Top 3 Scams in Hard Money Loans

Top 3 Scams in Hard Money Loans

Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes

From a fall article in the Scotsman Guide, the popular topic of loans scams in hard money is a conflictive one, particular for those who have been the victim of one. Loan scams are a huge problem in hard money loans for many reasons, too many to outline here in this discussion. What are the top 3 scams found in the arena of bridge lending?

First of all, a hard money loan, is any non-bank loan, whether it be a private individual, an organized fund, a mortgage pool, mortgage broker, etc. Loans scams in this financing niche are a problem, as I said, and the top 3 scams found most prevalently include:

1.Fees paid prior to closing a loan: Also called upfront fees, there are a lot of fake lenders who pretend to be funding loans but instead are having borrowers pay upfront fees. Ever seen the movie, ‘American Hustle?’ This is an example of an upfront fee loan scam.

2.Identity theft: This is another common loan scam whereby a group or individual will gather personal identifying information from a borrower, in order to steal his or her identity.

3.Bait and Switch: In this scam a legitimate lender provides terms to a borrower but then changes the loan terms right before closing.

To learn how to avoid the most common scams in hard money lending, read the entire article on Scotsman Guide at the link below.

What other scams are you seeing in hard money these days? Please share your insights below and comment on this discussion.

(Article Source: http://www.scotsmanguide.com/Commercial/Articles/2014/09/Avoid-Bridge-Lending-Traps/)

4Reply
116 views

Most Popular Reply

Raleigh, NC · Member since 2014 · 125 posts · 37 votes
11y

Origination fees are legit but should be rolled into the loan after its approved and are paid at closing.

If the deal doesn't close no origination fees are due.

See this reply in the discussion

30 Replies

Jump to latestLatest
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    10y

    I've definitely seen 1 and 3. Haven't seen (or even heard of) number 2 happening, although I'm sure it has. Finance has a lot of scams in it unfortunately.

  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y

    Corey, please reread my post.  I stated that the vetting done by Scotsman Guide eliminates 95% of the brokers that disguise themselves as lenders.  5% still slip through, as you mentioned, by being lender on only a few loans.  The issue of upfront fees is actually a separate, though related issue as to the issue of brokers disguising themselves as lenders.

    Direct lenders or brokers both can collect large non refundable fees upfront that are earned whether or not a loan is consummated.  The issue for me is reasonable fees.  A fee going to a third party such as appraisal, title search, legal doc prep, environmental study, should be spelled out by the lender and expected by the borrower.  If the lender is collecting a fee for due diligence, commitment, travel, underwriting etc. the borrower needs to understand that he may not get the loan.  If this fee is large, then the borrower needs to be aware that the lender may make his money by collecting fees, not making loans.  Here is a list of fees I consider reasonable

    1. Appraisal residential - $500 - $700

    2. Appraisal commercial - $1750 - $4500

    3. Environmental Screen - $350 - $700

    4. Phase 1 Environmental - $2000 - $3000

    5. Legal Doc Prep Residential $750 - $1000

    6. Legal Doc Prep Commercial $1000 - $1500

    7. Commitment Fee to broker - $0

    8. Commitment Fee to Lender - $0 - $2000

    If loan is difficult the borrower may want to consider paying a well connected mortgage broker on an hourly basis to attempt to secure a lender which amount can be deducted from the origination points if the broker is successful in obtaining a loan.  Difficult loans require significant amount of work by the mortgage broker for what is realistically a low probability of getting paid.  

    Private Mortgage Financing Partners, LLC
  • Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    10y

    Thanks Don for clarifying this. 

Join the conversationCreate a free account to reply, vote on answers and follow this thread.