It sounded good to so many people. They thought they’d receive a great return on their investment. That’s what the former owner of the “We Buy Ugly Houses” franchise — Karen McClaflin, age 58 — wanted them to believe. But this week in court, she admitted to misleading investors, misusing their money, and even forging signatures on Deeds.
Turns out she was running a real estate Ponzi scheme with fraudulent activity going all the way back to the boom year of 2005. I recall hearing about it as a “clever and effective advertising strategy” at a conference for mortgage and real estate professionals.
McClaflin and a partner opened a franchise of “We Buy Ugly Houses” and called it Trademark Properties and Trademark Realty in Colorado Springs. In 2011, when they ran up excessive debt, the partner bailed out and declared bankruptcy. McClaflin, however, wanted to continue to milk the cash cow. She opened a new “fix and flip” business called Homesource Partners, transferring the former investors to this new business.
She told her investors that some of the houses were too ugly for banks to lend on, and besides, the banks took too long. She claimed she was purchasing these eye sores at a great value and in only 31 to 90 days, the homes would be rented or resold at a handsome profit.
But alas, it was too good to be true. This smooth-talking shark knowingly and intentionally misused money by signing multiple investors to the same property, chose not to record all of the Deeds, sometimes didn’t tell investors when “their” property sold, and even forged signatures.
In the end, she used new investors’ money to pay older investors: the definition of a Ponzi scheme.
Karen McClaflin is scheduled to be sentenced on January 17, 2018.
For complete story, see U.S. Dept of Justice page here.