How to avoid investment real estate fraud

This article was first published in May 2006 as a warning to potential investors to exercise caution when committing to real estate investments. Hundreds of investors have already signed up with us, and are involved in joint legal proceedings, but many investors, including many leading banks, some of which are now in government hands, have been involved in hundreds of other bad deals, and they are growing. The costs are in the millions!

For those of you who saw the Sunday Times front page article titled “Buy to Let Property Scams Run into the Thousands” in the week before Christmas 2008, you will have witnessed the latest results of that misdemeanor, and the losses and heartache that this property fraud has wrought. widely distributed to investors. and their families.

For many people, taking the plunge and investing in real estate for their future is a huge leap of faith. Imagine how they must feel, if their investment turns out to be an investment property scam?

Is there a way out of any investment real estate scam?

The first thing to realize is that if you feel like you’ve been cheated, you’re probably not the only one. You might feel that way, and you might feel lonely, stupid, cheated, angry or embarrassed – some of the common feelings I felt at this time.

But these are the feelings developers with twisted minds would encourage you to think about. They hope you feel like a ‘fool’, and they don’t want to tell anyone. In fact, with a clever scam, it might seem like there’s nothing to say anyway, regardless of your gut instinct, until you start digging.

But inertia is exactly what these criminals (and they are usually criminals) want you to think. Under these circumstances, you should not keep everything to yourself. You should try to find out if other people have been deceived in a similar situation. You never know, you may be one among ten, twenty or hundreds of similar souls, and if you can find and identify such groups, you will have a much greater chance of getting your revenge, believe me.

I fell into such an investment real estate scam about 18 months ago (I know-gasp-shock-horror-and I sell investment real estate!). For months, I thought I was crazy, I couldn’t understand why I couldn’t get renters anywhere near the prices I expected, or even get renters at all. This was the first revelation, as I had been promised that the properties would be fully tenanted upon completion. Well, at least that’s what the brochures said, as well as the sales manager at the presentation I attended. and I have bought a number of these ‘beauties’ each supposedly rented out and make about £500 each month rent surplus.

Then I began to investigate the situation more thoroughly, and quickly identified the problem. It’s a very sophisticated investment real estate scam!

So how could I, as a seasoned real estate investor, and seller of investment properties – become involved in an investment property scam?

I’ll tell you how – maybe criminal intent?

What I did do was chronicle events that actually happened with my investments, which I have since discovered have over 100 similar incidents.

Before I went into this investment, or even recommended it to others, which consists of a number of homes that have been renovated and converted into student HMOs (multi-occupation homes), I investigated the company thoroughly. (Note that the company and the location of these homes are not mentioned in this report for legal reasons.) I’ve checked at least 6 of their property transfers, talked to the people renting, and spoken with many existing investors. I took my business partner at the time with me to check out my findings. I was also comforted by the fact that these guys were spending (and still are spending) a lot of money on major national newspapers (Sunday Times, Telegraph, etc.), and they produced a whole bunch of glossy pamphlets in support of their claims.

Some of their large off-plan projects have also been featured in a two-page publication in one of the UK’s leading property magazines. Not only that, but they had (and still have) very large stands at a number of the UK’s leading property shows.

It all seems to add up, so I bought a few of them, and encouraged my friends, close family, and co-workers to buy some, too. I’ve paid my reservation fee, and just settled down to wait for that fee to complete, and start generating some spare cash each month.

The first in a chain of things was that the houses were very late in finishing, so we were in danger of missing out on student accommodation for fall 2005, but the investment still looked good, and anyway we had all exchanged contracts by then. And of course, we all thought we had at least 11% equity ownership in each property, on top of the usual 4-6% growth over last year. Also, when asked if we could check it out before completion, we were told – “Sorry, as they have tenants, you must give 48 hours notice or more”. Then when we tried to make appointments no one could find the keys… where are my alarm bells I hear you ask – obviously in silent mode!

But then the dirt really started to rise to the surface…

All of these homes were sold under the premise of “all contacts for services under one roof for the investor – use our services for sales, recommended attorneys, in-house brokers, mortgages and rental management from our own firm” – you know, really a good packaged deal for the two-armed investor.

The first problem was that the homes were not fully tenanted upon completion, and in many cases, the tenants seemed to “dissolve” after the contracts were signed. So much for promises made in developers recorders that tenants will be in place before completion, with mutual guarantees so there will be virtually no void periods, no rent problems, as if one tenant fails to pay, a cross guarantee means other tenants will be liable .

Also, in some cases (not to my good fortune) no renovation work was ever carried out, and developers were then asking £3,000 per property to repair those that had not been done. After that, the main issues in the construction business began to emerge. The basements would flood, not because of the rain, (although this has happened on a number of occasions where the basements weren’t properly ‘tank’), but because of faulty plumbing, but if of course we had a 12 month guarantee contract – is not it? mistake?

Even after constant phone calls and emails, the management company failed to send us proper records, didn’t brief us on maintenance issues, tenants leaving, tenants not paying rent on time – all sorts of standard things one used to expect from a “proper” management company. She charges 10% of the rent as a fee.

And the hassle I had with transferring management agreements to another company is another story for another day when it can be told.

OK, so, this seemed like a fraudulent construction business and a complete lack of proper management by the department that handles the rents. Not the kind of service expected from a company that does a lot of nationwide marketing, but of course, being such a high profile company, you’d think they’d fix the issues. right? mistake!

Because of all these issues I have now begun to do some very extensive investigation into this company, and the methods used to package the sale of these homes.

It then transpired that most of these houses had been bought by the developer some three to four months before they were sold, some the morning before, for about £90,000 – in the words of the developers – derelict houses that were completely gutted; 3 properties have open cellars, or roof conversions have been done so add up to another 2, 3 or even 4 bedrooms, these are meant to be converted to the highest standards for HMO purposes, Sold to us for circa £249,950 up £325,000 and above.

Ding ding ding – alarm bells…

Why were we so pleased to have purchased them – because they all came with RICS (Royal Institution of Chartered Surveyors) ratings on property value and expected rental income.

It all matches the developer’s claims.

But when we noticed that many investors from other groups were repossessing some of these similar houses – because they weren’t getting the rent and so couldn’t afford the mortgage, the valuations were all £80,000 to £100,000 below. Loan amount!

Our own investigations then revealed that many of these properties had been appraised by the same company and, for comparison, they used properties by the same developer in the appraisal form.

We have come across cases where mortgages have been granted:-

It was not valid for occupying multiple homes – why was the loan granted?

It would not have been granted had the banks known that the properties were already rented and not sold as vacant property. So why was the mortgage granted?

It could not have been granted if the rental assessment was unrealistic. So the loans were granted based on incorrect information. If the investor has put up the rent figures, it is likely that they have been done with mortgage fraud.

He would not have made a loan (especially interest only) if the true appraisal figure had been known.

You would not have given 85% of the assumed value had you known that the deposit granted (plus legal and other fees by the developer) had been paid. The lawyer was aware, as was the broker, so how could the lender not have been informed?

Now, since I like to think of myself as a “smart investor”, aware that talent deposits, cashbacks etc. happen and often jump start the real estate market on the go, I told my attorney(s) what the side deal was and the broker told me what the deal was so no problem, right?

Wrong… I then found out that neither the attorney(s) nor the broker had notified the lender.

Somewhere along the lines, something was amiss.

Question – Was it wrong:-



· Mediator?


In a society where regulations covering attorneys, brokers, mortgage lenders, and appraisers seem so stringent, I have to say I think there is something strange here, that an unhappy investor could walk into such a disorganized trap!

If you feel you have been involved in such investment real estate fraud, and would like to know if there are others in the same boat, please visit my blog where you can voice your opinion, and even add your name to a curated list if you want so we can build a database of similar events. which can be easily analyzed to discover trends, or passed to ‘Watchdog’ for example.

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