City Attorney Dennis Herrera at a City Hall press conference

Herrera secures $3.3 million from affordable housing cheats, sues two more

City enforcement has so far returned 21 homes to their intended purpose — providing affordable housing to San Franciscans who need it

SAN FRANCISCO (Dec. 6, 2018) — City Attorney Dennis Herrera announced today he had filed a lawsuit against two investment advisors after one of them lied to obtain a coveted affordable housing condominium in San Francisco. The couple later unlawfully rented it out and used it as a pied-à-terre as they lived in a $2.8 million home in the exclusive Redwood City neighborhood of Emerald Hills.

The lawsuit filed today in San Francisco Superior Court against Caroline Novak and Igor Lotsvin is the latest in a sweeping series of investigations into affordable housing fraud that the City Attorney’s Office and Mayor’s Office of Housing and Community Development publicly unveiled in May 2017, which has so far led to judgments and settlements totaling $3.3 million in 21 cases. This joint enforcement effort has also returned 21 housing units to their original purpose: providing an affordable home for first-time buyers in San Francisco.

“San Francisco is grappling with an unprecedented housing crisis,” Herrera said. “This is a struggle for the soul of our city. For working- and middle-class residents, affordable housing is the key to whether they can remain in San Francisco. The City’s affordable housing program is not an investment scheme to be manipulated by would-be real estate moguls looking to profit off the housing crisis. It’s about giving hard-working San Franciscans a chance to stay in the city they love. When people try to game our affordable housing system, they keep homes out of the hands of those who truly need them. We’re putting a stop to that. We’ve made great strides rooting out these housing cheats, and we’re not done yet.”

“The Mayor’s Office of Housing and Community Development takes violations of our programs very seriously,” said Kate Hartley, Director of the Mayor’s Office of Housing and Community Development. “We monitor below market rate units and follow through on tips we receive from the public. These strategies are critical in making referrals to the City Attorney’s Office for enforcement action. We are committed to ensuring that our affordable units are being used as intended.  When they purchase, homeowners agree that they will not profit from their affordable housing opportunity by renting it out.  When they break that promise, there are serious consequences.”

The lawsuit filed today details how Novak lied on her initial application in 1999 to obtain a below market unit — 300 Beale Street #316 — and continued to break the law for years.

Novak bought the unit as part of San Francisco’s Inclusionary Affordable Housing Program, which requires developers to set aside a certain number of units to be sold to low- or middle-income households at below market rates in an effort to retain residents of all incomes in the City.

Qualified low- and moderate-income, first-time homebuyers who wish to purchase a below market rate unit enter their names in a lottery. The lucky few whose names are chosen purchase the property for a below market price. In return, the households agree to abide by restrictions and conditions placed on the unit to ensure that the housing remains affordable and serves those most in need. For example, the purchasers must be a first-time homebuyer, occupy the property as their primary residence, and not rent it out without City approval. If a purchaser wants to move to another residence, the City facilitates the sale to another qualified buyer.  

Novak falsely stated on her application that she did not already own real property, when in fact she did — a house in San Mateo. Owning property disqualified Novak from the program. Over the years, Novak and her husband, co-defendant Igor Lotsvin, continued to violate the law, illegally renting out the studio that Novak paid $178,500 for and leveraging it as security for over $1.5 million in loans and lines of credit to build their own personal wealth.  Since 2015, Novak and Lotsvin have kept their unit, in violation of program rules, while they lived elsewhere — in their $2.8 million home in Redwood City’s Emerald Hills neighborhood.  

“It’s unconscionable that this couple would cheat an eligible San Franciscan out of an affordable home, just so they can keep an investment property and a pied-à-terre,” Herrera said. “Those days are over.”

The civil complaint contends Novak and Lotsvin violated several sections of the San Francisco Planning Code, created a public nuisance, and engaged in unlawful and fraudulent business practices in violation of state law.

Herrera is seeking a court order preventing the couple from owning the unit in violation of the law and requiring them to sell the property to a new qualified low-income owner. Herrera is also seeking civil penalties of up to $2,500 per violation of the state’s unfair competition law and up to $1,000 per violation of the Planning Code, including every day they owned the unit, among other relief.

The case is the 22nd so far as part of Herrera’s investigation into affordable housing fraud. Lawsuits were brought in three others. Eighteen cases were settled for monetary penalties prior to lawsuits being filed, with almost all of the homes then resold through the Mayor’s Office of Housing and Community Development to eligible buyers. The penalties recovered serve as an important deterrent for those considering violating the affordable housing laws. They also fund affordable housing monitoring and enforcement, as well as consumer protection enforcement.

The case is: City and County of San Francisco et al. v. Caroline Novak et al., San Francisco Superior Court No. CGC-18-571853, filed Dec. 6, 2018. Additional information on the San Francisco City Attorney’s office is available at: www.sfcityattorney.org

To report fraud in the below market rate program, including violations and illegal rentals, contact the Mayor’s Office of Housing and Community Development’s anonymous hotline: 415-701-5613 or sfhousinginfo@sfgov.org.

To make a complaint about potential violations of San Francisco’s Planning Code or other municipal codes, call the City Attorney’s Code Enforcement Hotline, 415-554-3977.

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