Colorado ‘We Buy Ugly Houses' franchise owner pleads guilty to defrauding investors

Posted at 12:27 PM, Jun 23, 2017
and last updated 2017-06-23 14:27:44-04

COLORADO SPRINGS, Colo. – A woman who ran a franchise affiliated with the “We Buy Ugly Houses” real estate chain has pleaded guilty to wire fraud charges related to her business.

Karen Lynn McClaflin, 58, of Colorado Springs, is charged with one count of wire fraud and one count of engaging in a monetary transaction in property derived from wire fraud.

According to the U.S. Attorney’s Office, McClaflin ran an investment scheme in which she racked up debt buying real estate and used money from investors to keep her business afloat.

McClaflin and a partner first started a “fix and flip” real estate business in 2005 but the company eventually built up so much debt that her partner left and McClaflin started her own company, Homesource Partners Inc.

Investigators say McClaflin sought investors to help Homesource buy homes, which she promised she would sell at a profit. McClaflin told her investors that each home would be financed by an individual investor who would earn an interest rate of 6 to 15 percent.

In the spring of 2011 however, McClaflin started grouping multiple investors on individual properties to the point where the amount invested exceeded the values of the homes, invetigators said.

In some cases, McClaflin even forged investors’ signatures and failed to return the investors’ principals upon sale of the homes, investigators said.

By 2013, Homesource’s debt had ballooned to the point where the interest owed to investors exceeded the profit the company was bringing in and the money from investors was the only thing keeping the business above water.

McClaflin was indicted by a federal grand jury in May. She’ll be sentenced on January 17, 2018.