The guilty plea of a former franchise owner of We Buy Ugly Houses has prompted the company to issue a statement condemning the real estate fraud.
Karen Lynn McClaflin and a partner opened an ugly houses franchise in late 2005. The venture was named Trademark Properties and Trademark Reality.
The Colorado Springs, Colorado, business
used investor money to purchase and renovate distressed homes. They would resell those properties at a profit.
But, according to a statement from the Department of Justice, the venture was accumulating debt — so much so that
McClaflin’s partner declared bankruptcy in 2011. The partnership was terminated.
McClaflin transitioned to Homesource Partners Inc., another company with the same “fix and flip” business model as Trademark. From 2010 until March 2017, she ran the organization and sought investors.
Homesource sought investor financing because it couldn’t use traditional bank loans which took too long. Plus, some distressed homes might not qualify as collateral for traditional financing.
But the government claims McClaflin began having multiple investors invest in the same properties starting in March 2011. She allegedly placed multiple deeds of trusts on the same properties and did not record all the deeds as promised.
Sometimes when properties were sold, she didn’t tell investors so she could retain the principal.
Investors, meanwhile, were each promised a first deed of trust.
McClaflin maintained the house of cards through a Ponzi-like scheme, seeking
additional investments so she could keep making interest payments owed to earlier investors.
At the same time, investor’s equity was wiped out from the multiple liens.
In the announcement, the Justice Department
said McClaflin was charged on May 17 by an information filing after waiving her right to be indicted by a federal grand jury.
On June 21,
McClaflin pled guilty to one count of wire fraud and one count of engaging in a monetary transaction in property derived from wire fraud.
She is scheduled for sentencing on Jan. 17, 2018.
A statement
Monday from the operator of the We Buy Ugly Houses franchise, HomeVestors of America, condemned the fraud and said McClaflin’s franchise ended in 2011.
David Hicks, HomeVestors co-president, said in the statement that the guilty plea compelled the company “to remind our franchises of our zero-tolerance policy towards this kind of unprincipled activity.”
HomeVestors warned buyers to be wary of prices that are more than the asking prices,
transactions involving straw buyers and appraisals that are fraudulent.
“It is always better to lose the deal than to participate in lender fraud, even innocently,” Hicks added.
