said that following a 13-month delay in recording the deeds, Kenpor cannot afford to rehab the properties.
"Our own investors started ditching Kenpor, and we're in our own economic difficulties as a result," said Marc Zucker of Weir & Partners, which represents the holding company. Zucker outlined a plan to auction off the 98 properties still in Kenpor's possession: requiring each buyer to post $6,500 for improvements to meet the $630,000 escrow requirement, toward which Kenpor has already paid $100,000.
Kenpor would administer the escrow fund, though it would be up to the city to verify that each buyer had used the $6,500 to fix up his or her property, Zucker suggested.
The city had agreed to take a loss on the more than $1 million in liens on the properties, most of which require extensive repairs.
"The owners are now presiding over a giant ongoing public-safety hazard, and it's really not a surprise," said Councilwoman Maria Quiñones Sánchez, whose district is home to most of the properties. "The numbers simply don't work for these properties, and private investors are only making a bad situation worse."
In a memo to Rizzo, her staff explained that "Licenses and Inspections informed our office that the properties were receiving numerous complaints in April of 2013, but that no enforcement could be done" because the agreement said Kenpor's obligations took effect only after the deeds were recorded.
Joe Blake, a spokesman for the Sheriff's Office, said the actual processing of the deeds took only weeks and the delay "had very little to do with this office and a great deal to do with Kenpor, the city's legal office, and the title company."
Now that the deeds have been recorded, L&I has reinspected the properties and identified more than 100 violations. About half the properties are occupied but have no rental licenses or rental suitability certificates; the other half are vacant but have no vacant-property licenses. Kenpor's own records identify 30 of its properties as having a "squatter problem."
Zulma Rivera, 43, is one of Kenpor's tenants, at 622 E. Wensley St. in Kensington - assessed by the city this year at $35,700. Kenpor offered her a lease that made her responsible for house repairs.
Conditions are deteriorating, though she has put thousands of dollars into repairs, she said.
Flipping through photos of her home, she pointed out large holes in the ceiling of her kitchen and living room, a crumbling rear wall, and broken linoleum. Today, Rivera has no heat in her house, due to a problem with her pipes that, she's been told, puts her at risk of a gas leak.
Still, she's been there since 2006 and doesn't want to leave. "I know everybody. If I feel sick or my asthma acts up, I can call my neighbor," she said.
There has been some progress. Eight individuals who were in rent-to-own agreements with Coyle now own their properties, Zucker said.
Elizabeth Shay of the Senior Law Center said another client she represented obtained his deed last year.
"In my case, everyone acted the way they were supposed to. Not everyone has been so lucky," she said.
And 10 other residents interested in lease-purchase deals are making progress in their negotiations, according to their lawyer, Jennifer Schultz, of Community Legal Services.
The city has sent Kenpor a notice of default effective Friday. Over the next few days, the holding company is expected to come up with the money and return to the city with a plan for the auction.
Attorney Christine Bak of the city's Law Department said it was time for Kenpor to meet its obligations, both by paying the city what it owes and by restoring the properties.
"We want this to now start," she said.