Condo scam unravels

Dave Brooks

It was a sophisticated scheme to illegally convert apartments to

condominiums and sell them for a huge profit, authorities say.

The scam often involved four to five accomplices, phony documents,

forged signatures and kickbacks to an insider at a title insurance

company, authorities contend.

But after months of investigation, it looks like the game may have

ended.

A federal grand jury indicted eight people last week on suspicion

of mail and wire fraud. One of the eight is former Huntington Beach

Mayor Pam Julien Houchen, 47, who faces a litany of real estate and

corruption charges that could land her a maximum 90 years in prison,

Assistant U.S. Atty. Andrew Stolper said.

The 41-page indictment alleges the eight committed multiple counts

of wire and mail fraud and could all face lengthy prison sentences.

The indictment places former realtor Philip Benson, 72, at the

center of the scheme, accused of helping to orchestrate the purchase

of 15 apartment buildings that were converted into 45 condominiums

without the proper permits, generating more than $11 million.

Benson was not available for comment. He is currently living in

Idaho, where he is receiving treatment for cancer. He faces 370 years

in prison for his involvement in the condo conversion scandal,

Stolper said.

Prosecutors allege that from 1998 to 2003, Benson and his

associates received $15,000 to $25,000 in payoffs for the deals,

which included helping Houchen convert at least two apartment

buildings.

Houchen used a “straw buyer,” or third-party, to cover up her

purchase and resale of an apartment in a city redevelopment area, the

indictment reported.

According to state law, it is illegal for a member of a city

council to purchase property in a redevelopment area that receives

federal funding for economic improvement and development.

In 2000, Benson, who worked at Pier Realty with Houchen,

approached the then-mayor about purchasing the apartments at 17031

Ash St. and converting them into condos, the indictment states.

Houchen originally rebuffed the idea, the indictment said, because

the Ash Street property fell within the city’s redevelopment area,

but Benson was able to convince Michael McDonnell, 38, a former

border patrol agent, to assist with the deal. McDonnell and Houchen

did not return phone calls.

Benson knew McDonnell through five condo conversions the pair had

done together worth more than $3.9 million, the indictment reported.

He convinced McDonnell to participate in a “straw buyer” deal

where he would purchase the property using Houchen’s money, but put

his own name on the deed so the sale couldn’t be traced back to

Houchen, said Stolper.

McDonnell took about $50,000 from Houchen to put a down payment on

the property, but put his own name on the deed, Stolper said, adding

that he had obtained a written agreement between the two detailing

how Houchen would be transferred all of the proceeds.

“It’s unusual for someone to write something like this down, but

it was done so the proceeds could be distributed out of escrow into

Houchen’s account,” he said.

Without that written agreement, Stolper said, the escrow company

would not have transferred the money to Houchen.

McDonnell agreed to sell the first two units, but had a falling

out with Houchen, the indictment reports, and refused to sell the

other two. To push the units through, the indictment alleges, Houchen

asked coworker and notary public Tom Bagshaw, 55, to forge

McDonnell’s signature, then notarize the papers so that they appeared

to be legitimately signed.

McDonnell never received any money for participating in the

scheme, but he did receive political favors from Houchen, the

indictment alleges. Halfway through the deal, McDonnell was having

difficulties with the city Building Department, which was insisting

that he get a business license for an apartment he owned on Delaware

Street. According to the indictment, Houchen contacted the Building

Department several times and insisted that it leave McDonnell alone.

Officials from the Building License Department confirmed that Houchen

had intervened for McDonnell but would not comment for this article.

Federal authorities estimate Houchen made about $228,500 on the

deal and would later participate in another scheme to convert

condominiums, this time buying an apartment on Green Street and

paying Benson to illegally convert the unit.

So the deal would seem legal, the indictments allege, Benson

drafted phony documents to make the condos appear like they had been

converted before 1986. City law requires all condominiums converted

after 1986 to go through a rigorous permitting process that involved

thousands of dollars in fees.

Houchen grossed about $1.1 million on the Green Street deal.

Federal authorities later said that Benson paid her another $25,000

for finding him a person that wanted to convert their apartment into

condominiums.

Problems with permits and faulty deeds are usually discovered by

the title insurance company, but Benson avoided the scrutiny by

secretly colluding with Harvey Du Bose, 63, an insurance agent for

Stewart Title in Irvine, the indictment alleges.

According to the indictment, Benson allegedly paid Du Bose to

guarantee the titles on the illegally converted condominiums and

secretly insure the transactions without the knowledge of the rest of

the staff at Stewart Title.

Truck driver Steve Worley bought one of the first units Benson

converted. He said the real estate agent steered him toward Stewart

Title.

“They told me that they recommended I use this title company

because they were familiar with them,” he said. “I had never

purchased a condominium before, and at the time, I didn’t really

think much of it.”

On Monday, real estate investors Howard Richey, 78, of Hemet and

Jeffrey Crandall, 44, were arraigned for financing similar deals with

Benson, Bagshaw and Du Bose.

Richey entered a plea of guilty for “knowingly [participating] in

a scheme to defraud or to obtain money ... by false pretenses,” and

agreed to hand over $845,000 he made from the sales to the government

and pay an additional $160,000 restitution to Stewart Title. Crandal

pleaded not guilty.

None of the defendants involved in the case returned calls for

comment. Officials at Stewart Title also declined an interview.

The rest of the defendants, including investor Michael Cherney,

57, are scheduled to be arraigned Dec 13.

News of the indictments sent shockwaves through Huntington Beach.

“Of course an indictment doesn’t prove anything,” Councilman Dave

Sullivan said. “But I hope that those who are found guilty have the

book thrown at them.”

The council is working with condo owners to clear up their titles.

On Nov. 29, the council entered into a settlement agreement that

would have five of the title companies pay $10,000 per unit into the

city’s affordable housing fund to help restore the town’s apartment

stock. The deal is an attempt to clear up the titles, and so far, 35

have agreed to the deal.

Worley said he’s holding out until he finds out how much the deal

will cost his homeowners association. Before the condos can be

declared legal, he and his neighbors have to upgrade their electrical

system and do some building repairs.

“It’s good that [those involved with the conversions] are going to

be tried for what they have done,” he said. “But the rest of us have

to come up with a lot of money that we shouldn’t have to.”