How to not get defrauded by a fake private investor?

6 Replies

My name is Mark Fulop I am a  mortgage correspondent lender/ underwriter with about 13 years of experience. 

The main reason why borrowers use a mortgage broker is to ensure that they attain funding from a reputable source . I personally hate using a new lender I prefer to use my list of lenders I have accumulated over the years. 

Recently I started to look into private  lenders. Most people think of private lenders as a nationwide hard money lenders with a rate of 8-13% and 3 points to lender.  Banks, Credit unions, Insurance companies. Bridge loan lenders and big hard money lenders can easily be researched.

No I am speaking about a private citizen who is offering his own money. Rates range from 6-8% 1-5 years. I have heard of people getting cheated by fake private lenders who just take their deposit money. Lower rates are more attractive to borrowers that is the bait.

Well I am currently going through the same thing. i am researching a few private lenders and potentially using one for a loan.

If I recommend a lender and my client gets cheated for even a dollar. 

I not only have to pay my client back  I could  potentially get sued. Therefore, I am super careful because once you lose a good reputation it is hard to get back. PS I have a very good reputation.

Well how can you protect yourself?

Most private lenders will request an upfront deposit of 1% of the loan deposited before releasing the funds.

Here are the steps that will protect you from getting cheated. Look for red flags!!

1. First ask the lender for the his attorney's name and contact information. Also do your due diligence research the company as best you can. Try to use a lender who is at least in the same state. Never use a lender out of the country. If possible go meet he or she in person. Get your own attorney!

2. Have your Attorney suggest the following be written into the contract. The deposit money will be held in escrow and released only when the lender releases his funds first. 

3. Not always necessary but i suggest the money be wired to your bank not the lenders choice of banks.

4. Have your attorney draw up a contract explaining these steps and have both parties sign.

5. If the lender agrees to these steps he is most likely real.

6. If the lender does not have an attorney or needs you to wire the deposit first he will either choke at some point or you will see for yourself that he is not real.

7. Don't be desperate and break the rules above. Most people do careless things and get cheated when they are desperate or acting greedy. If there is a delay when you speak to the person on the phone he is speaking via a router from another country and its a scam. Research the phone number.

If he does not have a web site and does not have a professional email address don't use him.

Another option is to find and use a mortgage broker who has already screened a handful of private and conventional lenders.  I have spoke to a lot of people who have been cheated and there is no reason for it. Just follow my steps to weed out the real lenders.  Mark

thank you for sharing @Mark Fulop

People need to understand not all lenders are legit on BP. They have to do their due diligence and follow advice such as yours. 

thanks for this post.. fake lenders are RAMPANT on BP.. and there is no such thing as private lenders that lend at 5 to 8% unless you know them personally or they are family.. so if you personally think those people exist I think your being hood winked as well.

Also please remember most of the US does NOT USE ATTORNIES for Real estate closings..

so your probably east coast based and that's probably your experience in your neck of the woods.

the reality is. .for 99% of BP folks looking for money .. and they have little or no experience have limited capital IE can't get a loan at their local bank.. then their local HML is the choice they will waste untold amounts of time etc chasing unicorn lenders that do not exist

I would not put 1% (or any other amount) upfront deposit, ever, under any circumstances, with anyone (attorney, title/escrow, etc.) to secure a loan form any lender, private or otherwise.  I promise you, this advice will keep you from getting cheated as well.  I also would not suggest legal language for a contract between parties to a real estate transaction (or any other legal advice about anything) without being an Attorney admitted to practice law in the jurisdiction with which I am giving the legal advice for/in.  To do so is a crime (Unlicensed Practice of Law) and if you really want to mess up a good reputation, get charged with a criminal act.

Your intentions are good here, I know that...but please be careful and not walk yourself into the land of unintended consequences.

Very informative. Thanks for sharing. Good to know.

I've borrowed from a lot of private lenders and never heard of them asking for a deposit. They are lending money to me, not the other way around. They send the money to title. They would have no access to my money even if there was a deposit involved.

@Charlie Fitzgerald   I missed the 1% in the Original post.. and after re reading it seems like an advert LOL... I think for the 1000 th time.. folks should send NO money to any lender up front.. expect for 3p appraisal  and or to run credit.... Now lending home charges 199.00 up front.. however they are a very big and easy to check out company... and they don't charge for doing the valuation on the props or any other fee's so that is fair.

But any private type lender asking for ANY money your 99% of the time going to just give a scammer your hard earned money and never see any loan..

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