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The city of Minneapolis has denied rental licenses to the buyers of 16 buildings sold by troubled landlord Steve Frenz, out of concern Frenz and Spiros Zorbalas still have a financial interest in the properties.

Frenz and Zorbalas sold the properties to eight buyers in recent months after the city moved to take away Frenz’s rental licenses. The city’s recent actions create new uncertainty for hundreds of tenants, who are now paying rent to landlords who have no authority to collect it.

“The tenants are really stressed,” said Roberto de la Riva, an organizer with United Renters for Justice, which has represented tenants in many of the buildings Frenz sold. “They don’t know what’s going on and who they are supposed to go to when there are problems. No one knows who is the real owner or who has the license.”

The buildings facing license denials contain 290 apartment units, according to the Star Tribune’s research. In letters sent in the past two weeks, the city gave the buyers 10 days to bring their properties into compliance or face an order for the buildings to “be vacated ... until a new license is granted” by the City Council.

In most cases, those 10 days are already up.

The dispute over Frenz’s properties goes back at least six years.

In 2011, after numerous code violations at his properties, the city stripped Zorbalas of his rental licenses, forbidding him to own rental property for five years.

Frenz announced he bought the buildings from Zorbalas, but in the past year the city has moved to revoke Frenz’s licenses after concluding Zorbalas continued to secretly co-own the apartment buildings.

In the past several months, Frenz and Zorbalas have been selling off their buildings under contracts for deed, which the city says means they retain an ownership interest.

Larry McDonough, a Minneapolis attorney who has been following these cases and been practicing landlord and tenant law for 30 years, said he has never seen a case where large apartment buildings have been sold this way.

“The difference between a contract for deed and a mortgage is the seller is financing the purchase of the property rather than a bank,” he said. “If the buyer does not make monthly payments, the seller regains control of the property and thus has major financial interest in the building.”

Frenz and Zorbalas have sold five buildings, containing 58 units, on the 3100 block of 22nd Avenue S. on contracts for deed to Rickey Misco.

“Based upon the fraudulent practices in deceiving the city regarding ownership interests in the past, it is determined that good cause exists to deny the current rental license application(s),” Kathy Zierke, an administrative analyst in regulatory services, wrote in an Oct. 27 letter to Misco.

Attorney Michael Cockson, of Faegre Baker Daniels, who has been representing tenants in cases involving Frenz for several years, has intervened on behalf of tenants at one building at 3105 22nd Av. S. He sued Misco, saying Misco has no right to rent property and he asked the Hennepin County housing court to appoint an administrator to oversee the properties and return the rent money to tenants.

Misco said in an interview that he was a maintenance supervisor for Frenz from 1997 to 2002, then opened a roofing and remodeling company, and has been a subcontractor, doing some repairs for Frenz over the years.

While he acknowledges he purchased the buildings under contracts for deed, he insisted he was the owner. “Mr. Frenz doesn’t own the property,” Misco said.

Misco, who is black, also said he and other buyers, who are members of minorities, and in one case, a woman, are victims of discrimination.

Misco said that last year the city allowed Frenz to sell one of his properties to a white person on a contract for deed, and it is unfair for the city to deny a license to him under the same circumstances.

“These claims are absurd, offensive and without merit,” Noah Schuchman, the city’s director of regulatory services, said in an e-mail.

Cockson said the circumstances were different in the sale Misco cites because an independent administrator was appointed by the court to oversee the building.

Misco warned tenants in notices posted in his hallways that if they withheld their rent, he will take tenants to court and have them evicted, putting a permanent scar on their rental record.

“I am very sorry about you being tricked by the slimey [sic] group of Faegre Baker Daniels law firm” and other tenants’ groups, the notices state. He said that as a result of the notices, tenants are paying him the rent.

But Misco lacks a rental license for any of the properties, and “is ineligible” under the current ownership, Schuchman said in an e-mail.

“This crisis shows that there is a need for deeper protections for renters in this city,” said organizer de la Riva.

Frenz is close to having his rental licenses revoked for five years. A council committee will hear the case Nov. 28 and forward its recommendation to the full Council.

Randy Furst • 612-673-4224

Twitter: @randyfurst