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Carolina Journal News Reports

Critics: Black Got Sweetheart Deal on Fines

Critics say justice system did favors regarding settlement

Jun. 29th, 2009
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RALEIGH — As jailed former state House Speaker Jim Black mounts a campaign for early release from federal prison, critics contend that the state justice system did favors for Black regarding the settlement of his $1 million fine in a corruption and bribery scheme.

Black was given two years (and offered two extensions) before paying the fine; he was allowed to do so in $500,000 installments. And even though the Matthews Democrat owned more than a dozen parcels of real estate, including prime commercial properties and several lots with homes at Lake Norman, he was not required to sell or take out mortgages on any of them to satisfy the final half of the fine.

Instead, prosecutors and the court let Black pay the second installment by surrendering two parcels of undeveloped land in a Matthews subdivision that was most recently valued for tax purposes at about 30 percent of the value of his outstanding debt.

Critics wonder why the school system would accept the property on Rice Road in Matthews rather than force Black to borrow against or liquidate his other real estate holdings valued in the millions.

“It’s mystifying that the Wake County school district would take the risk of having to sell the property in the future,” said Joe Sinsheimer, a former Democratic consultant who spearheaded efforts to oust Black from office. “Cash in hand would have been much preferred in this situation.”

Uncertainty about the deal cropped up shortly after Black’s attorney, Whit Powell, asked President Barack Obama and the federal Bureau of Prisons either to free the former speaker early or bring him closer to home.

Powell has said that Black’s wife, Betty, recently was diagnosed with Lou Gehrig’s Disease, and Black himself is in poor health. More than 150 people, including former Republican Gov. Jim Martin, have reportedly written in support of Black’s early release.

Black is currently serving a 63-month sentence in a Lewisburg, Pa., federal corrections facility on corruption and obstruction of justice charges. He admitted to accepting tens of thousands of dollars in bribes from chiropractors to push legislation favorable to them. He also pleaded guilty in state court to charges stemming from a $50,000 payoff to Republican state Rep. Michael Decker to switch parties, which allowed Black to remain speaker.

As part of Black’s July 2007 guilty plea, Wake County Superior Court Judge Donald W. Stephens ordered him to pay a $1 million fine by Dec. 10, 2007. By law, the fine goes to the Wake County Public School System.

The Raleigh News & Observer reported that Stephens also threatened Black with an additional 19 months to 23 months in state prison if he did not pay the fine on time.

Even so, Stephens gave Black two extensions, citing the tough economy, placing a lien on the office building housing Black’s former optometry practice as security that Black eventually would pay the entire fine.

The former speaker paid half of the debt in June of last year, leaving a balance of $500,000. Black has had trouble liquidating his real estate to pay the remaining portion, according to Powell.

That led to a settlement with the school system. Wake County District Attorney Colon Willoughby and school board attorney Kris Gardner, of the law firm Tharrington Smith LLP, agreed to accept the Rice Road parcels to fulfill Black’s obligation.

Stephens signed off on the transfer in a court order issued May 14, stating that the property “has a fair market value roughly equal to the remaining fines, restitution and court costs to be paid in this case based on previous offers to purchase.”

Property records show the land was deeded over to WCPSS the same day. The transaction officially satisfied the $500,000 debt due Wake County.

Settlement deal

Willoughby and Gardner based their decision on two documents — an offer to purchase (1.9 MB PDF) and an appraisal — that each valued the property above the amount Black owed.

The offer to purchase was made originally in December 2007, when RT Land Developers LLC, a real estate company owned by Charlotte developer Thomas Pearson, offered Black $564,295 for the parcels. The contract was extended in April 2008 due to uncertainty about the availability of sewer service. The deal subsequently fell through.

Days before Stephens approved the May 2009 transfer of the two parcels to satisfy Black’s obligation, John Bosworth & Associates LLC appraised the real estate at $613,000.

Carolina Journal has been unable to obtain a full copy of the appraisal, which contains data and analysis to justify the estimate. Contacted by phone, John Bosworth declined to make available a full copy, citing confidentiality agreements that prohibit release to a third party. Powell initially sent three pages of the document, but by press time had not responded to a request for the remaining portion.

Willoughby and Gardner both say they have not seen a complete copy of the appraisal. “I do not have access and have not seen it,” Willoughby said.

The appraisal should address whether sewer service is available to the parcels, which would significantly impact their value. Bosworth said that he could not recall whether sewer was available.

In a telephone interview with CJ, Gardner said that he had concerns after learning of the property’s tax value, but that in the end he felt comfortable with the deal. “I’m not an expert, but I feel very good that its fair market value is at least $500,000,” he said.

Willoughby also isn’t sure what the property would fetch on the open market. “Certainly what’s gone on in the last 18 months or two years in our economic times have made it more difficult to place a value on the real estate,” he said, “so I don’t think anyone can tell you exactly what the property is worth today.”

Powell defended the settlement in a written response to e-mailed questions, saying, “Your implication that the Wake County School Board was shortchanged is inaccurate and without basis.”

Black may have to pay capital gains taxes on the property, says Raleigh CPA Chuck Averre. “The exchange of property for extinguishment of debt is treated as if the property was sold for the amount of the debt relief,” he said. “In other words, it is treated as if he sold the property for cash, and then used that cash to pay the fine.”

Asked what WCPSS planned to do with the parcels, Gardner said they would probably try to sell them as soon as possible.

It’s uncertain how soon that might happen, given the bleak national and local real estate market. The Charlotte Observer reports that home sales in the area fell by 31 percent in May compared with a year ago, and average prices declined by 11 percent.

Attempts to reach Stephens for comment were unsuccessful.

Ownership questions

Land records indicate that Black owns real estate worth around $4 million in Mecklenburg and Iredell counties, and at least some of it appears to be fully paid for.

Mecklenburg County property listed in the names of James B. Black Sr. and Betty C. Black include an Uptown Charlotte office with a tax value of $1.2 million, a residence in Matthews valued at almost $500,000, a Central Avenue day-care center building, and several parcels of prime real estate in the commercial center of Matthews. These latter Matthews parcels together are valued at $451,900.

CJ was unable to locate a deed of trust for any of the properties, suggesting that Black has no outstanding mortgages and could own them free and clear.

In addition to the Mecklenburg County real estate, Black owns three lakefront properties in Iredell County — one of them listed in Black’s name only, the other two in his and his wife’s names. The three properties had a combined tax value in 2007 of almost $2 million.

Willoughby said that Powell had represented to him that the Rice Road properties were all that was available to satisfy the debt, since Black and his wife jointly own their other real estate.

“The judgment would be against Dr. Black, not against he and his wife, and so the judgment would not attach to jointly owned property,” Willoughby said.

But records indicate that both Black and his wife were listed as owners of the Rice Road properties at the time of the settlement with WCPSS. A special warranty deed recorded in Mecklenburg County May 23, 2008, shows that Black transferred nine pieces of real estate into both his and his wife’s names. The parcels on Rice Road were among them.

In addition, property tax records show that as recently as April 27, 2009, both Black and his wife were listed as owners of the more valuable of the two Rice Road properties. The smaller, lower-valued parcel was listed in Black’s name only.

Asked to clarify whether the Rice Road parcels were individually or jointly owned, Powell suggested that the only property the state could pursue to settle the fine was land that Black owned before he was married. Black inherited the Rice Road properties, Powell said, and that all “other real property that Dr. Black has an interest in was acquired after marriage to Mrs. Black.”

Iredell lake houses

One of the lakefront properties in Iredell County, however, is listed in Black’s name only and does not appear to be jointly held. Records show that Black bought the property, which is located on the end of a peninsula on Lake Norman, in 1977.

The land and an 1,800-square-foot house had a fair market value of $725,510 on Jan. 1, 2007, based on a recent county reassessment. As with the Mecklenburg County properties, CJ was unable to locate a deed of trust for the lake house, so it could be paid for.

Black also owns two other lake houses, one just down the road on the Lake Norman peninsula. The other is located about two miles away. Recent tax revaluations put the combined fair market value of the properties at $1.3 million.

Willoughby and Gardner said they were unaware of Black’s Iredell County property. “If it were property that he owned individually, it’s something that could be levied against, and ultimately the judgment could be levied against it,” Willoughby said.

Asked if the school system looked at Black’s other real estate before accepting the Rice Road properties, Gardner said that they considered some alternatives in Mecklenburg County.

“We did consider several other properties. Some of them were encumbered, some owned by other folks,” he said.

The school system didn’t consider asking for Black’s Tryon Road office, on which Stephens had placed a lien, since there is a long-term lease on the property, Gardner said.

“They didn’t want to get into the landlord business,” he said.

Instead, Wake County schools will have to sell the properties, deducting legal and other transaction costs, before realizing any revenues from them.

Liquidating assets

Due to the economy, Black has had trouble selling his real estate at fair market value to clean up the fine, Powell said. The source of Black’s $500,000 cash payment last year that satisfied half of the fine is unclear.

CJ was also unable to learn the steps Black’s family took to sell his other real estate. Black has “made efforts to sell all properties with the exception of the home in which his critically ill wife resides,” Powell said, but he did not provide details.

Gardner suggested that the reason Black couldn’t sell property was “because the developers knew he was in jail and were lowballing him.”

“It would have been ideal to have cash in hand, but that wasn’t an option. So this for us was the next best thing,” he said.

Asked if real estate was commonly accepted as a cash substitute to pay a fine, Willoughby said that large fines are “rarely if ever collected.”

“It’s uncommon for anyone to come in and voluntarily try to pay a fine of this magnitude,” he said. “With most of the large fines that we see, people make little or no attempt to pay them.”

David N. Bass is an associate editor of Carolina Journal. Additional reporting for this story was provided by Carolina Journal executive editor Don Carrington and contributor Jeff A. Taylor.