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City attorney files suit over illegal affordable housing rental

San Francisco City Attorney Dennis Herrera sued a Menlo Park investment advisor and her husband Thursday, alleging that she fraudulently bought an affordable housing unit in The City and then illegally rented it out.

Caroline Novak bought a studio condominium at 300 Beale St. in 1999 for $178,500, according to the San Francisco Superior Court lawsuit. The sale was made under a program in which developers are required to make some units available to low- and moderate-income first-time homebuyers at below-market rates.

The lawsuit alleges that Novak lied on her application when she failed to list any assets and said she didn’t own any real estate, although she in fact co-owned a house in San Mateo with her parents at the time.

It claims Novak and her husband Igor Lotvsin leveraged loans and lines of credit on the unit to buy a market-rate apartment in the building for $1,025,000 in 2010 and then a $2.25 million house in 2015 in Redwood City, where they allegedly now live.

From 2010 to 2014, the couple allegedly illegally rented the studio for $2,000 to $3,000 per month, in violation of a requirement that buyers must either live in the affordable housing units, sell them to another low-income buyer or obtain permission to rent, the lawsuit contends.

Novak and Lotsvin are now co-managers of Sage Rhino Capital LLC, an investment advisory firm, in Menlo Park. Novak could not be reached for comment.

The lawsuit asks for penalties of up to $3,500 per day for alleged fraudulent business practices and an injunction requiring the couple to work with the city to sell the studio to a qualified affordable housing buyer.

Novak worked as an investment advisor with Merrill Lynch Pierce Fenner & Smith Inc. in Menlo Park from 2004 until she resigned on Dec. 15, 2017, following an allegation of “failure to disclose an outside business activity,” according to a listing maintained by the U.S. Securities and Exchange Commission.

She previously worked an investment advisor with Morgan Stanley in San Mateo from 2002 to 2004, according to the listing.

The lawsuit also alleges that in response to inquiries from the San Francisco Mayor’s Office of Housing and Community Development in 2015, 2016 and 2017, Novak falsely stated under penalty of perjury that she lived in the studio unit.

Herrera said lawyers in his office have investigated 21 other cases of affordable housing fraud and obtained $3.3 million in judgments and settlements. Almost of the units have been resold to buyers in the affordable housing program, he said.

The city attorney said fraud in the program can be reported to the housing office’s anonymous hotline at (415) 701-5613 or to

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