Some former Trump University students claim they didn’t get the real estate education they were promised, and recently received some of their tuition money back. A San Diego judge approved a $25 million dollar settlement for a class-action lawsuit that taught students a different lesson… about understanding what you are paying for.
Trump U was launched in 2005 with seminars promising pearls of wisdom from real estate mogul Donald Trump. The school was owned and operated by “The Trump Organization” — out of the Trump Tower in New York City. Trump himself was also a rising star in Hollywood with his “Apprentice” reality show. It was about a year old at the time.
Students lined up to learn from the master. Trump U was in operation for about five years with a total of about 7,500 students. Most paid about $1,500 for a 3-day course. About a thousand students paid for silver, gold or elite-mentored courses that cost from $10,000 to $35,000.
Many decided they didn’t get their money’s worth. They say they were pressured into paying as much as $35,000 for an education that was more of an infomercial. Some said they could easily find similar instructional material on the internet for free. This is a legal battle that’s been ongoing for years.
Of the 7,500 Trump U students, 3,730 joined the class-action lawsuit and are expected to get about 90% of their money back.
President Donald Trump had vowed to take the case to trial, but agreed to the settlement right after he was elected. He said he didn’t have time for a trial with his new job, and admitted no wrongdoing under the terms of the settlement.
The University had been under fire since the beginning. In 2005, the year it launched, New York officials sent a letter to Trump U saying it was violating state law by using the word “university” in its name. Wikipedia states that Trump U was not an accredited university or college and did not give college credit, grant degrees, or even grade its students.
Trump U apparently responded to those allegations by saying it wouldn’t continue instructing students in New York, but the New York Attorney General claims it did continue. That issue eventually turned into a $40 million dollar civil lawsuit in 2013. In 2014, Trump was found personally liable for operating the school without a license. News stories at the time said that damages would be determined later.
Allegations in the most recent class-action lawsuit accuse the school of misleading students by calling itself a university, and advertising that Trump “hand-picked” the instructors. Students say the seminars lacked content and they claim the handpicked experts had never even met Donald Trump. Apparently, during a deposition, Trump couldn’t remember the names of any of the instructors he had personally screen and hired.
Basically, students say that Trump U didn’t live up to its promise to make their real estate investing dreams come true. Trump says the educational material was not worthless — that students received valuable training.
Who’s right? Well, the court ruled in favor of the students.
Real Estate Guru Scam Traps Are Everywhere
I actually just recently met a young woman who had been to a real estate event similar to Trump U.
I met her at one of the meals on an investor cruise I attended called Summit at Sea (where I had the great honor of speaking on the same stage as Robert Kiyosaki, Peter Schiff and G. Edward Griffin, along with about 20 other fantastic speakers).
She told me that when she was just out of college, she had no savings, but plenty of student debt. She attended a real estate seminar where they urged students to get new credit cards so they could sign up on the spot for $35,000 worth of real estate training. The speaker justified the expense by saying they would earn her money back from the education.
Unfortunately, the opposite happened. The interest rate was 25%, and the debt on her credit card only increased. She says she owed so much money she had to move back in with her parents.
Another Example of Fraud
There’s another headline in the news from a few days ago — that a Flint, Michigan pastor and his business associate allegedly swindled millions of dollars from church members for a real estate investment opportunity.
According to HousingWire and the SEC, Larry Holley of the Abundant Life Ministries used “faith-based rhetoric” to convince people to put money into his project. The SEC says he told members of his flock that he was a person who prayed for their children and that he was more trustworthy than a banker.
Prospective investors filled out cards with details about their financial holdings. Holley said he would pray over those cards and that investors would meet personally with members of his team. He called them “millionaires in the making”.
The SEC also says his associate Patricia Gray advertised the investment opportunity on a religious radio station. She apparently snagged some laid-off autoworkers with money from severance packages.
Holley and Gray raised about $6.7 million dollars from more than 80 investors. They were told they were investing in a profitable company with hundreds of commercial and residential properties that would earn them high returns. The SEC says the company Treasure Enterprise LLC struggled to produce those returns, and owes investors almost $2 million in back payments.
Long story short, investor fraud scams are everywhere. So how do you make sure you don’t end up with the short end of the stick?
How to Protect Yourself from Fraudulent Real Estate Guru Programs
Start by looking for the obvious red flags. Trump University was not a real university.
Ask questions when you meet with the handpicked expert, about his or her background, education, qualifications, and the interview with Trump that got him the job.
Talk to any former students about class content. Ask for student success stories. Be curious. It will get you some answers to make a more informed decision.
In the case of the faithful followers of the Abundant Life Ministries, that’s a tough one. The whole point of going to church is to have “faith”. That may be good for God, but when it comes to your hard-earned money, put faith aside and take a close look at the numbers.
Maybe it’s a case of meeting with a promised advisor “before” you offer details about your finances. Find out about his or her credentials. And, find out about those properties. Visit some of them. Ask to see financial statements for the company.
[intense_content_section size=”partial” background_type=”color” background_color=”#f0f0f0″ padding_left=”25″ padding_right=”25″]The Washington Post has a list of recommendations to protect yourself from shady home flippers. Some of the suggestions pertain to any kind of real estate deal:
- First, vet the person leading the deal. Ask for a portfolio of projects they’ve already completed. Find out if there’s a project underway and whether you can visit the property. Go back to the property several times and watch the progress. The Washington Post also says: “Ask a lot of questions”. If you don’t know what questions to ask, bring someone who does.
- Second, never give someone unsecured money. Make sure it’s secured with a claim to the property, such as a mortgage or a deed of trust. A group from Silicon Valley called Bay Area Equity Group was charged with 3.5 million dollars in fraud back in 2013. Apparently they were selling one property 2 or 3 times and the buyers never bothered to see if they were indeed on the title.
- Third, hire an attorney, which you will probably need to register the deed of trust. Have the attorney look at the agreement.
- Fourth, find out who will be doing all that renovation work. If the flippers are doing the work themselves, find out if they are qualified and licensed to do the work.
- Fifth, check on the estimated costs. If a flipper underestimates the costs, the extra money will come out of investor pockets. You may need to get an outside bid to verify that cost estimates are accurate.
- Sixth, find out if the flipper is getting any mandatory inspections as the work progresses. Make sure all the work is permitted.[/intense_content_section]
As the Washington Post writes, and I wholeheartedly agree, “you have to do your due diligence.” It says: “Real estate is lucrative, exciting and fulfilling, but make sure you know what you’re getting into before you take the plunge. Trust no one and verify everything.”
At Real Wealth Network, we vet companies who claim to be turnkey income property providers. Unfortunately, 9 out of 10 do not meet our standards. And those that do meet our requirements still need to be closely monitored.
Buyers should always get an inspection and an appraisal by a third party to make sure they are getting what they expect. It’s also helpful to verify potential rental rates by calling nearby landlords and asking what they are charging for rent.
I’ve been in real estate for 20 years now and I am still shocked at the number of scam artists attracted to this industry. They tend to be attracted to most financial industries… so “buyer beware”. It’s your hard earned money, so don’t you think it’s worth taking the time to understand where you’re investing it?
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