I need help with a hard money contract that I am about to sign. I need to make sure that it isn't a scam. This particular lender doesn't use collateral for his loan. He uses insurance and there is an insurance fee that I have to pay. Other than that, don't have to pay for anything else, but my monthly fees of course. What do you guys think?
You don't include enough information for anyone here to help you out, except to say that anytime you have to pay a fee in advance to get a HML, the deal stinks worse than 3 day old fish. You didn't mention if the fee is paid in advance, but if it is, then run, don't walk.
@Guy Gimenez Yeaaa, it does have to be paid upfront, which is why I sought help! It sounded weird to me.
I think you now know the answer. You will likely never get funding and your upfront cash will be gone. Again, run, don't walk from this deal.
All credible hard money lenders will require collateral. You will sign a note and mortgage or deed-of-trust, depending upon your state. The only insurance you will be required to buy is a lenders title policy and this will occur at closing.
The common scam I see lately is to require the borrower to pay some sort of up front insurance fee. I don't know what it's supposed to insure (please ask, I'm curious), but there is no such thing. This is nothing more than an up-front fee scam.
Did you find this lender online? Have you actually met him/or her. Do you have any independent references from others you know? Please tell me you didn't send these scoundrels any of your personal credit information, Elizabeth.
@Guy Gimenez Thank you so much sir.
Hi Jeff S Na! I did not give him any credit info or anything. I found him online. He said that the insurance is for protection just incase anything happens.
The protection a lender normally requires is sufficient equity in the property. I have done several HML. Everything goes through a title company. I get 1st lien position. I don't ask for a dime in advance. My profit is made with points added into the loan and the interest it generates. This sounds VERY fishy. Anytime a lender (private) wants funds up front I would be very skeptical. If you were dealing with a brick and mortar bank, that would be different. Be careful. It sounds like a scam and the end result will be you will not get the loan but will be out the fees.
You are getting some good advice on this thread. A lot of red flags here.
Yeah, as soon as you hear "no collateral" you can rest assured its not legit. Its one thing to pay for an appraisal or something prior to a closing, but for the most part all money should change hands through a closing agent for real estate deals.
Just out of curiosity, how much was the "insurance fee"?
Absolutely, great advice from Jeff S Na.
I'm glad you were able to avoid getting scammed!
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