Self-Defense Tactics: 7 Ways to Avoid a Real Estate Con Artist

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By Ralph R. Roberts

RISMEDIA, Jan. 28, 2008-The term “con man” is short for “confidence man” - a person who wins or builds a person’s confidence to the point at which the person voluntarily complies with the con man’s wishes. An effective con artist is able to appear so trustworthy that a person relinquishes common sense and skepticism. Like a magician whose hands are quicker than the eye, a con artist performs a sleight of hand that tricks victims into willingly handing over their money.

Two common human emotions make us vulnerable to con artists:
- Trust: We want to believe that what people tell us is true.
- Greed: Everybody would like to get rich quick without having to put out much effort.

When someone comes along, promising an easy way toward a better life, we want to believe it. Our desire to believe becomes ten times stronger than our common sense. And that’s what makes us so vulnerable to con artists - who are essentially unethical, but highly talented salespeople.

The con artists running the Cay Clubs Resorts scam are some of the most capable I’ve seen. They targeted novice real estate investors - people with money and excellent credit who wanted to invest in real estate, but had no idea of how to get started. Once they identified their marks, they had a system in place to reel them in:

- A professional looking website at www.cayclubs.com. (Access to this site has been blocked since I started doing my investigation.)
- Slick marketing videos to promote Cay Clubs Resorts.
- An experienced representative who could lead you through every step of the process.
- Loan originators who worked for “preferred lenders” and were willing and able to doctor loan applications, if necessary, to “help” prospective investors qualify for loans in excess of $600,000.
- Appraisers who were willing and able to write appraisals for two to three times the true market value of the property and document other lies so the loan application would glide through the approval process. They even hid the fact that Cay Clubs condos were being developed as rental properties, so investors could qualify for residential mortgage loans.
- A network of investors standing at the ready to provide testimonials and positive references.
- The promise of a no-risk, no-hassle approach to investing in real estate. Cay Clubs Resorts would lease the property back from the investor for two years and provide a lump-sum leaseback payment at closing to cover the investor’s first two years of mortgage payments while the property was being developed.
- A property that was almost guaranteed to appreciate significantly. Cay Clubs Resorts promised to develop condos into seaside vacation resorts that people would be lining up to purchase once development was complete.

Like clever magicians, the con artists controlled everything that prospective investors would “see.” Using smoke and mirrors, they created a magnificent illusion of no-risk, no-hassle investment opportunities. Many investors had their doubts until their loans were approved. Then, they began to think, “A bank would never approve the loan if I couldn’t afford it and if the property weren’t worth that much money.” Little did they know that the lender approved the loan based on a well orchestrated series of lies.

The best way to protect yourself from these real estate con artists is to prevent them from having total control of what you see. Following are some self-defense tactics:

- Use your common sense. If a deal sounds too good to be true, it probably is. Con artists will use your desire to believe against you.
- Hire your own Realtor to show you the property and represent your interests, and make sure the Realtor you hire has an intimate knowledge of property values in the area in which you are looking to purchase property. Don’t rely on the company’s sales representative or agent.
- Hire your own independent appraiser to appraise the property. Con artists often hire their own appraisers to inflate property values.
- Read and understand all documents before signing them. Con artists often change the paperwork or hide certain documents in huge stacks of paperwork and then rush you through the signing process, so you have no time to read and understand the documents. As an added precaution, have your attorney review all the paperwork, as well.
- Don’t lie about your income or the value of your assets on a loan application or allow a loan originator to do it for you. Fill out the loan application yourself with accurate information, and write N/A on any spaces that do not apply to you before signing the application. Never sign a form that has blanks - someone else might decide to fill in those blanks later.
- Never buy a property you have not seen with your own two eyes. Buying property out of state when you cannot visit the property yourself is a bad idea.
- Remember, knowledge is power. Con artists want to control the knowledge you have, so they can control the decision you make. By hiring your own professionals to protect your interests, doing your own independent research, and carefully reading all documents before signing them, you empower yourself as an investor and make yourself a much savvier consumer.

Ralph Roberts is a real estate fraud expert and activist and co-author of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan, August 2007). Visit http://flippingfrenzy.com or contact Ralph at RalphRoberts@ralphroberts.com or 586.751.0000.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

To read more articles by Ralph R. Roberts, see:

• When Receiving Cash Back at Closing is Legal  
  Realtor Caught in Cash-Back-at-Closing’s Crosshairs  
  Mortgage Meltdown: Let the Finger-Pointing Begin

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