Fraud

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By PETER ROSENTHAL, President
V.I.P. Trust Deed Company
October 2003

It is with heavy heart that I again have to write an article about fraud. Unfortunately fraud is rampant in almost every industry. Trust deed investments have always been “easy pickens.” There are so many scams available I, frankly, don’t even know where to start. I have written whole columns devoted to each type of real estate fraud. Since I am often used as an expert witness (in court) involving real estate scams, let me list a few scams that cross my desk regularly.

1. The High Interest Ponzi Scam
As I write this article yields to private mortgage lenders are somewhere between 7 to 11% depending on the company, the type of trust deed, and the loan to value ration (LTV). Every week I see various adds or offerings aimed at private investors at yields of 15 to 25%. Invariably these offerings promise real estate security but upon further investigation, the promised securities an ILLUSION. As I am dictating this column I am looking at a 2-year note offering with a return of 70% in two years. The paper work further specifies, “guaranteed by real property.” A quick glance at the paperwork revealed NO SECURITY, other than the words “real estate security.” Frankly, GREED KILLS, and anybody falling for this crap almost deserves the loss that they will suffer.

2. Out of State Deals
NOT EVERY out of state real estate trust deed investment is a scam, however, an out of state investment puts the investor at a terrible disadvantage. While it is very simple to check out a mortgage company in this state it is much harder to do out of state. In many states the local Department of Real Estate has little or no jurisdiction with out of state investments and refers complaints to the Security and Exchange Commission (SEC) if the offering was a “public offering” being offered within specific SEC guidelines. It’s hard enough to get your local police department of district attorney to investigate fraud. Good luck INTERSTATE.

3. The Cut and Paste Scam
I always advise trust deed investors to make ABSOLUTELY CERTAIN that they receive PROPER DOCUMENTATION. If the note is not fractionalized, (divided amongst several investors) the documents should contain at least the original Note, the original Deed of Trust (after recording), any assignments, Loan Escrow Instructions, Department of Real Estate Lenders Disclosure Statement (multi page), Title Insurance Policy, and Fire Insurance Policy. Obviously no fire policy will exist will bare land. If the real estate loan does not include these documents find out – “why not?”

The cut and paste scam is simple: investors receive COPIES of official looking documents with the county recorders stamp. I have investigated many of these documents over the years only to find the county recorder’s stamp photo copied and placed on an unrecorded document. Cut, pasted and then photocopied: the document looks great. The key here is no ORIGINAL documents.

These are just three examples of common scams. Typically the bait is higher interest than other brokers. It seems absurd to have to repeat over and over again to people who invest $100,000.00 and up without checking ANYTHING. You need to checkout the investment and COMPANY very, very carefully. Has this company been in business 10, 20 or 30 years? Have up checked for complaints with the Department of Real Estate or the Department of Corporation (depending on license)? Has your attorney checked the company and principals to see if they have been defendants in lawsuits? If so, what type of lawsuits? Everyday honest people can be defendants in lawsuits that are meaningless, i.e.: eminent domain. You or your attorney should be looking for lawsuits involving FRAUD. In case this sounds like a major chore and major expense, please realize that the expense is NOTHING compared to the loss of investment. I am constantly amazed how investors resist getting professional advice up front in order to save a $250 to $400 consultation fee. Check it out, check it out some more, and then check further.

Does this sound like I am steering you towards my company? After all we are California, have been around for over 25 YEARS and are very proud of our reputation. Have no fear I have no “dog in this fight.” My company has not advertised for or taken on new trust deed investors for the past four or five years. This column is intended to be a public service and keeping you from being defrauded is truly a public service.

I can go on and on about this subject but the two key words are GREED KILLS. If the interest rate is 5 to 10% above going rates, watch out! It’s amazing how people are penny wise and pound-foolish and will not have an attorney check out investments with new companies. Attorneys know what to check for – you probably don’t. I can’t resist my favorite Hill Street Blues quotation: “Let be careful out there!”

Peter Rosenthal
VIP Trust Deed Company