State working to distribute $30 million from Phila. sheriff sales

Years of slipshod record-keeping and careless service by the Philadelphia Sheriff's Office left thousands of victims who never saw the money they were owed - about $30 million, in total - after the sheriff auctioned off their foreclosed homes.

Now, authorities are initiating efforts to pay off those debts.

The Pennsylvania Treasury Department says it has added more than 2,000 former property owners to its list of people owed money for abandoned-property claims, based on 2,348 Philadelphia sheriff sales worth about $10 million between 2001 and 2005.

An additional $7.2 million is owed to people whose homes were sold at sheriff sales between 2006 and 2009.

The city Finance Department is still working out plans to deal with former homeowners who have claims, but the Sheriff's Office says it will handle telephone inquiries and visits from people who may be owed money.

In addition, $7.8 million from sheriff sales before 2002 is still unaccounted for, with no clear records on whom it should belong to. The money will eventually go to the state unless former property owners can provide proof they're owed some piece of it.

Independently, several private lawyers have started a class action in Common Pleas Court, suing the city and the Sheriff's Office on behalf of people owed money from sheriff sales dating to 1988, when John Green became sheriff.

Deputy Sheriff Joseph C. Vignola dismissed the class action as "just a money grab for attorneys' fees." State Treasurer Rob McCord intervened in the case, contending that the lawyers were trying to usurp the role of the Treasurer's Office in dealing with abandoned property.

But the lawsuit wouldn't have been necessary if the sheriff and state treasurer had been more vigilant, said Christy Adams, one of the lawyers who filed the suit.

"If the Sheriff's Office did not mishandle my clients' money, refuse to distribute what was rightfully owed to them, and charge excess fees to personally enrich an unauthorized contractor [referring to allegations by City Controller Alan Butkovitz], then they would not have to hire an attorney, and this lawsuit would not exist," Adams said.

Many people were never informed they were owed money, Adams said.

"Some went to the Sheriff's Office and asked, but they never got the information," she said. "People told them the paperwork was lost, or they should come back later. So the money just piled up in the sheriff's accounts."

McCord's office hired a team of lawyers from the Philadelphia firm Duane Morris, led by one of McCord's political fund-raisers, Alan Kessler, to represent the Treasurer's Office in the class action. The lawyers, at $400 an hour, have been paid $70,314 so far, McCord's office said.

McCord's spokesman, Michael Smith, said the Treasury Department's chief counsel, Christopher Craig, had picked Duane Morris for its expertise in class actions without regard to political donations. Kessler said he had handled at least 50 class actions in his career.

Common Pleas Court Judge Arnold L. New allowed the treasurer to join as an additional defendant while denying the treasurer's motion to dismiss the class action entirely.

"It appears for some significant periods of the last 20 years, the sheriff did not timely pay the excess amounts to either the former property owners or the Treasury," New said last month, ruling that he would not dismiss the claims because the plaintiffs had clearly not been paid.

The money the lawyers are circling is a pot of about $30 million, currently held in various accounts by the Treasury and the Sheriff's Office.

Most of it is undistributed proceeds from sheriff sales, where properties were auctioned off because of unpaid mortgages, taxes, or utility bills. The properties wound up selling for more than the debts, with the balance thus due to the former property owners.

Instead, for reasons that law enforcement agencies are still investigating, the money accumulated in 13 bank accounts Green's office controlled.

After Green retired on Dec. 31, auditors hired by his successor and longtime chief of staff, Barbara Deeley, counted $55.9 million in the sheriff's accounts, with spotty records on whom the money rightfully belonged to.

About $15 million was attributed to the sheriff's operations during 2010, and $10 million to fees and down payments on sheriff sales that later fell through.

Under state law, public agencies and private firms holding unclaimed money are supposed to forward it to the state treasurer if it goes unclaimed for five years.

But Green's compliance with the unclaimed property law was sporadic at best.

Barbara Hafer, state treasurer from 1997 through 2004, completed an audit in 2004 that criticized Green's "failure to maintain adequate documentation and internal control safeguards" and sought $11 million from Green's office as unclaimed property for a period running through 1998.

The Sheriff's Office contested the accounting, and Hafer's successor as state treasurer, now U.S. Sen. Bob Casey, settled the dispute in 2006 for roughly $3 million.

That was the last year that Green filed any unclaimed property reports with the state. In spite of the documented problems in the Sheriff's Office, Casey's successors, Robin L. Wiessmann and McCord, were unable to obtain annual filings from the sheriff on unclaimed sheriff sale proceeds after 1998.

Smith, McCord's spokesman, said it was not for lack of trying.

Wiessmann notified the Sheriff's Office in April 2007 that she was initiating an audit of the sheriff's unclaimed property over three years from 1999 through 2001.

"There was no cooperation at all from the Sheriff's Office," Smith said. "The case never left Treasury's radar, but we were unable to make substantial progress."

The belated efforts to find and compensate the former homeowners result from a series of events:

A 2010 investigation by Butkovitz, who decided top Sheriff's Office officials were trying to deceive his auditors and called for a forensic probe.

Green's retirement in December after 23 years of failed promises to improve his record-keeping and financial controls.

The appointment of Deeley as acting sheriff, and her hiring of a private accounting firm, Nihill & Riedley, to explain the $55.9 million in the 13 accounts when she took over.

And the 2011 forensic study by Deloitte Financial Advisory Services arranged by Butkovitz that suggested widespread financial irregularities.

The first criminal charges in the scandal were filed last week. One of the sheriff's accounting clerks, Richard Bell, was accused by the U.S. attorney of arranging $400,000 in fraudulent checks to three others who allegedly shared the proceeds with him.

Philadelphia homeowners who lost their properties in sheriff sales and think they may still be owed money from those sales should contact one of two government offices.

For sales in 2005 or earlier, the point of contact is the Pennsylvania Treasury.

The treasurer's unclaimed property list is searchable on the Internet at www.patreasury.gov.

The treasurer's phone line is open weekdays from 7:30 a.m. to 4:30 p.m. at 1-800-222-2046. There's also an e-mail address: tupmail@patreasury.gov.

For sales since 2005, the contact is the Sheriff's Office.

The number to call is 215-686-3530, between 8:30 a.m. and 4:30 p.m. weekdays.

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