
Uncloaking a Slumlord Conspiracy with Social Network Analysis - danso
http://www.orgnet.com/slumlords.html
======
dhotson
We do this kind of analysis where I work for detecting fraud. I can't go into
too many details, but I can probably show you a simple example:
<http://i.imgur.com/feJLd.png>

This is showing some of the relationships between users in the system. You
take a user that you know is dodgy, and then start looking at what they have
in common with other users.

Also, slightly offtopic—I open sourced the graph visualisation part:
<http://github.com/dhotson/springy>

~~~
ivan_ah
dhoston/springy is awesome !

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ChuckMcM
Ok, I thought that was cool.

Its a bit scary, in that it will force such conspiracies to become more
complex (its an arms race after all), and it highlights a 'good' use of an
analysis technique which the evil doers can use against their enemies, but
still.

~~~
billybob
"Its a bit scary, in that it will force such conspiracies to become more
complex (its an arms race after all)"

I'd say rather that it will push smaller players out of this kind of corrupt
business. If you can't sell the business to your uncle without someone making
the connection, you have to have a wider circle of trusted conspirators. If
you're the mafia, that may not be a problem. If you're just a crooked family,
you might just go out of business.

~~~
r00fus
Exactly. Keeping it in the family allows for easy trust... once that trust-web
is exposed, it only leaves those who have heavily invested in "enforced non-
traceable trust" (ie, the mafia, etc).

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johnohara
The diagrams remind me of the hand-drawn ones FBI agent John O'Neill created
after the USS Cole incident and continually updated prior to the attacks of
9/11.

[http://www.pbs.org/wgbh/pages/frontline/shows/knew/etc/conne...](http://www.pbs.org/wgbh/pages/frontline/shows/knew/etc/connect.html)

~~~
herdrick
Was that the best Frontline ever or what? Thanks.

~~~
johnohara
Agree. The independent documentary "The Devil's Miner" about teenage Bolivian
miners ranks up there too.

<http://www.thedevilsminer.com/hauptmovie.html>

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wtvanhest
I guess I'm confused.

I can see how real estate owners and mortgage companies have relationships
with each other. (A lot of small owners have investments from family and
friends and use a single mortgage financing company with experience closing
tough initial investment deals)

What I don't understand is how the social network analysis led to a
conviction. What does the connection mean? Can someone else explain it?

~~~
gwillen
If you are cited for code violations, then you sell the property to your
brother before the deadline to comply, and claim compliance is no longer your
problem, that's fraud. This kind of analysis can be used to show a pattern of
that kind of fraud.

~~~
spiffytech
Is the problem that I sold the property before complying, or that I sold it to
my brother? What makes selling to my brother any different from selling to a
stranger? [supposing we live in different households with independent assets]

~~~
zacharycohn
There was a whole group of people who were doing this constantly. So all the
properties stayed within the same group.

Normally, you could sell the property to a stranger... but then you wouldn't
be able to benefit from it anymore. This way it "stays in the family."

~~~
wtvanhest
This seems unlikely due to the taxes and paperwork expense of transferring
property even with no brokerage fees.

I really don't see how the social network proves wrong doing.

I'm actually worried that an overzealous prosecutor and advocacy group
prosecuted people who were not guilty.

Obviously I don't know all the details so maybe they should be convicted, but
they weren't provided, so it is hard for me to evaluate.

~~~
Zigurd
Sham transactions are a common part of financial crimes. Ownership didn't
change in fact, just on paper. Linking all the owners together in one family
showed that the transactions had no material effect on where the rent and
equity money was going.

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djb_hackernews
That was interesting.

If you like this kind of sleuthing and analysis, you'll enjoy
<http://sharesleuth.com/> \- Which is a Mark Cuban pet project that
investigates shady listed companies in search for shortable targets.

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tibbon
I wonder if this type of business behavior explains some of the places in
Boston I saw that were always "going out of business" only to reopen the next
day, as practical the same thing. There was a rug store on Boylston that was
like that. I swear it must have had 10 going out of business sales.

~~~
xxdiamondxx
In high school I was working at a failing grocery store that decided to go out
of business. In the weeks prior to the going out of business sale we marked up
everything in the store by at least 33%. Then we had the "sale".

I remember the manager telling me we were making $30,000 a day during the
week-long sale. I guess "going out of business" is good business, haha.

~~~
jordan0day
Yeah, I remember a few years back when a lot of businesses were going out of
business reading online accounts of these tactics.

One that especially sticks out is when the Circuit City chain went under. I
remember reading about how they brought in an outside company to handle the
sales, and the first order of business was to raise all the prices on
everything in the store. DVDs that they couldn't sale at $10 were suddenly
flying off the shelves at $20 (don't remember the exact numbers).

It makes you realize what a fine line (which each person has to draw for
themself) there is between clever marketing and slimy, manipulative tactics.

~~~
tadfisher
This practice is an interesting play on expectations; namely, that a fire sale
implies deep discounts on goods. It is similar to the tactic used at Black
Friday at just about every major retailer: have a few major loss-leaders in
your ad, and discreetly mark up everything else in the store.

Is this manipulative? I wouldn't call it that, at least not more than any
other retail tactic. Consumers have more price information available to them
than ever before, yet they are still amazingly susceptible to the idea that
they are getting a good deal, nevermind that the widget that they are saving
25% on costs half as much on Amazon. If using psychology as a sales tool is
unethical, then the idea of advertisement and "sales" must be as well.

~~~
Decathect
Free markets are only efficient if consumers act rationally. In addition to
being unethical, manipulative marketing is bad for the economy. It's in
everyone's long term interest to regulate false advertising.

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jdp23
"How to research a slumlord", from last year, has a lot more information about
the process: <http://drpop.org/2010/04/how-to-research-a-slumlord/>

~~~
baq
the link's so good it's even included in the article.

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cartouche86
A similar situation in the state of Texas: multiple units under a condominum
regime with a (now majority) owner who wants to buy all remaining units, raze
the structures and convert the land to commercial use.

A minority of condo owners want to continue to live in well-maintained condos
in a nice part of town where commercial real estate is _very_ expensive.

You guessed it, the majority owner is a shell corporation with the
church/school behind it. The majority owner has slowly purchased units,
stripped them of utilities and let them lie fallow without renting them.

The subdivision has well-written deed restrictions limiting the land to
residential-only use. Commercial entities are specifically disallowed
(churches and private schools are commercial entities in Texas). The deed
restrictions can be changed only by majority subdivision vote once every 10
years (2020 next vote). The church/school does not own a majority of the land
in the subdivision.

Through these shell corporations, the church/school has quietly purchased
properties at residential rates in this deed-restricted residential-only
subdivision and then converted the land to commercial use (IMO a clear
violation of the deed restrictions). Commercial land in the same neighborhood
is _very_ expensive. The city is allowed to enforce deed restrictions but is
reluctant to do so.

The condo regime requires that units be kept for the welfare of the owners and
residents but soon the majority owner will take over the condominium board.
Minority owners fear that the majority owner will use the condominium
association's powers to drive them out..

To me there appears to be a legal conflict of interest: all condo owners sign
an agreement to support the condo regime and the welfare of all owners in
perpetuity, yet this particular majority owner seeks to liquidate the condo
regime.

Anyone have expertise in handling this type of case in Texas? Or who can
direct me to someone familiar with this type of takeover?

What does this have to do with conspiracy? The ties of the church/school to
the city government, the local legal community and real estate developers are
deep and intricate. Most real estate attorneys we have spoken to have some
affiliation with the church/school (which is a very large and very wealthy
organization) and cannot or will not sell their services to us. For years the
companies that were acquiring units in the condo used multiple shell
corporations to do so. It was not clear what was happening until fairly
recently.

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bri3d
A fun way to explore some (very different) data in a similar manner is to use
Palantir's <https://analyzethe.us/> \- the Palantir client is pretty complex
but _extremely_ powerful for this kind of social network analysis.

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uiri
It just seems unlikely that every single state will require the actual owner
of the LLC to be in public records. If that is the case, good luck finding the
owners. Ideally the slumlord will have a different registered agent (person in
the relevant state who handles the LLC paperwork) for each LLC and the
superintendent only deals with a lawyer. Again, different lawyer for each
building/LLC. You can sue the LLC, but the only asset that'd own is the
building itself. So, properly done, it seems that slumlords can get away with
it. Of course, paying all these lawyers might be more expensive than being a
decent landlord, it is probably a lot less work.

I feel like I'm missing some practical uses of knowing the superintendent,
local and out-of-state lawyer for each building (or building/LLC combo). I
only skimmed the linked How To Research a Slumlord, although the results seems
to be "render the LLC useless by suing the actual owner".

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cperciva
_As time went on, and the buildings appreciated in value during a real estate
boom -- loans from the mortgage company allowed the owners to "strip mine" the
equity from the buildings. This is a common slumlord modus operandi -- they
suck money out of a building rather than put money back in for maintenance._

Strip mining the equity? It's their building, isn't it? Seems to me that if
someone wants to own a pile of cash and a worthless building instead of owning
a well-maintained building, that's a business decision they should be entitled
to make.

~~~
brudgers
Buildings with sewage leaks, inadequate electrical systems, and vermin
infestations are a public health hazard, e.g. fires from electrical
malfunctions.

Thus, it may be argued that local governments have a legitimate interest in
setting minimum property standards.

Typically, owners are given the opportunity to correct violations and fined if
they do not.

As fines accumulate, governments will often work with prospective purchasers
in order to make transfer of the building's ownership economically viable and
provide relief to owners who are unable or unwilling to comply with minimum
property standards established by law.

Keep in mind that these buildings are inhabited -- the tenants of these
buildings are citizens.

The city government represents their interests - in the US property ceased
being the basis for citizenship a number of years ago - and that other
citizens are also paying for fire protection and other services which must be
rendered by the jurisdiction.

~~~
cperciva
_Buildings with sewage leaks, inadequate electrical systems, and vermin
infestations are a public health hazard, e.g. fires from electrical
malfunctions._

Right, and that's why (most) cities have building codes.

 _Typically, owners are given the opportunity to correct violations and fined
if they do not. As fines accumulate, governments will often work with
prospective purchasers in order to make transfer of the building's ownership
economically viable and provide relief to owners who are unable or unwilling
to comply with minimum property standards established by law._

It seems to me that the fundamental problem here is that landlords can dodge
fines by selling a building. If the tenants of sub-code buildings received a
statutory reduction in rent until the building is back to code requirements,
there would be no incentive for landlords to operate sub-code buildings.

The issue of imposing externalities on tenants is, however, entirely
orthogonal to the issue of _building equity_ which I was responding to.

~~~
Vivtek
_Right, and that's why (most) cities have building codes._

Right, and that's why it's only profitable to strip mine for equity if you
engage in fraud to avoid the building codes.

~~~
hncommenter13
This shouldn't be an effective strategy. In many municipalities, the code
enforcement bureau can record abatement liens, which must be paid before title
to the building can transfer.

In some cases, civil penalties enforceable in a court of law may also be
applied to the property, which the current owner may disclaim if they existed
at the time of purchase (so the prior owner must pay).

See, for example, the FAQ from Sonoma County (outside of SF).

<http://www.sonoma-county.org/prmd/faq/code-enf.htm>

~~~
brudgers
As a practical matter, municipalities often hesitate to encumber problematic
properties with large liens because they make transfer of property to a new
owner with better promises less economically viable.

The theory that the prior owner must pay, is simply not the case. First
because liens run with the land regardless of ownership, and secondly, because
a new owner's name cannot be recorded on the deed until the lien is cleared
(and thirdly because everything in a real-estate transaction is negotiable).

~~~
hncommenter13
If you read the link, it says that in the case of a civil penalty (not a
lien), the prior owner can be excused from paying under some circumstances.

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bane
Reminds me of the kind of analysis in
[http://www.palantirtech.com/government/analysis-
blog/insider...](http://www.palantirtech.com/government/analysis-
blog/insiderthreat)

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laconian
I'm no slumlord, but the fact that people can do this analysis with public
data does spook me more than a little.

Still, that's good detectivework and a great outcome!

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civilian
And now I want to start a conspiracy. It just looks so cool!

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scrod
Imagine how much easier this is when the subjects _openly declare their
connections on Facebook_.

