According to a recent federal indictment, a father and son team conspired with an Illinois businessman and a Chicago real estate attorney to fraudulently induce approximately 15 innocent investors into purchasing phony mortgage notes on various apartment buildings that were in foreclosure. The team sold an estimated $2.9 million in fraudulent notes, promising investors that they would receive income from the rents paid by occupants of the apartments along with titles to the properties once foreclosure was complete. To make the scheme even more believable, the Chicago attorney would pretend to validate the fraudulent mortgage notes with a fake Guaranty Agreement that he would create and have presented to the investors.
As the victims soon learned, when it sounds too good to be true, it probably is. The scammers did not own the mortgage notes on these properties, nor did they have any legal ability to collect the rents in question. While they promised investors that the monthly rent payments would be collected and turned over to the victims, instead, they used the funds from other innocent investors to make Ponzi-style payments to victims while pocketing the remaining money- enabling them to keep the scheme going since 2011. Each of the defendants have since been charged with multiple counts of wire fraud and mail fraud. If convicted, they could face up to 20 years in prison and $250,000 in fines.
Unfortunately, real estate Ponzi Schemes and similar real estate scams are all too common throughout the United States. Each year, hundreds (and sometimes thousands) of innocent investors lose millions of dollars to such scam artists. Recovery from such losses is often extremely difficult and sometimes even impossible. In order to protect themselves, real estate investors should be aware of the signs of such schemes and how to avoid them.
- Guaranteed high returns in any investment, especially those that do not correspond with current market conditions should throw up red flags immediately. Careful examination is recommended and investors should proceed with caution.
- Investments that have not been registered are commonplace in the world of investment fraud.
- Be aware of unlicensed sellers. Credentials should always be checked out. Companies can be checked with the BBB, and a broker’s CRD number can help investors obtain more insight into the broker’s track record.
- When in doubt or when considering making large investments, individuals should have a trusted real estate lawyer review any contracts before investing any funds.
