Fraudulent schemes in real estate running rampant
“Businessman gets 20 years in prison for $40M real estate scheme,” “Two charged in real estate scheme plead guilty,” “Broker sentenced to prison for $2.5M mortgage fraud.” Real estate fraud is running rampant with the preying on the unsophisticated homeowner as well as the savvy businessman.
As reported by The Financial Crimes Enforcement Network (FinCEN) suspicious activity in commercial real estate transactions tripled in the past several years. Common types of suspicious activity includes: misrepresentation, misappropriation of funds, bank insider collusion, flipping and straw-buyer schemes, collateral transfer and advance fee schemes.
Recently, Bay Area real estate brokers were alerted to a scheme where false advertising and websites were being set-up for properties for lease that were listed with a real estate firm for sale. Information and pictures were taken from the legitimate website to create a bonafide appearance, but with a fake company and agent. The ads would state that the property was for lease and instructed unknowing tenant prospects that in order to be considered they had to mail in an advanced security deposit along with their application they downloaded. After receiving the deposit, the schemer would leave town with their deposit and personal information and not be heard from again.
Astute investors can fall victim as well as brokers. I almost fell victim of a well-planned group investment called a syndication. I was approached by two “seasoned high-net worth” individuals who were looking for a good investment for themselves and the many other accredited investors they represented. They were willing to help me start a syndication of $80M which they and their fellow investors would invest. The first red-flag went up when they asked me to sign a nondisclosure agreement. After reading the fine print, it basically allowed them to lie and misrepresent facts to me with no means of restitution. The next red-flag was that all communication had to be through secured and encrypted files and phone calls. After learning of this, I performed my own due diligence and unfortunately was unable to find much. But, what I did find proved to me these “investors” were not someone I wanted to align myself with in business. The final blow came when they asked me for a $120,000 advanced consulting fee. The positive side is that in my research I learned a great deal about syndications and how to investigate possible fraud.
The old adage is very accurate “if it is too good to be true…” you know the rest. My recommendation to anyone from the homeowner looking to hire a firm to get them out of foreclosure, to a seasoned, accredited investor considering investing a million dollars in a syndication: do your homework, consult with professional advisors and talk to others. Oftentimes, we simply get caught up in the moment of either helping us get out of a tough situation or for the promise of high returns. In either case it is advantageous to always get the opinion of others.
Got caught in a real estate scam? Let me know what happened in the comments section below.