Whole-building investment scam could extend to 520 billion Yen in loans

There is still no end in sight for victims of real estate investment fraud and predatory lending. The share house investment fraud scandal that erupted in late 2017 is only the tip of the iceberg, with some data suggesting that similar loans for whole-building investments are four times as high.

According to the Toyo Keizai Shimbun, these loans on whole-buildings and apartments could extend to as much as 520 billion Yen (approx. US$4.5 billion) based on documents released by Suruga Bank in May 2019. As many as 80% of the buildings are over 20 years old and located nationwide.

What’s the back story? Salaried workers, often with very little real estate experience, would attend investment seminars held by real estate brokerages spruiking high-yielding assets providing stable income into retirement, and with full financing and ‘no money down’ slogans. Buyers would be approved on the spot for very high loan amounts, often far exceeding what the borrower would normally be approved for. In some cases, this was done by forging the borrower’s bank statements or income certificates.

The assets sold were essentially overpriced, overvalued, and with falsified rental income details. Some investors were promised guaranteed rental income, only for payments to stop when the real estate company could no longer pay the inflated rents. 

The Toyo Keizai Shimbun interviewed one investor who had been approved for a 450 million Yen loan to purchase two apartment buildings in Tokyo and Fukui Prefecture, both included sublease guarantee agreements from the real estate company selling the buildings. That rental guarantee was quickly canceled and the investor was left to cover the negative cash flow. A few years later they were able to obtain the original loan documents through an alternative dispute resolution. Despite having around 1 million Yen in their bank account at the time of purchase, someone in the purchase or loan application process had photoshopped their bank statement to show a balance of over 70 million Yen. Both of the investor’s properties were foreclosed on in January 2022. Other investors have had their own homes foreclosed on as well in order to cover the over-valued investment loans that had fallen into arrears. 

In May 2021, approximately 50 lawyers formed a legal team for victims of fraudulent whole-building loans issued by Suruga Bank but negotiations have hit a stalemate. 

Source: The Toyo Keizai Shimbun, February 16, 2022.

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