by Brian Mahany
We have seen many failed TIC investments. For those not familiar with the term, TIC is short for Tenant In Common. This investment strategy has become quite common in recent years. TIC interests allow holders to invest in real estate without the hassle of management. Investors receive a predictable rate of return and special tax advantages. Usually.
Unfortunately, TICs have attracted there fair share of fraudsters and sleazy promoters. Poorly planned projects, inflated values and improper disclosures often lead to heartaches.
By their very nature, most TIC interests are illiquid meaning they cannot be readily sold or traded. They are often structured such that the investment must be held for years. This makes them generally unsuitable for older investors and those that may need immediate access to their cash.
Many of the promoters and stockbrokers who sell these investments fail to adequately explain the risks of TIC investments. Unlike a traditional stock in which your possible loss is limited, TIC investors are subject to cash calls meaning they may be later forced to pay more into their investment instead of getting a return on their investment.
Stockbrokers and others that sell these investments often fail to perform meaningful due diligence before recommending these investments to their clients. Commissions on stock trades are quite low these days as a result of on-line trading companies. The commission on TIC investments, however, is usually quite high. That means the stockbroker always wins, even if the client loses everything.
Stockbrokers and promoters can be held liable, however often the first claimants are the only ones to get paid. We have seen similar real estate investments in companies like DBSI, Provident Royalties and Medical Capital Holdings wipe out entire brokerage firms. Several months ago we reported on a FINRA (Financial Industry Regulatory Authority) panel ordering Cap West, a broker dealer, to pay 40 investors over $9 million.
Unfortunately, Cap West was wiped out by that award. A lawyer for the company told a reporter the company was so broke it didn’t even own an obsolete phone book.
Obviously, the larger broker dealers and promoters are better able to sustain an arbitration award. Still, it is often the first to file a complaint that get paid.
If you lost money to a Tenant In Common scheme, give us a call. Often we can recover your hard earned money from the promoter or others involved in the offering. This includes stockbrokers, investment advisers and real estate “professionals” that sell these investments. Most states say that TIC interests are securities but skillful promoters often fool insurance agents or real estate salespeople into believing they are not securities and can be sold without a securities license.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and Minneapolis, Minnesota. Services available in many jurisdictions.