Investigation and foreclosure targets dozens of Minneapolis rentals

From the outside, the white, two-story house on Penn Avenue North looks like many around here.

The sidewalk and walkway to the front door are covered in snow. Plastic bags full of clothes, toys and other castaway items fill the porch.

The blinds are drawn over the windows. These are all the tell-tale signs of an abandoned home.

But this one's not.

"I'm hoping that we won't end up with a situation like with T.J. Waconia which took three years for us to be able to gather all the evidence we needed."

As a reporter knocks on the door, a man answers. He holds a cell phone in one hand and keeps a suspicious eye on the visitor. So does a caramel brown pit bull sitting a few feet away in the living room.

Once the visitor identifies himself as a reporter, there's no interest in talking.

This house was sold into foreclosure last month and city officials want to revoke the rental license.

It's one of about 30 properties owned by a group called Danna D III Investors LLC. They also go by Danna D I, II and VI.

Last spring, two representatives from the company met with city officials to discuss their plans to buy hundreds of rental properties in north Minneapolis.

According to Joann Velde, deputy director of housing inspection services for the city, there was already reason to believe that Danna D was not following the rules.

One city official told MPR that there was construction done in a Danna D home without the necessary permits.

Velde says she and other city officials wanted the investors to understand the ground rules for owning property in the city.

"And we did put some pressure on them in that sense -- that you have to follow this, otherwise you're gonna get additional administrative citation charges," she said. "You have to pay more fees, if you don't do it right in the beginning."

Minneapolis city officials told MPR that Danna D is under FBI investigation. That's something the FBI will not confirm or deny. It's unclear whether the probe is related to the foreclosures.

We tried unsuccessfully to contact two of the principals in Danna D - Julia Rozhansky and its chief manager Zack Dyab. A Minneapolis attorney who has represented the company would not comment about the foreclosures.

Danna D and Zack Dyab have a history of money trouble.

Since 1991, Dyab has been named in two dozen state and federal tax liens and civil judgements.

In late 2008, Danna D lost a $3.9 million dollar judgement over a property it owned in downtown Minneapolis.

That building was added to the city's foreclosure list last month - as well as Danna D's office headquarters building in Hopkins.

All this comes at a time when Minneapolis is trying to prevent more housing scandals, especially on the north side, where cheap homes are ripe for the picking by investors.

One such scheme by an investor group made national headlines. T.J. Waconia purchased more than 100 properties in Minneapolis at inflated prices and resold them for a profit.

Joann Velde says since then, the city has gotten tougher with property owners who don't follow the rules.

For instance, if an owner has two license revocations, they will be prohibited from renting property in the city for five years.

"We've got a great council that has really supported us in passing some rules," Velde said. "They have given us some good enforcement tools. And I'm hoping that we won't end up with a situation like with T.J. Waconia which took three years for us to be able to gather all the evidence we needed."

For northside residents and neighborhood activists like Roberta Englund, who heads the Webber-Camden-Folwell neighborhood association, there's a concern that investors are targeting the area to exploit the housing stock for profit.

"If the business plan of the investor is to make money at anyone's expense, he's not going to put paint on the wall and he's not going to fix the toilet," she said.

Englund adds that that business plan can lead directly to foreclosure, because the owner is not willing to invest anything in the property. She says in one Danna D home, renters moved in before there was a valid rental license.

Englund says her group tries to keep it's eyes on the buying, selling and renting of homes in it's part of north Minneapolis. But it's not easy.

Englund says eventually, most of the homes in foreclosure on the northside will be resold. And they'll be inexpensive. Which invites more groups to buy up rental homes as an investment. Plus she says, a lot of families are looking for rental housing.

"There are more today, than there has been in recent history because of families that for one reason or another were home owners, and now are on the street because they lost property to foreclosure," Englund explained.

Of the 30 Danna D properties in Minneapolis, 23 have been sold into foreclosure and 17 are scheduled to lose their rental licenses.

Click here to see a map of these properties

However, it's not clear how many people will be directly affected, because it's not known how many of the homes are occupied.

City officials say the rental licenses will be revoked in just over two weeks if the orders are not appealed. In the meantime they're encouraging renters in the properties to call Legal Aid for help.

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