Rogers Park condo scams prey on buyers, renters

By Erica Christoffer

Mike Skowronski doesn’t know where he would live if the condo he rents underwent foreclosure.

He fears the only notice he’ll get is from a bank, one day out of the blue, which will tell him to vacate the premises – “immediately.”

A resident of a Rogers Park apartment building for seven years, his complex was converted into condominiums about a year and a half ago and sold to multiple owners. He didn’t know about the deal until after it happened.

“It was illegal,” Skowronski said. “It was, ‘We’re going to make a bundle of money real fast.’” Under Illinois state law, any developer of a condo conversion is required to notify the renting tenants. Furthermore, the tenants are allowed first dibs on purchasing the unit.

One day the tenants were all told to pay their rent to someone else, he said.

“They didn’t notify anyone in the building,” Skowronski said.

Skowronski said he believes his building has fallen victim to condo fraud.

The Rogers Park Community Council along with the Rogers Park Community Development Corporation (CDC) is conducting an investigation into the increasing incidents of condo fraud in the North Chicago neighborhood. Skowronski’s building is one of about 15 currently suspected of condo fraud in the area.

However, the investigation is just beginning and may not be complete before Skowronski and others like him are shown the door.

“If this were a jigsaw puzzle, I don’t even have the outer edge done,” Mary Jane Haggerty, acting executive director of the Rogers Park Community Council. “But I do have the pieces.”

A form of mortgage fraud, condo fraud occurs when a developers or building owner or mortgage brokers converts rental units to condos and sells the units at inflated prices to uneducated buyers with promises of a good investment. They use the buyers, often referred to as “straw buyers,” for their credit to take out the largest loan possible, much higher than the property is worth. The developer then pockets the extra money as a “closing cost” and runs.

The buyer is stuck with an inflated mortgage he or she can’t afford. The units usually go into foreclosure and often the tenants, who had been renting, just as in Skowronski’s case, never knew anything about.

“Some buyers think they are making a smart investment,” said Caleb Sjoblom, director of the Rogers Park CDC.

Sometimes a straw buyer is paid for the use of his or her name and credit information to make a false purchase. Or, the straw buyers are also used to sign documents that contain false information.

“They’re not in a position to apply for a credit card or to apply for a loan,” Haggerty said about most of the buyers involved in mortgage fraud deals. “These people are really the victim. It’s the great American dream that they can make money on real estate.”

‘The America dream’ falls short

This isn’t the first time Haggerty has seen condo fraud in the neighborhood.

The Rogers Park Community Council operates the Housing Action Program, aimed at maintaining and preserving affordable housing stock. In 1999 Haggerty, who directs the program, started getting calls from residents who suspected something was wrong in their buildings. She received calls from three tenants in one building who complained that their power was turned off. The following month, no one collected their rent.

Soon the foreclosures started, sometimes five or six a week.

“I knew the tenants were going to be evicted,” she said.

During her research at the Cook County Recorder of Deeds, Haggerty found that almost all of the units were purchased by the same 15 individuals who, it appeared, never occupied any unit.

What Haggerty had uncovered was a scheme led by Mohammad “Mike” Taghie Kakvand, a crooked real estate investor who was buying up apartment buildings all over Rogers Park and on Chicago’s South Side with the intention of turning them into condominiums.

The catch was, he’d do little-to-no improvements on the buildings and he recruited friends and acquaintances for the use of their names to defraud banks out of mortgage loans. He started a company called Residential Realty Development, which helped his operations look legitimate, while he took money from the loans and let the mortgages default into foreclosure.

Between 1998 and 1999, Kakvand purchased and sold 153 units in 12 Rogers Park buildings, Haggerty said.

Residents of the buildings ended up either evicted or moving out on their own because there was no upkeep to the units. Squatters, drug dealers and transients moved in.

One building in particular became a nuisance with criminal activity at 7633-39 N. Greenville.

Haggerty contacted Ald. Joe Moore, who put together a task force of neighborhood residents, community organizations and city officials to find a solution. Haggerty and Karen Hoover, the former Rogers Park police beat community facilitator, were part of the task force as well. The city brought charges of housing code violations against Kakvand and eventually the Federal Bureau of Investigation (FBI) and the U.S. Attorney’s Office became involved.

The FBI agent working on the case was reassigned to New York following the Sept. 11, 2001 tragedy, which stalled the Kakvand investigation, Haggerty said.

Three years and $29 million in defaulted mortgage loans later, Kakvand was indicted by federal prosecutors along with his partners Syed Ali Mohammed Razvi and Thomas M. Groh, who acted as Kakvand’s real estate appraiser.

Groh, who ran Universal Appraisal Service, pleaded guilty to one count of wire fraud, while Kakvand and Razvi fled the country.

Kakvand, a native Iranian, changed his name, Haggerty said, and took a job with Bliss Energy Drinks based in Saudi Arabia. The company sent him to Canada to open a branch. While in Canada in 2005, Kakvand was pulled over by police who learned his true identity. He was extradited to the U.S. and pleaded guilty to the mortgage and wire fraud charges Feb. 12, 2007.

Following nearly a year’s worth of delays, Kakvand was sentenced by U.S. District Judge William Hibbler to nine years in prison Jan. 22 and ordered to pay more than $8.4 million in restitution to the banks he defrauded ­– which will come out of any income he makes after leaving prison at the rate of 10 percent of his salary for life (or until it’s paid off).

Razvi has not been found.

The search for criminals continues

Haggerty thought Kakvand’s operation was a one time occurrence for Rogers Park. But the similarities between Kakvand’s buildings and the building she is investigating today are too great, she said.

For example, in Skowronski’s building at the 3800 block of North Seeley Avenue, four units were purchased by the same person in July and August 2006. The units had been appraised at between $18,000 and $22,000 by the city this year. The deed filed with the county said they were sold for between $165,000 and $195,000. The same individual also owns a residence at the 2400 block of West Bryn Mawr. The owner is has listed residences at both locations, however no phone numbers were given.

In another case that Haggerty is investigating, two units foreclosed in a building only a week after she learned about problems there. Haggerty said she has identified a married couple who operate a brokerage firm, which she believes is getting buyers into fraudulent mortgages. She’s already talked with two buyers who didn’t seem to know what they were getting into.

“Someone says they’ll get them rich,” Haggerty said, “someone that they trust.”

Who is being affected? Putting condo fraud in a context

Stacy Karel, a real estate agent who specializes in condos with Keller Williams Chicago Properties in Chicago said she has not heard of the condo fraud problem.

“If something like this has occurred, it is not affecting the market in general,” Karel said.

Yet both Haggerty and Sjoblom said they believe that the inflated prices in the fraudulent condo sales have contributed to rising costs of housing in the Rogers Park neighborhood.

“The market ballooned and prices were artificially inflated for a long time,” Sjoblom said.

One buyer Haggerty is helping bought a three bedroom condo with 1,000-square-feet for more than $300,000. Now he can’t afford it, Haggerty said.

The condo fraud that is occurring in Rogers Park is set in the context of a community undergoing gentrification.

Gentrification is a process in which low and moderate income households are replaced by higher income households, often at the cost of resident displacement.

“Displacement statistics have been really really hard to come by,” Sjoblom said.

The Lakeside Community Development Corporation, which covers the communities of Rogers Park, West Ridge, North Park, North Center, Lincoln Square, Albany Park, Uptown and Edgewater, published a “Community Housing Audit” in October 2006. The report, which focused on Rogers Park, evaluated 479 multifamily rental buildings with 13,659 rental units, accounting for 65 percent of the neighborhood’s rental housing market in the 2000 Census.

A survey of the buildings found that condominium conversions have taken over rental housing at a pace of 900 to 1000 units per year, a faster rate now than in previous years. Condominium conversions reduced the rental housing supply in Rogers Park by 17.4 percent between 2003 and 2006, the report said.

The Lakeside CDC found evidence that documented illegal displacements of renters who were not properly notified of their rights related to condo conversions, according to the study.

Some development was found to have been completed without proper permits and few created affordable rental or ownership opportunities in their buildings, the report said.

“A lot more people than just the buyers are impacted by this,” Haggerty said, including condo owners looking to sell in a falsely inflated market, legitimate buyers and rental tenants.

Haggerty said that laws need to be put in place to protect renters from being left on the street if the foreclosure process does occur. Kakvand’s buildings left about 60 Rogers Park families displaced between 1999 and 2001. She said she doesn’t want to see that happen again.

“I thought Kakvand was just one criminal,” she said.

The Chicago Federal Reserve’s Consumer and Community Affairs Department released a report on mortgage fraud in December 2006 that says banks are offering options, such as negative amortization, when the monthly payment does not cover the interest and increases the loan balance. This raises the chances of default and foreclosure.

“Consequently there is dialogue over whether some of the available credit options are appropriate for specific borrowers, whether they are properly underwritten, and whether borrowers are informed of the risks of nontraditional products,” according to the report.

The matter seems to be a touchy one at the Federal Reserve. Alicia Williams, the vice president of consumer and community affairs refused to comment on the issue of condo fraud. When asked when someone would be available for an interview on the topic, Michelle Coussens, senior analyst in the Federal Reserve’s research department wrote this cryptic response: “I would back off. I think that you should let this go.”

Moving forward, educating residents

Haggerty is one who won’t let the issue go. She is putting together a report to pass on to the FBI again and hopes that Attorney General Lisa Madigan will take up the issue. No one from the Attorney General’s Office returned phone messages and e-mails asking for comment as of Dec. 11.

Haggerty also plans to continue helping residents through the Rogers Park Community Council through classes, education and counseling.

“Every first time homebuyer should take a class,” Haggerty said. “It’s the biggest thing you’re every going to do in your life.”

When Skowronski was looking for a resource to advise him on the situation in his building, he found Haggerty from a flyer at the library.

“When I have to move, it might kill me,” said Skowronski. “The rents are going through the roof.”

Skowronski’s advice to would-be condo buyers? “Save your paperwork and never give cash and don’t sign any lease without checking in out.”

One thought on “Rogers Park condo scams prey on buyers, renters

  1. This is becoming all too common and affects neighborhoods all over Chicagoland, not just Rogers Park. We are representing clients in a $50 million, multi-property fraud similar to the scenario described above. The purveyors of this type of fraud often will target an ethnic community by drawing in one or two people and using them to draw in others from their community. This is more widespread than people imagine. In any financial transaction, particularly if English is your second language, be sure to bring your own lawyer and make sure it’s one who speaks your language or offers translation so complex legal documents are clearly explained.

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