Another cautionary tale from the whole-building investment scandal that had been targeting novice real estate investors for over a decade. This time, a Fukuoka-based news channel interviewed a government worker that just filed a 290 million Yen (US$2 million) lawsuit against the bank at the center of the scandal.
In 2012, the plaintiff purchased a block of apartments in Osaka for 150 million Yen. The purchase was fully financed through a 4.5% loan from Suruga Bank. When adding in the total interest payments over the entire period of the loan, the total repayment would amount to 260 million Yen.
The buyer was repeatedly assured by the real estate broker that the property had passed the bank’s lending criteria and would never fall below the principal even if there were issues with rental management and operations in the future (this statement from a broker is a red flag).
Just a month after purchase, the new owner was almost immediately hit with 10 move-out notices from tenants vacating the property. The owner complained to the real estate broker, who then suggested that they sublease the property to provide the owner with stable rent. That was fine until the sublease agreement was unilaterally canceled by the real estate broker. This coincided with the sharehouse scandal that saw over 1,250 investors underwater after a sharehouse operator filed for bankruptcy, leaving them with empty and over-leveraged properties. Suruga Bank was at the center of the sharehouse scandal.
About 6 years after purchase, the owner had their block of apartments appraised. Despite Japan’s real estate market seeing consistent annual growth since 2012, the valuation came back at just 90 million Yen.
The owner was worried that they had fallen victim to the so-called Suruga Scheme. After consulting with a lawyer, they discovered that the bank statement submitted to the bank at the time of purchase for loan approval had an additional digit photoshopped in, making the buyer’s savings appear to be almost 9 times as high. The real estate broker admitted to photoshopping the bank statement but said it was at the insistence of the bank loan officer, who had since resigned.
An attempt at mediation failed with the bank refusing that they took part in the fraudulent activity. On August 29, the owner filed a lawsuit with the Fukuoka District Court seeking at least 290 million Yen in damages from the bank.
This isn’t a unique case. On May 25, 2022, approximately 50 lawyers formed a legal team for victims of fraudulent loans issued by Suruga Bank. This is in response to new allegations that the fraudulent lending extends to apartment blocks and condominiums purchased by investors. The legal team alleges that there are as many as 6,900 cases of loan fraud with loans exceeding 440 billion Yen (approx. US$3 billion).
Sources:
Television NishiNippon, August 31, 2022.
The Sankei Shimbun, May 25, 2021.
