Citing 'suspicious' sale of embattled landlord's properties, judge backs refusal of rental licenses

Calling the sale of five properties by embattled landlord Stephen Frenz "suspicious," a federal judge refused Monday to grant an injunction to the buyer, Rickey Misco, who has sued the city of Minneapolis for rejecting his rental license application.

Judge Patrick Schiltz told Misco and his attorney, Oliver Nelson III, that Misco was unlikely to prove he had been discriminated against when the city opted not to give the licenses to Misco.

He said it was suspicious that Misco bought five of Frenz's apartment buildings, worth $7 million, for "an unusually low down payment" of $30,000.

In December, the city revoked about 60 rental licenses given to Frenz after learning that Frenz had negotiated a secret joint ownership of the properties with another landlord, Spiros Zorbalas, who had previously owned the buildings but was also banned from holding rental licenses.

Anticipating the revocations, Frenz sold off many of his properties last August on contracts for deed. But the city refused to grant licenses to the buyers, including Misco, because under such contracts, the properties would revert to Equity Residential Holdings, a company controlled by Zorbalas and Frenz, should the buyers fail to make payments.

Besides the low down payment, Schiltz said the contract required Equity Residential to give written consent for any transfer of Misco's interest and that consent is in the sole discretion of Equity Residential. Moreover, Schiltz said, the properties remain encumbered by mortgages executed by Zorbalas' business.

Nelson contended that Misco was discriminated against because he is black, while the city granted rental licenses to three other buildings purchased on contract for deed by whites.

Schiltz said that the city was treating Misco like most of those who purchased properties from Frenz on contracts for deed. He noted that the city refused to grant licenses to 26 other properties similarly sold.

"Far from being singled out, he is being treated like most of the buyers," Schiltz said.

Of the three that Nelson cited, Schiltz said one canceled his license and contract for deed, a second agreed to work with the city for an appointment of an independent administrator and is trying to cancel his contract, and a third was sold early on — in October 2016 — and is in limbo. Assistant City Attorney Ivan Ludmer said the city is trying to figure out how to handle that sale.

A Minneapolis housing court judge has appointed an administrator to oversee Misco's properties, including collecting rents and making repairs. Misco is appealing that decision. Both Misco and Nelson declined to comment after the hearing, as did Ludmer.

Randy Furst • 612-673-4224