Real estate market decline leaves investors vulnerable to TIC investment fraud


By Bradd Milove

In 2002, the IRS ruled that TICs, or

Tenant In Common

real estate investments, were eligible for tax deferral treatment under the capital gains real estate tax statutes of Section 1031 of the Internal Revenue Code; and in the ensuing years, qualifying individuals received tax deferrals as long as profits were reinvested within 180 days of closing. Unfortunately, the ruling paved the way for a variety of fraudulent investment practices in conjunction with TICs – and now analysts and legal advisors alike are warning investors to carefully review relevant documentation to prevent significant losses due to real estate investment fraud.

Tenant In Common investments are real estate investments in which two or more parties each own portions of a specific piece of property. Since 2002, these investments enjoyed a significant boost in popularity thanks to the abovementioned IRS ruling; but as the years went on, crumbling real estate markets nationwide revealed rampant fraud in connection with Tenant In Common documentation. As

The Washington Post

reports, investors are now being cautioned to study up before signing on with these and any other tricky real estate agreements – and to perform a bout of “legal housekeeping” to ensure the security of existing investments as well.

As the real estate market fell into decline and property owners began to search for ways to escape from depreciating real estate investments, TIC fraud posed a tempting solution in the form of superficially attractive investment opportunities for unsuspecting investors. Savvy owners would broker misleading sales through national firms for added credibility – leaving hapless investors to pick up the pieces. And while government protections designed to prevent TIC fraud remain in place, and as such require sellers to disclose all pertinent information to the proper authorities, fraudulent sellers have nevertheless succeeded in selling TICs via false or misleading means. Misrepresentation of market conditions, existing lease terms and financing agreements are prime contributors to TIC real estate investment fraud; and by providing inaccurate information about property managers’ experience and reputation, dishonest sellers made it even more difficult for investors to navigate these complex investments until it was too late.

Despite the potential fraud risks involved in TIC investments, retired real estate investors looking to free themselves from the day-to-day nuisance of full-time property management often find Tenant In Common arrangements particularly attractive. Under the terms of these agreements, management hassles including routine repairs, rent collection and tenant dispute mediation could become a thing of the past; and in their place, the prospect of professional management lured those looking for an easy yet profitable retirement investment into the deceptively simple TIC arena.

Systematic TIC abuse has since inspired SEC and FINRA regulators to officially warn brokers of their legal disclosure and due diligence obligations; but it’s important for investors to also take responsibility and enlist expert help to review all TIC documentation as well.

Prevent real estate fraud with smart investments and expert legal counsel

TIC fraud

can prove devastating in a number of ways, leaving cheated investors with significant financial losses, mortgage repayment obligations and tax liability costs. Retirees who rely upon these investments for their livelihood are especially at risk; and in order to differentiate routine market losses from more suspicious circumstances, all real estate investors should consult an experienced securities attorney in order to properly examine applicable offering documents and take preemptive action against fraudulent activity. At the offices of

Miller & Milove

, we take pride in providing seasoned advice and successful representation to real estate and investment fraud victims. To learn more about our practice and the best ways to prevent TIC investment fraud, visit us online: