Widespread Real Estate Fraud Victimizes TIC Investors

A Tenant in Common (“TIC”) investment is an inherently problematic and risky real estate ownership arrangement in which two or more persons or entities own undivided fractional interests in a single income-producing real property asset, such as a shopping center, hotel, apartment complex or office building. TIC investments often are sold with bad appraisals, overpriced, and structured to enrich sponsors and brokers. Consequently, as the real estate market has declined, TIC investors have seen not only the revenue from their investments dry up, but also completely lost their principal. Equity can be wiped out by foreclosure, refinancing, or reappraisal.

The key benefit of a TIC Interest investment is that, if properly structured, it allows investors to take advantage of a tax-free exchange pursuant to Section 1031 of the Internal Revenue Code (the IRC), by exchanging the proceeds from an investment real property just sold (or to be sold in the near future) for replacement investment real property, thereby deferring income tax liabilities and reinvesting dollars pretax, rather than after-tax.

As a result, real estate investors, particularly retirees, often are targeted for TIC investments, which may seem attractive to these investors because they provide a revenue stream without requiring the investor to engage in the day-to-day property management of their real estate. Decision-making, however, can prove difficult unless all owners are in agreement. In addition, the mortgage of the TIC property often is larger than any single TIC owner can support alone, thereby increasing the likelihood of foreclosure from any cash flow problems that may arise. Investments in such assets usually are illiquid making transfer of an owner’s interest difficult or impossible, particularly in cases of problems with the TICs. Owners of TICs sometimes watch helplessly as their investment becomes worthless without even being able to refinance or sell it.

Brokerage firms and financial professionals may aggressively encourage their clients to pursue TIC investments, because the TIC investment pays very high commission, and is extremely profitable to those who sell it. The drive to make money can compel brokerage firms and financial professionals to ignore fundamental duties to their clients, such as the duty to research and understand an investment, as well as evaluate whether the investment is suitable for a particular client given the client’s investment experience, net worth, risk tolerance, and investment objectives.

Investors who have lost money in a TIC investment can file FINRA arbitration claims against the brokerage firms who sold this high risk, unsuitable investment to them. Investors may be able to sue for damages, while keeping ownership of their TIC investment. Sonn Law Group specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. For example, Sonn Law Group recently achieved a significant recovery for a retired couple targeted by a realtor to invest more than $1 million from the sale of their nursery into a failed TIC. Sonn Law Group has represented numerous investors in FINRA arbitration claims against the brokerage firms who sold illiquid, high-commissioned, non-traded investments, including TICs, REITS, promissory notes, and others, who have filed claims against Investors Capital Corp and NFP Securities, Inc. Sonn Law Group continues to investigate other TIC-related investment claims against other firms and financial advisors.

To learn more, including whether you may have a claim for your TIC investment or other investment losses, please call us at 844-689-5754 or complete our “contact form.”