Purchase group Rom Kinneret collapses

In recent days, purchase group Rom Kinneret has been declared insolvent, leaving behind hundreds of home buyers who do not know if they will see their money, while court hearings revealed that the owner of the company and the Trustee of the buyers have disappeared, with tens of millions of shekels of buyers’ money. As in the Inbal Or and Eldad Perry affairs, there were many warning signs that Rom Kinneret was a problematic company. A must-read for anyone thinking of purchasing an apartment as part of a purchasing group.

There is hardly an Israeli who does not know the names Inbal Or and Eldad Perry. These are two real estate developers who enjoyed several years of dramatic and broadcast success but eventually collapsed – leaving behind hundreds of households that lost their money in deals they made with the companies. Perry’s case ended particularly tragically when two years ago the owner was shot dead by one of the home buyers.


In recent days, a real estate affair has exploded with great ordeal, also related to a failed company. This time it’s Rom Kinneret, owned by an entrepreneur named Ilan Sasson. About a week ago, the court declared the company insolvent, in light of a backlog of debts of nearly NIS 140 million that the company is unable to repay. Although the exposure is still only at the early stages, it already appears that the company’s chances of joining Or and Perry, as a symbol of a real estate company that should have been avoided, are particularly great.

Purchase Groups – high-risk real estate

What the three companies have in common is that they were all engaged in the field of purchase groups. This is a form of purchasing an apartment that until a few years ago was very popular in Israel, but in recent years its regard has declined – not least due to the collapse of Or and Perry. As part of the concept of a purchasing group, a group of buyers unites and executes the project together – from the purchase of the plot, through hiring the services of professionals such as lawyers and architects, to signing the agreement with the construction company. Effectively, buyers are also the developers.

The obvious advantage of this form of purchase is that the developer’s profit is eliminated, the rate of which is 15% to 20% of the apartment price. The obvious disadvantage is that all the risks involved in building a real estate project – and there are quite a few – lie on the shoulders of the buyers, and not on the shoulders of the developer. In addition, since the vast majority of members of purchasing groups lack the knowledge or experience in the management of a real estate venture, the entire project is managed by a company specializing in organizing purchasing groups. Such was the case with purchase group Rom Kinneret, and similarly Or and Perry.

As in any business arena, there are players of higher quality and lower quality in the field of purchasing groups. However, even in a case where the managing company is reputable and considered to be trustworthy, purchasing an apartment as part of a purchase group is still a high-risk transaction`, since unlike buyers of an apartment from a developer, members of purchasing groups are not protected by the Sales Law – a financial guarantee that real estate developers are obligated to provide to apartment buyers by law, protecting all amounts paid to them.

In addition, against the background of multiple provisions, it cannot be denied that the field attracts a large number of daring and unprofessional players, who manage the buyers’ money irresponsibly at best, and fraudulently at worst. The story of purchase group Rom Kinneret, which is beginning to be revealed these days, illustrates this well.

Tens of millions of shekels have disappeared

On August 20, a group of Rom Kinneret employees, as well as representatives of members of a purchasing group for the construction of five towers in Bat Yam as part of the Sea Tower project, petitioned the Tel Aviv District Court to declare Rom Kinneret insolvent and appoint a trustee for its assets. From that moment on, the snowball began to roll, when in the days that followed the request, shocking conduct on the part of the company was exposed in legal proceedings.

First, it was revealed that although the company sold to members of the purchasing groups nothing more than “rights to the land in Bat Yam”, the sales process was accompanied by a presentation of “apartments” to the buyers – including area, number of rooms, floor, and above all – final price and date of occupancy. This conduct characterizes the organizers of purchasing groups of the dangerous kind, which is illegal since when the group members are the developers themselves, no one can promise a final price or date of occupancy. “It is alleged that the company acted as a development company in every respect, yet presented itself as organizing a purchasing group, which exempted it from the obligations of the Sales Law,” the judge wrote in her decision.

But this was not the most serious thing revealed about purchase group Rom Kinneret’s conduct, far from it. During the discussions, it became clear that “in accordance with the contractual agreements, the funds were deposited in the trust account held by Adv. Yehuda Sharon Shmuel, who was appointed as trustee to manage and maintain those funds until the registration of the rights in the land in the name of the rights holders.” The total considerations paid by the participants in Building 4 were NIS 32.94 million at the initial stage, and “a substantial number of sums was also paid by the applicants in Building 5.”

In the days preceding their appeal to the court, when rumors about the company’s predicament began to spread, and there was concern that the money deposited by the purchasers would be used to cover the company’s debts, members of the purchasing group tried to contact the company owner and the trustee, who did not respond to their inquiry: “Both attorney Sharon Shmuel and Sasson have cut off contact and can no longer be reached.”

In their appeal to the court, the buyers demanded that a disposition order be imposed on the trust accounts in which they deposited their money, and this was granted to them. But when representatives of the banks were summoned to court, the bitter truth was revealed – the orders were issued too late and the accounts, which contained tens of millions of shekels of the buyers’ money, had in fact already been completely emptied by the company. As part of those discussions, a trustee was appointed for the assets of the company, which was declared insolvent, but it is unclear, at this time, whether the buyers will ever receive their money back.

Identify frauds in the field of purchase groups

The purchase group Rom Kinneret affair is another warning sign for home buyers seeking to make attractive transactions – even at a high level of risk. Purchase groups are a legitimate form of purchase that may lead to a significant discount on the closing price of the apartment. At the same time, in this area as well, there are protective measures that buyers whose money is dear to them must take.

First of all, it should be understood that entering purchasing groups is in no way buying an apartment from a developer and that any group organizer who presents the project as an entrepreneurial project deserves neither your trust nor your money. The presentation of “apartment plans”, and a commitment to a delivery date or a final price, are all clear signs of fraud when they come from a purchasing group organizer. Unlike a developer who can be sued in case of delay, with a purchasing group, the responsibility lies with the entire group, and therefore, no one can be sued.

Finally, as illustrated in Rom Kinneret’s case, it is necessary to verify through an independent lawyer that the project account is a “closed” account from which funds cannot be withdrawn for any purpose whatsoever, other than promoting project matters. As the days go by, the story of Rom Kinneret is emerging as a horror story for the buyers. Hopefully, this story will be the last.

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The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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