Real estate fraud

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Real estate fraud in the narrower (criminal) sense is a sub-form of fraud in which real estate is deliberately sold to investors at an inflated price.

In a broader sense, real estate fraud (or the short form “real estate fraud”) is used as a term for injured investors for the complex “ scrap real estate , structural sales and real estate financing ”.

The sale of overpriced real estate is assigned to the gray capital market .

The following aspects are typical of real estate fraud:

  • Overpriced real estate prices
  • Dubious sales organizations
  • Processing by trustees and
  • Deception of the investor

Overpriced real estate prices

In the case of real estate fraud, a sales concept comes into play that essentially consists of acquiring large residential complexes that are mostly in need of renovation and renovating them with as little effort as possible ("brush renovation") in order to then sell them either as condominiums or as shares in closed real estate funds.

Real estate fraud does not educate buyers about the real value of the property being sold. The lower value of the property is based either on the market value as such, the rental income that can actually be achieved, or on sales commissions that were not recognizable to the investors in the purchase price (so-called hidden internal commissions ).

The problem of excessive prices was exacerbated by the drop in real estate prices in the new federal states.

Dubious sales organizations

Distribution and sales are handled by " structured sales organizations ", who usually do business at home or at work. Friends, acquaintances, work colleagues or an unexpected phone call ( cold calling ) often serve as “door openers” . This procedure is referred to in the case law as real estate acquisition in a house door situation , which is currently treated controversially in German and European case law.

Structural sales do not necessarily have to take over the sales. It can also be individual brokers who are personally recommended. These brokers work together with the branch managers of the financing banks, analogous to the structured sales. The properties are allocated against direct "kick-back" payments from the broker to the branch manager. These amounts in turn come from the hidden commissions (part of the inflated purchase prices), which amount to almost 20% of the sales price. The boards of directors of the banks regularly deny knowing about it. It is difficult to secure evidence, as no judge will search the premises of renowned German commercial banks without sufficient evidence. In addition, German courts not infrequently even reject the taking of evidence, which in individual cases has already been criticized by the Federal Constitutional Court as a violation of the Basic Law .

If the proof is successful, the banks often lose the trials before the regional courts and the higher regional courts . The contracts are then immoral and must be completely reversed. The banks are no longer taking the route to the Federal Court of Justice . The reversal with then due compensation payments can be very tedious. This not infrequently leads to the financial ruin of the defrauded bank customers, as it is hardly possible for them to finance their own capital.

Handling by trustee

The acquisition is sealed in the form of a so-called agency contract, which is notarized with a notary and authorizes a trustee to conclude all contracts necessary for the acquisition of the property. However, the mortgage brokered in connection with the real estate acquisition must be signed by the purchaser himself, as otherwise he could be given the opportunity to have the loan finance declared null and void if the business arranged by the trustee is judicially declared null and void.

Deception of the investor

So-called structural sales developed a sales concept for these buildings, in which the tax saving option is in the foreground. The property itself is almost a minor matter in the sales talks. Since the 1990s, “junk properties” have also been sold to low-income sections of the population.

The location of real estate sold in this way (“junk real estate”) does not play a major role. Often, however, they are located hundreds of kilometers away from the potential customer, making it difficult for them to view them easily.

Another problem to be mentioned is the little or no experience of the potential victims in real estate trading - which is exacerbated by the front door situation. Typical activities such as inspection, neutral market value appraisal and situation assessment as well as inspection of the land register entries are omitted, as well as the obtaining of second opinions and own investigations on the long-term financial burdens.

Selling points

Customers are usually persuaded to buy with the following standardized sales arguments:

Tax benefits

The main selling point is the prospect of tax savings.

Selling rented condominiums is important because of the tax benefits from rental income. Due to the influence of the tenant organizations, there is a nationwide lock-up period of 3 years for existing rental agreements (up to lifelong in the case of special agreements ) to protect previous tenants from being terminated for personal use and speculators. This makes the sale to owner-occupiers unattractive and thus promotes the sale of apartments to so-called capital investors.

retirement provision

In many cases, the properties are sold to inexperienced investors as a contribution to retirement provision . Due to the incoming rents, the properties should largely be self-sufficient, so that in old age a property would be debt-free. Reselling at a profit (e.g. through a boarding house ) is problem-free.

Keywords for this were "increase in value without equity" or "real value instead of monetary value".

Rental guarantees

Usually a (e.g. five-year) rental guarantee is offered. Since the basis is already laid in the considerably excessive purchase price at the time of the conclusion of the transaction, that rental guarantees do not correspond to the real achievable rent and that the rental guarantees therefore go bankrupt after one year at the latest . Often, without realizing this, the buyers even pay for their own rental guarantee in full or in part when the contract is signed. In other variants, the rental guarantee is covertly subsidized until the property developer cannot convert the business contract.

The buyers, who only become suspicious when the rental guarantee fails, soon find out that, apart from the banks that financed the excessive purchase prices, recourse can no longer be taken against anyone, as property developers , distributors and rental guarantees are usually officially insolvent or are not available for other reasons.

Full financing

The promise that a well-known bank will fully finance the purchase is usually seen as particularly sales-promoting and confidence-inspiring .

German banks financed the apartment purchases, sometimes to a very large extent.

Where do the properties come from?

A major source was the New Home Scandal of the 1980s. For example, as part of a stabilization concept for the ailing company, NH Niedersachsen sold around 8,200 apartments to a housing asset company in Hanover, with the aim of selling these holdings to tenants through the sale concept developed by a union holding, apartments in tenant hands .

The apartments in question could not be completely sold to the tenants according to this sales concept, which is why almost half of these ehm. NH apartments were sold to so-called capital investors through structural sales, for which there have been numerous reports in the media and legal disputes.

Residential complexes in need of renovation, e. G. For example, cities separate from prefabricated buildings after the social bond has expired . At the beginning of the 1990s, a large part of the prefabricated buildings erected in the GDR came onto the housing market.

consequences

There are thousands of victims of real estate fraud in Germany, and consumer protection has cautious estimates of 300,000 victims. As a result of the financial ruin, many have had to file for consumer bankruptcy.

The billionaire burst real estate loans, which has never faced a real value, were by the banks at the expense of current income impaired . As a result, this means that the losses incurred were socialized by the fact that the shareholders of the banks (for example, the shareholders) now received less dividends and, of course, less taxes were paid - a decrease in profit or even a balance sheet loss. These value adjustments led to special write- offs of DM 3.5 billion at HypoVereinsbank in 1998 alone . It is not known whether the salaries, bonuses etc. of those responsible were reduced accordingly.

Some of these “non-performing” loans are resold by the banks to interested companies via the capital market at high discounts (“ non-performing loans ”).

Legal disputes

The extensive legal disputes are summarized in the article scrap real estate .

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