Real Estate Investment Fraud on the Rise

Allison Tussey —  February 18, 2015 — 3 Comments

Fraudulent investment property schemes are on the rise in the form of straw borrowers, abnormally high appraisals, evasion of purchase guidelines and large numbers of purchased properties. Real estate investment scams typically spread by word-of-mouth and require people to invest large sums of money in investment properties. These types of scam promise a large increase in the value of the property resulting high returns or unusually high interest on contributed funds.

The scammer will usually purchase multiple properties and recruit prospective buyers. It is not uncommon for them to use unknowing family members or close friends to do the recruiting. Some real estate investment scams involve a fraudulent property “investment club” where individuals combine funds in order to make large investments. By promising that the purchased properties will be rented out and mortgage payments will be made, the scammer gives investors a false sense of security, luring them into the scam. Unfortunately, victims of this scam can end up with loans that are upside down in equity, owing more than the properties are worth.

Don’t become a victim of real estate investment fraud. Look out for the red flags below:

  • Straw Borrowers: A straw borrower is used when the actual buyer has poor credit and is unable to obtain financing. The actual buyer promises to make all payments and may compensate the straw borrower for the use of their credit. It is illegal to misrepresent the identity of any party in the transaction to the lender.
  • Abnormally High Appraisals: An appraisal is expected to be a truthful representation of the value of a property. Scammers will give unusually high appraisals in order to lure potential investors into their scam, especially those with poor credit histories. Keep in mind that most legitimate lenders will use the lower of the appraised value or purchase price.
  • Evasion of Purchase Guidelines: Be wary of anything unusual during the beginning stages of the purchase and contract process, such as missing or withheld information and falsified income. Always research your investment professional or organization by verifying their license and history.
  • Large Number of Purchased Properties: A large amount of properties purchased is a common characteristic of real estate investment fraud cases.
  • Investor Locations: Historically, real estate investment fraud cases involved investors living close to the purchased properties. Today, however, it is common for investors to be located several states away.

The Florida Office of Financial Regulation issued the consumer alert.


Allison Tussey

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3 responses to Real Estate Investment Fraud on the Rise

  1. I need help, I purchased two properties from Sunil Tulsiani (Private Investment Club based in Ontario Canada) and both managed by Doug Jordan (Gulfland Companies) in the US. I’ve been scammed neither property was ever repaired as they said they were going to be and Doug Jordan bills me everymonth for repairs that are not taking place. Can you tell me whom can I approach? which authority?

  2. For years and years mortgage brokers were blamed for doing this and were told banks would never do this. Fast forward to current times and very few mortgage brokers around and gee whiz, we see those pristine banks are finally getting caught! Those poor bankers who pointed fingers at mortgage brokers forgot that four fingers were pointing back at them. Its about time.

  3. I can’t imagine anyone is surprised by this other than it took so long for a regulatory agency to catch on!

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