FBI searches City-County Building, makes multiple arrests in Land Bank probe

FBI agents on Tuesday morning conducted a warrant search at the Department of Metropolitan Development in the City-County Building, shortly after agents arrested multiple people, including city employees at their homes.

The moves are the culmination of a months-long federal investigation into alleged corrupt practices at the Indy Land Bank, a municipal agency that handles the disposition of vacant and tax-delinquent homes that fall into city hands, sources told IBJ.

A grand jury indictment is expected to describe evidence of secret kickbacks to city officials who orchestrated the sale of city-owned properties to at least one not-for-profit organization. Those arrested were scheduled to make initial appearances in federal court Tuesday afternoon. U.S. Attorney Joe Hogsett is expected to announce the charges at a press conference at 1:30 p.m.

An FBI tactical vehicle was parked outside the north entrance to the City-County Building as of 9 a.m.

One of those arrested Tuesday was Reggie Walton, the Land Bank director. It was not yet clear what charges Walton is facing. The identity of the other suspects also was unclear. The FBI search warrant centered on Walton's office on the 20th floor of the City-County Building.

Walton was prominently featured in an IBJ investigative story in November 2012 that raised questions about the city's sale of taxpayer-owned properties to not-for-profit groups eager to exploit a loophole allowing low-priced sales without public bids.

The IBJ story focused on the sale of 154 vacant homes and apartment buildings for a total of just $154,000—a fraction of their estimated $2 million value at auction—to a group called Homeless & ReEntry Helpers Inc. The not-for-profit acted as a straw buyer for local investors who cherry-picked the properties from more than 6,000 tax-delinquent Marion County parcels.

The Homeless & ReEntry Helpers group and its executive director, Don E. Hawkins, are not targets of the investigation, the sources said. Neither are the group's private investor partners.

The November story led with a reference to Walton, who said he realized he had just "made someone a millionaire" after signing off on the deal in late 2011.

Walton seemed to acknowledge the deal was bad for taxpayers, but he placed the blame on the shoulders of his bosses, including former Department of Metropolitan Development Director Maury Plambeck.

“I wasn’t a fan of the whole transaction, but I wasn’t the signature on how it happened,” Walton said at the time. “I can guarantee you won’t see a distribution of property on that scale in this city again.”

Usually, for-profit investors interested in a county-owned house must ask the county treasurer to include it in an upcoming auction, where they run the risk of losing out to a higher bid. Investors who want a property from the city’s land bank must compete in a sealed-bid auction and meet a minimum bid set by an appraisal.

But state law allows not-for-profits to purchase county-owned properties without an auction. The law was designed for community development corporations, though other tax-exempt groups including churches also have bought properties.

Homeless & ReEntry Helpers was the first to take advantage of the loophole on a large scale, before copycats made their move. Several property investors sought to partner with not-for-profits to snag properties, and some even formed their own not-for-profits with the sole mission of buying cheap houses.

As of late 2012, the Indy Land Bank had 1,200 parcels in its inventory, roughly 500 homes and 700 empty lots.

Check back at IBJ.com for updates to this breaking story.