Walker & Dunlop Alleges Multifamily Fraud Against Chicago Investor

Two foreclosure lawsuits filed last week allege multifamily investor Chaim Bialostozky inflated property values to secure larger Freddie Mac loans than he otherwise would have received.

Walker & Dunlop, on behalf of Freddie Mac, filed the complaints in Cook County Circuit Court on June 11, alleging that in two instances, Bialostozky’s involvement in two separate sales for the same buildings in one day inflated the transaction prices, in an effort to get loans that were worth more than the properties’ true values. Walker & Dunlop alleged Bialostozky failed to tell the lender about the initial, lower priced sales.

In both cases, the lawsuits allege Bialostozky stopped making debt payments last July and let the properties fall into disrepair. Walker & Dunlop cited both as additional reasons for filing the foreclosure actions on behalf of Freddie.

The court filings allege the apartments had excessive mold, squatters, leaking radiators, sloping floors and failed joists, pest infestations, broken windows and doors, animal waste and overflowing trash.

The lender is seeking at least $7.1 million from companies registered to Bialostozky to cover unpaid debt, interest and attorney’s fees. Walker & Dunlop is also requesting that a judge appoint a receiver to the properties, which need an estimated $7.8 million in repairs, according to both of the legal filings.

Lenders such as Walker & Dunlop along with others like Greystone are licensed by Fannie Mae and Freddie Mac to make loans the government-sponsored enterprises buy soon after issuance, with the caveat that originators may have to buy the loans back or cover the costs of legal fees in the event of fraud committed by borrowers.

Neither Bialostozky nor Walker & Dunlop returned requests for comment.

In the past few years, multifamily distress has been ticking up on the South and West Sides, where out-of-state investors poured money into cheap apartment buildings when interest rates were low — and quickly fell behind on debt payments.

The foreclosure lawsuits against Bialostozky come just months after Walker & Dunlop disclosed it could be exposed to as much as $100 million worth of fraudulent mortgages. It is unclear, however, if the recent filings against Chaim Bialostozky are included in that estimate.

The two foreclosures filed June 11 outline the steps Bialostozky allegedly took to conceal the properties’ true values.

One of the foreclosures claims that Bialostozky bought a portfolio of four apartment buildings for $4.6 million but earlier that same day, the portfolio traded hands for $3.5 million.

Walker & Dunlop alleges that Bialostozky did not inform the lender of the prior $3.5 million sale when seeking a loan based on the second, $4.6 million transaction. As a result, Bialostozky was able to secure a loan from Freddie Mac via Walker & Dunlop for $3.4 million, or only about $100,000 less than the initial purchase price.

Only the $4.6 million sale is recorded in Cook County public records. Walker & Dunlop appears to have found out about the $3.5 million sale at a later date, which is detailed in title paperwork handled by Toms River, New Jersey-based Iconic Title Agency included in the legal filing.

State records show that Avram Yaakov Levin controlled a company listed as the buyer in the title paperwork for the $3.5 million purchase. He then signed off on the $4.6 million sale to Bialostozky, Cook County records show. Levin only gained control of the properties after they were previously owned for several years by companies led by Brooklyn-based investors Aaron and Sterna Raskin, public records indicate. Levin is not named in the lawsuit and did not respond to requests for comment.

The four properties in the portfolio are in the far West Side neighborhood of Austin at 318 North Lotus Avenue, 4916-4918 West Augusta Boulevard, 5214-5216 West Washington Boulevard and 551-553 North Central Avenue.

The second foreclosure outlines a similar strategy. Walker & Dunlop claims it arranged a $2.9 million loan for Bialotozky to fund a $3.6 million purchase of 45-52 North Waller Avenue, also in Chicago’s far West Side.

But Walker & Dunlop later discovered, according to the lawsuit, that the property also traded hands for $2.7 million earlier that same day.

Likewise, title paperwork included in the legal filing shows details of the $2.7 million transaction, which does not appear in Cook County public records.

Public records associated with the Waller Avenue property do not show when Levin got involved with the companies tied to the building but do show he signed off on the second $3.6 million sale. Like the other deal, the Raskins had owned the Waller Avenue property for the previous several years. Levin is not named in this lawsuit either.

By allegedly purchasing the property for an inflated price, Bialostozky not only received a loan worth $200,000 more than the building’s true, initial sale price but was also able to essentially put zero money down.

The extensive foreclosure filings both claim that the back-to-back sales constitute a default because the “fraudulent misrepresentation” of the properties’ values artificially inflated the loan amounts issued by Walker & Dunlop.

Unrelated to the Walker & Dunlop foreclosures, Bialostozky also made South Side purchases from Levin of multifamily buildings that later fell into trouble. But in those deals, Bialostozky was able to exit with an apparent gain in property value. Another investor who bought them from Bialostozky is currently facing a Fannie Mae foreclosure lawsuit alleging that the new investor is in default on more than $18 million-worth of multifamily loans tied to 291 apartments. The landlord facing that lawsuit, Israel Bialostozky, has the same surname as Chaim, and the two men share ties to the same Lakewood, New Jersey, residential address, public record databases suggest.