Real Estate Investors Scammed for $3,000,000 after NOT doing their Due Diligence!
Our current economy is hardly comparable to the economy our grandparents knew. Unless you have graduated with an advanced degree in a lucrative field, it is becoming increasingly difficult to build wealth by working a standard 9-5 job.
According to MarketPlace.org, consumer prices escalated by 9.1% in June 2022, a record high in the last 40 years. Meanwhile, wages have barely risen, while productivity has tripled according to Economic Policy Institute. This has led to an increased interest in all manners of entrepreneurship, including real estate investing.
As countless people in real estate investing have learned, not every well-put-together success story smiling in an event hall can be trusted with your hard-earned dollars.
Real estate investing is particularly desirable because no matter which way the economy turns, people will always need a place to live, and your earning potential is not limited to a frozen hourly wage. Furthermore, real estate has many different facets, from selling on the MLS to buying foreclosures, there is something for everybody. Many investors find that they can utilize their knowledge and creativity to forge their own niche in the real estate industry.
Unfortunately, some use their creativity to the detriment of others. For both old and new investors, who to trust is not always clear-cut. While real estate agents must pass a series of intense courses and take a state test to prove that they know all the rules and ethics of the field, real estate investors have no mandatory course. It is easy for new investors to fall prey to scammers and con artists. While some can brush off the dust as a lesson learned, countless starry-eyed investors will find that what they thought was a golden opportunity was a tragedy in disguise.
It was clear that the investor had lost every dollar they had invested.
According to The United States Department of Justice, Suzanne Griffith had spent years building her presence and reputation in the house flipping community. She was an avid attendee of house flipping seminars and networked with other attendees to draw interest in her house flipping companies: Level 5 Properties LLC, 45 North Investment Properties LLC, and Our Town Properties. When Griffith had opportunities for investors, she would reach out to her network of seminar contacts and invite them to invest in properties that were owned under her companies. Investors responded because they knew her and had already heard about her company. However, as countless people in real estate investing have learned, not every well-put-together success story smiling in an event hall can be trusted with your hard-earned dollars. The United States Department of Justice states: “Griffiths frequently made material misrepresentations about the status of real estate projects, failed to take promised action, falsified documents, and misappropriated investments for her own use.”
In 2018, court documents show Griffith soliciting $100,000 from one investor to fund a renovation with the promise that the investor would hold a second position on the mortgage. She claimed that the documentation for this arrangement had been filed with the county. A claim that would later be proven false. This was a catastrophic loss for the unsuspecting investor, but this terrible story does not end there.
In 2020, Griffith obtained $70,000 from a second investor. To arrange for additional investment from the investor, she provided them with an investment statement printed on company letterhead. This time, the investor chose to contact the title company and learned that Griffith had changed key information that the title company had originally provided. These were not merely scrivener’s errors but were intentional omissions of preexisting encumbrances, and it was clear that the investor had lost every dollar they had invested. In total, Suzanne Griffith had exploited her investors to the tune of $3,197,109.47.
Griffith pled guilty to one count of wire fraud and one count of money laundering on June 16, 2022, and was sentenced to 58 months in prison and two years of supervised release. She was ordered to pay $1,661,407.50 in restitution. In the case of Suzanne Griffith, justice was served, and the victims were given some degree of closure. However, among the multitudes of investment opportunities available to investors, there are countless “investments” just like Griffith’s, if not worse. Furthermore, while technology and social media expand, the opportunities for fraudsters increase right along with it.
Someone who is offering you an investment deal is not beholden to state guidelines and procedures (other than civic law); therefore, they are not accountable to the state licensing board.
So how can an investor identify scammers when sifting through legitimate opportunities?
Fortunately, investors have tools that they can implement in doing their due diligence. Perhaps, the most straightforward is ordering a title search. Had the second investor ordered a title search, it would have clearly shown all the encumbrances recorded with the county. An Ownership and Encumbrance (O&E) report ordered from PropertyOnion.com costs as little as $45 per property and takes between one and two days to complete. In this case, the investor did not feel the need to order one, likely because Griffith had provided him with a report from a title company.
Many would feel that this is not unlike when an agent provides you with a report or other such documents, and you trust them because they are doing their job and they are licensed professionals. The difference, in this case, is that someone who is offering you an investment deal is not beholden to state guidelines and procedures (other than civic law); therefore, they are not accountable to the state licensing board. They are operating in their own best interest as opposed to an agent, who is obligated to act on your behalf and in your favor. There is profoundly less oversight. If someone in your network is offering you an amazing investment opportunity, and they hand you a report stating that the property is free and clear, you should consider running your own O&E report, for your own peace of mind. If on the report, you find red flags, or even potential red flags, consult with a real estate attorney. The time and money the second investor would have spent on an O&E report and a consultation would not have come close to the legal fees they had to spend fighting in court, let alone the cost of their lost investment.
If you are pressured to provide an answer right away or you are discouraged from taking time to research, that should be a red flag in and of itself!
Seminars can be an amazing opportunity to learn new information, meet new people, and introduce yourself to new ideas. However, they are also hunting grounds for financial predators. A room full of investors of various degrees of financial savvy, all eager to make money, is like shooting fish in a barrel for someone who has shady deals to peddle. Always do your research on the person offering you the deal. Nobody goes to seminars looking like a criminal. They will be poised and polished and give you a magniloquent pitch that makes you think you would be a fool to pass up on it. Give yourself some time to think about it, and do your research on both the person and the property. If you are pressured to provide an answer right away or you are discouraged from taking time to research, that should be a red flag in and of itself!
The good news is that there are countless good investments and honest people in the world. One tragic story should not dishearten you from learning all you can about real estate investing. Once you have found your niche, make a checklist of what you need to do to properly vet all aspects of an investment and never defer from it. The most important factor in your investment’s success is the due diligence you perform before signing on the dotted line.