How Do I Know If This Hardmoney Lender is Scamming Me?

20 Replies

Hi BP,

I am about to purchase a property in two weeks through a so- called national hard money lender called "Lonestar Hardmoney" ... Their website is lonestarhardmoney.com. I became skeptical when they would only use one appraisal company: Appraisal Commercial, Inc.  (appraisalcommercial.com) and their website looked similar to LoneStars... The appraiser was also willing to bring down the cost of the appraisal by $500 within an hour which seemed weird to me. Is it possible that I am paying the appraiser $2,500 for the appraisal, and that even if the "appraisal" comes in fine, that lonestar is going to find another reason to deny me the loan and keep my money? How do I check is this process is legitimate?

The real scam is paying $2500 for a SFR appraisal.

We pay less than that to order large commercial asset and business valuations.

Your BS meter is correct I think

I am sorry you are unsure of them. I have no dealings with them, go to the BBB in their area and see if they are listed. Also just google them.   I think the appraiser is too high.

Check their state database to see if they are licensed. A five unit is commercial and will typically cost more. If will be appraised on an income basis rather than a comparable sale basis. 

Since it is a 5-unit I can't really say regarding price. 

We require all appraisals to be paid by borrower. They pay the appraisal management company directly. There is no money that goes our way from this transaction. The AMC's we use are large well-known companies.

AMC appraisals tend to be about a hundred dollars more (roughly), since they go through the AMC's review process as well. 

I always tread carefully, but I do believe 5+ unit appraisals are more expensive than 1-4 unit. This is because they are now commercial property and there is a different type of appraiser license required for commercial properties.

Originally posted by @James Gleeson :

Hi BP,

I am about to purchase a property in two weeks through a so- called national hard money lender called "Lonestar Hardmoney" ... Their website is lonestarhardmoney.com. I became skeptical when they would only use one appraisal company: Appraisal Commercial, Inc.  (appraisalcommercial.com) and their website looked similar to LoneStars... The appraiser was also willing to bring down the cost of the appraisal by $500 within an hour which seemed weird to me. Is it possible that I am paying the appraiser $2,500 for the appraisal, and that even if the "appraisal" comes in fine, that lonestar is going to find another reason to deny me the loan and keep my money? How do I check is this process is legitimate?

 
SCAM - no one requires cash up front every HML has a set of standards they use before starting your loan application process.


How much are you trying to fund 100k?

If you have a decent credit score and income with verfiable history you can use the newer lenders (SOFI,Earnest,Lighstream,etc...).

They usually charge $0 in fees with 3,5,7 year terms (8-12% interest rates).

https://www.biggerpockets.com/forums/50/topics/524797-100-000-unsecured-personal-loan-with-sofi

@James Gleeson I recently had a commercial appraisal done by local appraisers on a six unit (three apartments, three commercial) with quotes come in for $2,000 and $3,000 booking three weeks from the quote date.  I've also had a six unit apartment building where a bank waived a commercial appraisal and had a cheaper commercial valuation done for a cost around $1,000 (due to a fairly small loan amount of just under $250K).  At least in my market that's not terribly far off for commercial appraisals.  I don't know if that's the case everywhere.  

Originally posted by @James Gleeson :

@Elvis Vasquez I did not give the HML money up front... The $2,500 was for the appraisal

 you know if this was five years ago I would question that rate but appraisals just like many sub contractors have dramatically raised their rates.. but I would want to know that the lender is capable of funding.. As the appraisal probably is would not be able to be used for another lender if this one did not come through.. 

and of course goes without saying do not pay lender up front at all.. other than credit report or a modest 100.00 type app fee.

I am not familiar with this lender .. so no way of knowing that's up to you to verify.

This does not seem consistent with anything I have seen.  I represent quite a few hard money lenders and while they do at times charge for underwriting, candidly, they don’t even need an appraisal. Even if one is secured that price seems staggeringly high and I live in South Florida.  I think you are right to be concerned. There are certainly lenders that are in it for the up front fees.  The only basis upon which I could understand the logic of a national appraisal company costing more (not that I agree with it) is that they are farming it out to an on the ground appraiser and everyone gets a piece.  I don’t know anything about these folks you are referring to but I would urge you to proceed with caution if at all.

The above is for informational purposes only and is not intended as legal advice.  

Originally posted by @Eric Jacobs :

This does not seem consistent with anything I have seen.  I represent quite a few hard money lenders and while they do at times charge for underwriting, candidly, they don’t even need an appraisal. Even if one is secured that price seems staggeringly high and I live in South Florida.  I think you are right to be concerned. There are certainly lenders that are in it for the up front fees.  The only basis upon which I could understand the logic of a national appraisal company costing more (not that I agree with it) is that they are farming it out to an on the ground appraiser and everyone gets a piece.  I don’t know anything about these folks you are referring to but I would urge you to proceed with caution if at all.

The above is for informational purposes only and is not intended as legal advice.  

in the recession when appraisers like everyone else were hurting I was getting mine done at my commercial bank for 350 to 450.

this last year they have been 750 for the same vanilla SFR construction loan.. about as simple as one can be..

Now I did get my bank to allow me to just =appraise by the plan and we only had 4 plans in 23 homes so I only had to pay 4 times. 

I am doing a MAI right now on a 90 lot project for a  A and D loan in the 10 mil range.. I will report back what that costs. again when I did A n d on these last two communities I built the appraisals were 5k each..  and those are just dirt appraisals.  I suspect this one is going to be between 5 and 10k.   I have never done one on a multi family so I don't know.. I have done them on MHP s I bought but same thing 2500 to 5k each.. so I don't know.. just did not sound to out of wac given what I am seeing today.

my greater concern for most of the BP borrowers using the new crop of HML is veracity of said lender and ability to fund. Are they brokers or lending their own dough makes a huge difference..

and there are some good national to semi national ones out there like.. Lending home  Lending one  Visio  and Lima one all of those perform I know that I have either borrowed from them or clients of mine have used them to pay me off.

At a glance, IMO a $2500 appraisal is like a 100% LTV, no credit check, on cash down...each are ridiculous and most likely a sour deal. In addition, to be able to simply adjust it by $500 makes it look as if they alleviated costs in one area but added it to the appraisal.

We at Sherman Bridge charge approximately $550 which is non negotiable and I don't recall anyone every trying to do so.

Check if they are a DIRECT lender and usually working with a local lender if possible.  2500 for an appraisal should be a very large commercial loan and not a 1-4 family fix and flip.  It is quite pricey if not.

Hi @James Gleeson , just going with the information you provided and without know too much about the deal and the location I would lean towards being cautious. With regards to the appraisal amount, when it comes to commercial appraisals we've seen them range anywhere from $1,000 to $5,000 depending on size, location, type, etc. With regards to residential units, we typically see a range of $400 to $550 in our serviceable areas of VA, DC, MD, DE, NC, and SC.

Appraisal fees vary by location, but $2,500 is about as low as any certified general appraiser will go these days. You are dealing with a completely different market for the professional. Appraising a five unit is not significantly less work than a larger project. Investing in the 5-10 unit range lacks economies of scale but you are still dealing with all the same professionals that work much larger deals. These added costs tend to put downward pressure on the sales prices of 5+ compared to 2-4 unit properties. So if you are buying right it should come out in the wash. Additionally, Appraisal Commercial Inc. is a national commercial AMC. Someone mentioned you won't be able to use the appraisal if the lender can't fund, this isn't necessarily true, as you are not dealing with federally regulated lenders. It is the lender's choice to even require an appraisal for private money loans.