During the high interest rate environment, one of the most insidious crimes perpetrated against trusting victims was the mortgage investment scam.
Lawyer Alex Verrilli, a litigator with McKenzie Lake Lawyers in Guelph is an expert on mortgage investment fraud and he says, “McKenzie Lake has seen a significant increase in complaints from inexperienced investors who have given money to mortgage investment companies based on unrealistic promises of returns on investments. They establish a company and offer clients an opportunity to invest in what they say are high rates of return on investments.”
There are mortgage companies that were honest and put investors’ money into legitimate projects, real estate investments, and properties. But then there are others that took advantage of individuals when money was cheap. They launched Ponzi schemes and were able to consistently attract new investors to prop up their otherwise highly risky and poorly managed business. Promises of high yields with minimal risk was enticing to many inexperienced investors trying to build a secure financial future.
Unfortunately, there was limited oversight and lack of due diligence among investors. Verrilli says, “The unscrupulous mortgage brokers engaging in investment scams got a lot of money from investors that requires very little oversight and documentation. There is a lot of temptation to use that money for other things.”
If it sounds to good to be true..
Here’s the way the scam often works. A perpetrator will promise let’s say, a $30,000 return on a $20,000 investment. Verilli says, “The investor is told they will get a promissory note from the mortgage company and that the perpetrator will personally guarantee the investment.” The victim is taken in and is now willing to invest $30,000 because they received $10,000 for doing nothing. Verrilli adds, “The fraudsters take the $30,000 and turn it into $50,000, they keep escalating and then pull the rug out from under the investor when large amounts of money are at stake.”
In a mortgage investment Ponzi scheme, organizers promise high returns by pooling money supposedly invested in mortgages. However, instead of investing the funds as promised, they use new investors’ money to pay returns to earlier investors. This creates an illusion of profitability and entices investors to invest more money. But eventually the scheme collapses, leaving investors with huge losses.
Verrilli has seen many investors taken because the allure is irresistible. Verrilli warns, “If it sounds too good to be true, it’s not true. If you’re promised interest rates that are four times the best investment anyone else can offer, you should question it. Even with people you know well, you should get a lawyer’s advice when investing an amount of money that could impact your life if you lose it.” A lot of innocent investors have lost life savings and homes because they fell prey to the promise of high returns on investments.
Higher interest rates exposing failures and frauds
The rise of interest rates has tightened up money markets, making money more difficult to get, and ultimately exposing mortgage investment companies’ frauds, creditor protections, and restructurings. Verrilli says, “Perpetrators can’t find money to fix these Ponzi scheme problems. In tight markets, investors are asking for their money back which leaves the person committing the fraud unable to pay the money they owe.”
To protect themselves, perpetrators may assign themselves into bankruptcy. Verrilli says, “When you have exposed a complex fraud and the perpetrator makes an assignment into bankruptcy, if you didn’t get legal advice, you might think you have no options at this point. But there are some powerful investigation tools within the bankruptcy system.” A victim can get special orders to ensure their claim survives the bankruptcy.
A victim can also freeze the perpetrator’s assets. Verrilli says, “If you’re the first person acting on this fraud, you can move quickly to get a litigation lawyer involved to freeze the perpetrator’s assets, because once exposed, they will hide the money.” The first victim to take action has the advantage because they retain the counsel who makes the decisions, gets the court orders, and takes the victim’s instructions.
Contact a lawyer from the start
When someone discovers that they’ve been a victim of fraud, the first thing they think to do is call the police. Because many police forces do not have forensic accounting resources to investigate such scams, they advise victims to hire a civil litigation lawyer instead.
Investors may be reluctant to contact a lawyer. But Verrilli stresses, “People have a tough choice to make, but they will get peace of mind from consulting a lawyer, especially before they make that investment transaction. A lawyer will look at the proposal and help them understand the risks. I would never say anyone is worse off for hiring a lawyer in this scenario. It will be money well spent.”
Alex Verrilli has years of experience chasing money trails and finding assets to collect on judgements for his clients. Many of those clients believed their money was gone with little chance of getting it back. Verrilli says, “I want to tell victims of fraud that they are not alone and to not feel shame about being scammed. You shouldn’t feel ashamed for trusting people who are very sophisticated at committing fraud.”
McKenzie Lake Lawyers’ litigation team is experienced in fraud, property, enforcement, construction, and commercial litigation.
Contact Alexander Verrilli or his colleagues, Mike McCluskey and Adelaide Earl-Kinley if you have any questions.
Email: [email protected]
This article was sponsored by McKenzie Lake Lawyers (Guelph), a 2023 GuelphToday Reader Favourite.