How Do I Know If I’m at Risk of Being Defrauded When Buying a Pre-Construction Property in the Dominican Republic?

Buyers often ask me this question, so here’s an article with essential details to help you make informed decisions when buying your next property in the Dominican Republic.

The real estate market in the Dominican Republic, while full of opportunities, is like any other market in the world. Without a professional broker and proper due diligence, purchases can result in financial losses. One of the main challenges that investors face in any real estate transaction is FRAUD—projects not getting delivered as promised or not delivered at all.

In this article, I will discuss how some of these problems occur, common reasons why projects do not get delivered, and how to protect yourself from these types of real estate transactions.

Common Reasons for Project Delays or Non-Delivery:

1. Poor Management / Cash Flow: Financial problems on the developer’s end, although not necessarily fraud, are a top reason why projects are delayed or not delivered as promised. Developers may fall short on cash flow, leading to prolonged delays and failure to meet delivery dates or promised finishes.
2. Ghost Projects: These are scams involving the sale of properties in projects that don’t exist. These exist solely to defraud buyers. Unscrupulous criminals pose as prominent developers, luring buyers with attractive prices and promises of high profitability, then disappear after scamming numerous investors.
3. Double Sale: This scam occurs when a realtor sells the same property to multiple buyers.
4. Falsification of Documents: Developers alter legal documents, such as property titles and construction permits, to validate the legitimacy of the project and promote it to potential investors.
5. Funding Problems: Developers often borrow money from financial institutions, leaving the title or deed as collateral. Issues arise when they cannot meet payments, resulting in the bank taking ownership of the project.

Protecting Yourself with Fiduciary Trust Funds

The main purpose of “Fiduciary Trust Funds” is to help prevent and control some of these issues. A fiduciary trust fund is a legal tool offering additional security and controls for parties involved in a pre-construction sale.

Managed by a financial entity, it involves a trustor (usually the developer) transferring ownership of the land and resources to a trustee (a financial entity), who manages them for the benefit of the trustees (the buyers). This mechanism provides transparency and protection of buyers’ funds. However, it is not infallible.

Possible Issues with Fiduciary Trust Funds:

• Diversion of Funds: Although trustees must manage funds transparently, they can sometimes divert funds to other projects or for personal use.
• Inaccurate Information: Developers may provide false or incomplete information to the trust fund entity, which might not perform proper due diligence.
• Collusion: In rare cases, trustees may collude with developers to participate in fraud schemes by falsifying reports and documents.

How to Protect Yourself from Real Estate Fraud

The number one step is to hire a reputable broker or agent to represent you. As your real estate agent, our main role is to be the intermediary between all parties in the transaction, including clients, developers, and fiduciary account institutions.

How We Help You:

• Extensive Due Diligence: We thoroughly investigate developers before promoting pre-construction projects.
• Proven Track Records: We work with developers who have a proven track record and prefer projects with fiduciary trust funds.
• Background Checks: We provide detailed histories of developers, including previous completed projects. While a good track record doesn’t guarantee no problems, it often predicts future behavior.
• Documentation Review: Our legal team reviews all documents to ensure they are in order.
• Trust Fund Verification: We confirm the financial entity managing the trust fund is registered and regulated by local authorities.
• Clear and Detailed Contracts: We ensure all contracts are clear, detailed, and include necessary clauses to protect our clients’ interests, such as delivery dates, penalties for delays, and construction guarantees.
• Constant Monitoring: We regularly visit construction sites and stay in touch with our clients to share updates and concerns.

Our goal is to provide clients with as much information as possible so they can make informed decisions. This article is for reference and informational purposes only.

Contact us to learn more about our pre-construction projects. As your Realtor, we aim to help you find your dream home and make this an amazing experience.

Author: Adys Sánchez, Realtor