How to Avoid Capital Investment Fraud

Along with the rise of the number of people looking for investment capital to purchase commercial real estate has come a rise in the number of scam artists looking to part them with their money. But you can dodge the close bullet of fraud by doing your homework on your capital investment broker.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• notepad, pen, and file for storing any documents given to you by the broker and the notes you take about each session with your broker.
• A bit of time to invest in checking up on the broker.

1. Before meeting with the capital investment broker, check the Better Business Bureau to see if there are complaints against him/her. You can also check online sites such as ripoffreport.com to see if there are furthe consumer complaints about this individual.

2. Keep a running log of your encounters with your broker and copies of all papers that he gives you about this transaction. Make notes about anything personal you hear about him, such as a spouse's name or child's name, or any small talk. Later that might be used to identify him if he takes your money and disappears.

3. After meeting the broker, ask him for a copy of their business license. Find out who if they have a parent company, and take careful notes of that company's name, telephone number, and who is his supervisor. Remember, scam artists are usually quite charismatic, and easily put their victims at ease, so don't neglect to get this information just because he says he will get it to you later. He should have that information at his fingertips. When you get some time later, check up on the reputation of the parent company.

4. After you explain the need for the capital investment, find out what strategies he will have to obtain financing. If there is going to be a purchase of an actual building, a commercial appraisal will need to be done by the institution that is loaning the money. Your broker should not need that money from you.

5. Ask the broker for a specific time line for getting the financing that you are looking for. If he requests earnest money from you, insist upon a receipt immediately for the money. There should be a formal document signing at that time showing which lending institution will be providing the investment capital, how much the interest rate will be and other pertinent details. If the broker just says he wants to "grease the wheels" or have the money "ready for whenever the bank needs it," do not give it to him. Brokers do not get paid up front, and their fees will be listed as a part of the signing documents.

6. Feel free to check with the parent company to be certain that they are still working with your independent broker. Better to sound a little concerned than being defrauded of your hard earned money.

7. If you actually do sign earnest money documents, get immediate copies of all documents for your file. Ask for a receipt from him for any checks you write out. Be sure to keep an accurate record of how much you give him, when, the check numbers and to whom you made out the check. Most likely the check should be made out to the lending institution, not the brokerage business. If he says there will be an escrow account, insist that you have a third party over see the setting up of that account. Go with him to the bank to do this.

8. If at any time, the broker goes for weeks without returning your calls, check with a lawyer or police immediately. Some states have very little in the way of consumer protection laws over sham brokers, so be prepared for a harsh battle.

Tips & Warnings

• Remember that most good brokers are legitimate business people who have had numerous excellent business transactions.
• Keep in mind that you must keep a vigilant watch over your investment money. Scam artists prey more on people who are not paying close attention.
• Keep records of all meetings with your brokers as accurately as possible.
• Humans have instincts, too. If at any time you don't feel comfortable with the broker or something seems too unusual, it is best to look for a new situation.
• If anything sounds too good to be true, it probably is.
• Parent companies do not drop excellent brokers. It is a red flag if they have disassociated themselves from your broker. Keep in touch with them as they may still have some sway over him if he does something wrong.
• Once you have given earnest money to your broker, there should be a definite time line until the closing date. If that does not happen shortly after your check has been cashed, find out why.
• Police in bigger municipalities will often not take on cases of fraud, but rather insist that you take the broker to court if the money has not been used correctly. That is why it is so important that you be vigilant throughout the whole process.