Plans to turn a large Uphams Corner industrial complex into a mixed-use building with 90 new affordable housing units seem to be derailed this week, and the city is moving to foreclose on the property instead.

Over $1.6 million in back property taxes, penalties and interest, is owed on 65 E. Cottage St., commonly known as the Maxwell building. But that isn't all.

When and if the city does foreclose, nearly two-dozen former Maxwell Products Corp. employees will lose well over $745,000 in profit-sharing and pension benefits, according to attorneys familiar with the case. The building is owned by Maxwell Products, and the U.S. District Court ordered it to be used as collateral for the employee funds after the Department of Labor successfully sued the company and owner Hal Cohen for raiding a profit-sharing fund for his employees to the tune of $1.2 million in 2001. He was ordered to pay back $650,000, and interest and penalties have accrued on that debt ever since.

If the building is foreclosed upon by the city, they own it free and clear, all other claims and mortgages are erased.

Though the taxes date back to 1977, the city held off on foreclosure in recent years to pursue a solution that would protect the employee funds, according to a source in the city's administration. But that strategy is done, according to the mayor's press office.

"While we are aware of the many services Mr. Cohen provides to his community, it is clear that no one is able to maintain the property at this point," said Mayor Thomas Menino's press secretary Dot Joyce. "Therefore, the city is petitioning the Land Court for foreclosure and will work with the neighborhood to have a property that will benefit the entire community."

Before any new development gets underway, however, Cohen will have one year after foreclosure to reclaim the property and pay off the tax debt.

Cohen, a community activist who once ran the board of Uphams Corner Main Streets and currently participates in the Groom Humphreys Neighborhood Association, confirmed his company's debts, but refused to comment otherwise.

"I kind of wish it had been taken care of earlier rather than later," said Fernando Bossa, who knows and works with Cohen in the Groom Humphreys Neighborhood Association. "The later part is where it really got tied up in arrearages and taxes and other things. Now it's at a halt. The idea I had for that building was to make it into commercial and residential, to be almost like a galleria with all kinds of shops and restaurants and an escalator that would go up and down to the T station."

Dorchester Bay Economic Development Corporation proposed a similar mixed-use development for the site, keeping some of the light industrial use and building over 90 units of housing. The purchase price would have paid off the employee funds completely as well as the principal on the city's liens, for a total of roughly $1.4 million. Dorchester Bay EDC planned to then ask the city to abate the penalties and interest on the property taxes, around $880,000. Such an abatement could be beneficial to the city in the long term, by returning the property to the tax roll, and avoiding foreclosure proceedings.

"That was our initial plan," said director Jeanne DuBois, "but I know the city is concerned about losing good wage jobs. Like in San Francisco, there was all this conversion of industrial warehouse space to residential, and then there's no jobs left in the city. We're very concerned to keep jobs here too."

Currently, the building houses a boxing gym, various light industrial tenants and Maxwell Products itself, which makes boxes, but the majority of its space is vacant. Dubois said Dorchester Bay EDC had also worked with the city to bring Dancing Deer Bakery to the site last year, but that deal fell through.

DuBois would not confirm whether or not the city agreed to abate interest and penalties on Cohen's giant tax bill, but said instead that Dorchester Bay EDC couldn't get financing from other sources for the purchase while the property is in "this process."

"What we discovered is we couldn't pay everything. It was such a burden," she said. "I think it's going to go somewhere because it's a valuable piece of property. I just hope it doesn't go for a furniture storage warehouse."

According to a petition to the U.S. District court filed in 2006 in the name of Secretary of Labor Elaine Chao, Cohen has repeatedly promised to sell the property and was ordered to do so by the Massachusetts Land Court, but he has not been willing to sell to just anyone to pay off his debts to the city and to his former employees.

Instead, Chao alleged Cohen listed the property at $3.9 million prior to 2006 and included stipulations in marketing materials that would have required the buyer to develop the property "in a manner approved by Cohen."

That petition asked a judge to force the sale of the property by an independent real estate consultant, but according to Dept. of Labor spokesperson John Chavez, the judge stayed that petition, pending the outcome of the case in the Land Court.

"The real goal here is to get this property sold at the highest possible price so the city of Boston can get back its taxes and the [former employees] can get their money," Chavez said.

Cohen was recently identified by WBZTV's I-Team as the biggest tax scofflaw in the city. One part of his tax arrearages is a disputed amount he refused to pay in the late 70s, after which he paid taxes regularly until 1993. Since that year, taxes have been piling up. The tax rate on the property, which is assessed at over $1.8 million, is $46,889 per year, or just over $128 a day. Add that to the per diem interest on the $1.6 million already owed--currently around $260 a day - and Cohen's company's tax debt is rising almost $390 daily, thousands per week, over a hundred thousand each year.