How scammers work in the housing market

Fraud on the Moscow residential real estate market has become so widespread that it became impossible to ignore it further. Recently, the city authorities announced their intention to fight companies that prefer to build financial pyramids instead of housing. For details, we turned to the head of the economic security department of the Moscow government, Alexander Korsak.

– Alexander Borisovich, the number of complaints against unscrupulous developers has exceeded the “critical mass”?

– Unfortunately yes. Recently alone, we have received over 30 complaints from citizens who suffered from co-investment in housing construction. In the actions of some firms that build and sell apartments, signs of building financial pyramids are seen. This problem is already becoming a persistent trend, and urgent measures must be taken to prevent it from becoming even larger..

– What fraudulent mechanisms work in the Moscow housing market?

– There are two categories of unscrupulous organizations.

The first is easier. These are purely fraudulent, essentially illegal, so-called phantom firms..

They have nothing to do with either investment programs or construction in general. All their papers are fake. The houses they show to clients are owned by other companies. And this is Art. 159 of the Criminal Code in its purest form. By the way, recently the capital’s UBEP detained a group of such fraudsters operating under the brand name of the company “Sibur-Invest”. Attracting funds from citizens under very favorable price conditions, they simply deceived them.

It should be noted that any construction in Moscow is carried out on the basis, firstly, of a decree of the Moscow government and, secondly, an investment contract for each specific address, indicating the investor company. These documents are registered and have the appropriate details. Therefore, when buying an apartment, you must first of all make sure that these documents are available..

The second category consists of operating investment companies, which formally remain within the law, and it is very difficult to bring charges against them..

Having won a tender for building a house, such a company attracts citizens as co-investors and collects money from them. And sometimes he tries to take new sites every year, even though the old ones are, at best, only fenced off. Acting according to this scheme, firms accumulate huge amounts of money, and then delay or do not carry out construction at all.

The collected money is “scrolled” for several years, then it can be returned to citizens, but it is clear that in this case people suffer losses. The money is earned on these turnovers colossal.

At the same time, it is very difficult to fight head-on – contracts are drawn up in such a way that they do not stipulate either the deadlines for the completion of construction, or the company’s responsibility for their violation, or the inflationary component. But the developers are perfectly protected by the fact that the signing of contracts was voluntary – no one forced co-investors to put their signatures under the onerous terms of contracts.

– How do you plan to destroy such “pyramids”?

– The analysis shows that there is a very serious gap in the legal consolidation of relations in the process of co-investment.

Until now, many companies have been allowed to work “on the brink” by a legal vacuum.

Since April of this year, a new federal law governing these legal relations has come into force, which should create protective barriers. But the law only defines the principles, general boundaries, and it is necessary to create mechanisms for its implementation..
Such a mechanism, in my opinion, should be a standard co-investment agreement operating in Moscow, with mandatory links to documents (with the details of the Moscow government decree on the allocation of a plot and an investment contract between the city and the investor), with specific terms, with the responsibility of the parties. Probably, it is necessary to provide that co-investment agreements are registered in the same way as the investment contracts themselves. This is being worked on now.

On the other hand, today citizens do not have the opportunity to obtain reliable information about the activities of a particular company..

And therefore, another way to combat unfair business conduct can be the creation of the “Register of business reputation of partners of the Moscow Government”, which will allow cutting off dishonest companies. The decision to create the “Register” is enshrined in the decree of the Moscow government No. 431-PP of June 14, 2005.

The registry should not be viewed as some kind of “black” or “white” list. Rather, it is analogous to a credit bureau..

It will accumulate objective information about the activities of organizations, for example, whether the company paid off the loan on time, whether it always fulfilled its obligations, whether it evaded taxes, etc. Unfortunately, in our country there never existed the possibility of obtaining complete open information information of the FSB and the Ministry of Internal Affairs does not count). At the first stage, the register will satisfy the needs of city structures, but in the future its data should be open to citizens and organizations so that they can be convinced of the business reputation of a particular company.

I would also like to note that when submitting applications for participation in tenders and auctions held by the city, prequalification is carried out, taking into account the fulfillment by firms of their earlier obligations to the city and to citizens.

And now the authors of long-term construction will not be allowed to new competitions until they fulfill their old obligations, which should become a good regulator of this process..

As we move towards a civilized market, the role of image and business reputation will increase, and the fined firms will go out of the way.

– Are you sure of the effectiveness of these measures? Indeed, in response to the new law “On shared construction”, “gray” schemes have already begun to appear. For example, citizens are offered to conclude a preliminary agreement for the sale and purchase of an apartment in the future or the sale and purchase of a promissory note, which can then be exchanged for an apartment. Or mutual funds are placed between the developer and the buyer – and then there is no need for any agreement at all.

– Of course, it is difficult to talk about measures that would completely secure the citizens participating in shared construction. With substantial funds, unscrupulous firms can draw on powerful legal forces to develop new schemes. Fraud has always been a phenomenon. Our task is to limit its scale as much as possible, to protect Muscovites from the actions of fraudsters. Including through broad informing of citizens. After all, the process here is two-sided: on the one hand – the company, on the other – the citizens.

Trustingly signing whatever is offered to you without even consulting a lawyer is like leaving home without locking the door. And it’s time for us to get rid of the “freebie effect”.

The underpriced price should not spur to buy, but alarming – this is the first sign that not everything is clean here. Well, the cost of Moscow apartments cannot be 600-800 dollars per square meter at the current market price of 2-2.5 thousand dollars. Free cheese only comes in a mousetrap.

– And what advice can be given to those citizens who have already suffered by contacting firms “with signs of the pyramid”?

– Try to get your funds back. Including through the court.

Please contact us. Hotline phones: 234-04-00, 631-11-77. We can give an initial legal assessment of the situation.

If there are signs of corpus delicti, we transfer the information to law enforcement agencies. Although the main task of the administration, in contrast to the power structures, is not to fight against the crimes committed, but to work to prevent the crime.

– What violations and specific firms are associated with the citizens’ appeals you have already received?

– I can give examples of how I managed to prevent fraud. So far, only a preliminary decision has been made on the construction of housing on Rublevskoye Highway, but information about the sale of apartments has already appeared. Two offices that advertised in this regard were tracked down and the materials were transferred to the prosecutor’s office. (Fortunately for them, they had not yet managed to sell anything and were able to explain themselves by the fact that they allegedly “carried out monitoring”.) One investor-developer also contacted us, who found on the Internet offers for his house from a completely foreign company.

Currently, the management is considering applications from citizens who have concluded contracts with Remstroyotdel LLC, investor-developer Plastbau-M LLC (51 Sevastopolskiy prospect, Narimanovskaya street, estate 8), with MITA 2000 LLC , investor-developer CJSC “City Development Center GRAD” (Uchinskaya st., 1-9), with the investment corporation “Social Initiative” (Marshal Rokossovsky b-r, owner 5-8). The verification will show the true intentions of these organizations, and we will definitely publish the results.