Realty Times March 21, 2003

Grifters Capitalizing On Strong Realty Market
by Broderick Perkins

In California earlier this month, local police said a 79-year-old Los Altos woman was scammed out of more than a quarter million dollars. She acquired $250,000 through an equity loan on her home after repeated telephone calls from a grifter in Canada persuaded her to invest in bogus New York real estate. Money in hand, the faux financial consultant never called back.

Earlier this year in Ohio, federal prosecutors charged a Westlake insurance agent with swindling $5.3 million from 50 clients, including friends and family members. He offered real estate investment trusts (REITs) that were supposed to yield fast, high, tax-free returns. The con agent used the money from new investors to run a shell game that paid off original investors. He also pocketed a chunk of the chumps' change for himself.

In New York, the state attorney general recently obtained an indictment of 39 charges against a long time Hudson Valley resident for bilking $25 million out of individual investors and companies who thought they were investing in country clubs, casinos and hotels. The money was actually used to set up the ruse to fool the rubes. The ruse included renting swank Manhattan office space, traveling by luxurious limo, and hiring prestigious law firms to create the appearance that he had the capacity to purchase multi-million dollar properties.

With a dead on, deadpan line straight from a Dragnet script, Los Altos Police Sgt. John Hughmanick summed it up best: "If it sounds too good to be true, it usually is." From one coast to the other, grifters, swindlers and cheats are using the lure of rapid real estate riches to fleece unsuspecting "investors". Proving to be an easy mark because of that get-rich-quick glint in their eyes -- not easily masked by those rose colored glasses -- would-be realty moguls are too often blinded by greed.

Experts say real estate fraud has been around longer than the Brooklyn Bridge and Florida swamps, but the current economy may be spawning vulnerabilities in those who think because of the positive realty news they can buy a quick trip to Easy Street.

Real estate has succeeded where the rest of the economy has failed in recent years and con men and women coming out of the woodwork are promising to use real estate wealth to heal those who may have taken a beating on Wall Street. Slick salespeople are also suggesting that home owners who've enjoyed a run up in home equity can other wise tap the real estate market to fatten their wallets even more.

Unfortunately, Main Street has its pot holes.

"It's easy to make a new venture sound like a sure-fire money-maker, especially if the press is writing about successful legitimate companies in similar industries," says the Federal Trade Commission (FTC). While claiming to offer investments in exciting realty ventures or lucrative real estate acquisitions, the crooks sell nothing more than dreams that disappear into the night before consumers are aware they've been had. So how do you keep from being taken? The FTC offers the following advice.

  • Memorize this: "If it sounds too good to be true, it probably is."
  • The best protection against any fraud is common sense. When considering any investment ask trusted friends, family, co-workers and others -- who have recently enjoyed a successful investment -- for referrals to licensed investment brokers or advisors with real estate investment experience and a track record to prove it. Check with the government regulatory or licensing agency to make sure the license is current and in good standing and without a telling number of complaints.

  • Interview them just as you would be interviewed for a job. Ask tough questions. You are, after all, hiring them to manage your hard earned money.

  • Evasive, let-me-be-your-friend slick talk is a red flag. So is a fast talking, over exuberant rush to get you to commit. Demand time to talk with satisfied customers.

    "Using sales scripts, scam artists try to convince you that you'll miss out on a big opportunity if you don’t send them thousands of dollars by overnight courier or wire transfer," the FTC says.

  • Be careful to use as many independent sources as possible to verify information. Elaborate fraud operations set up legitimate-sounding companies and even offices with government-like names to "certify" the strength of what is really a fraudulent investment.

  • Get everything in writing, including statements, earnings projections and other forecasts. Check them out against real returns on other similar investments.

    "Legitimate companies account for investors’ money at all times. Ask for written proof of how much of your money is going to the actual purchase or development of the opportunity and how much is going to commissions, promoters’ profits and marketing costs," the FTC advises.

  • Steer clear of telemarketers and others who contact you out of the blue. Stick with known investments you can investigate without the pressure of frequent calls, visits to your home or visits to an office.

    The FTC says "Telemarketing is particularly expensive; if you are investing in a telemarketed investment, how much are your brokers getting paid to talk to you?" Among it's extensive check list for rooting out fraud, the international law firm of Alter & Hadden LLP also advises:

  • Avoid last minute deal changes, key to a scammer's bag of tricks.

  • Watch for a change in tone from conciliatory to adversarial. The conciliatory tone is designed to gain your trust. When you waver, the scammer may become more aggressive, impatient and concerned that the jig is up.

    "Investing is risky business. Anyone who tells you an investment is likely to turn a profit quickly should have a basis for the claim. Be especially wary when someone tells you profits will be big enough to offset the risk of investing. Every potentially high profit investment is high risk," the FTC says.

    When it's fraud, you risk everything.


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