Working My Way Through Potential Fraud - Bad Lend

11 Replies

Good morning all,

I have been doing gap lending for a few years to a fairly local LLC. They did a few successful flips and paid me according to the contract we drafted, which was good.

I have two houses I lent for (promissory note, unsecured) that are in breach of contract and have sold but I have not been paid. The group is ignoring my requests for more granular information on the flips, and the stuff they sent me originally is flat out wrong (even the amount I lent). They also have refused to meet me in person.


I write today to gather as much advice as possible. Looking back, I wouldn't lend without securing the loan, but I was 18 at the time I started this. The total is about $50,000.


I appreciate any help you can lend. Thank you.

Originally posted by @Thomas S. :

Good morning all,

I have been doing gap lending for a few years to a fairly local LLC. They did a few successful flips and paid me according to the contract we drafted, which was good.

I have two houses I lent for (promissory note, unsecured) that are in breach of contract and have sold but I have not been paid. The group is ignoring my requests for more granular information on the flips, and the stuff they sent me originally is flat out wrong (even the amount I lent). They also have refused to meet me in person.


I write today to gather as much advice as possible. Looking back, I wouldn't lend without securing the loan, but I was 18 at the time I started this. The total is about $50,000.


I appreciate any help you can lend. Thank you.

 At this time you have an attorney write them a letter demanding payment. You will have to show the promissory note to the attorney. This one isn't going to resolve itself if they are ignoring you. 

The key is to find out if a Deed has been recorded showing ownership has changed hands. Your course of action is dependent on it.

Verify when the property sold and the Deed was recorded. If a Deed has been recorded, you can contact the buyers. I'd drop by the house, and congratulate the new owners and ask them if they have heard from the people you lent the money to and that they bought the house from. Ask how to get a hold of them. Then I would tell them that there is a likely debt against the house that they may end up being liable for and ask if they are willing to assist you. Then I would contact the closing company and ask about filing a claim against the Title Insurance.

If the property has not yet been recorded as a new sale, I'd file a memorandum of lien on the property. This gets a little tricky if the promissory note doesn't specifically mention the property because you are "clouding title". That is pretty serious. But, if it is warranted, that is what you do.

I suspect you could file it against whoever is listed on the promissory note and have the same effect, however, they may have borrowed in a name unrelated to the ownership of the property.

Account Closed Of course he would Have no claim against the new owners/property since there was no mtg, I assume you meant this as a bluff, to help find the borrowers, but I suspect Finding them is not the problem. 

And, no title insurance claim since there was no mtg to find/resolve. 

Originally posted by @Wayne Brooks :

@Mike M. Of course he would Have no claim against the new owners/property since there was no mtg, I assume you meant this as a bluff, to help find the borrowers, but I suspect Finding them is not the problem. 

And, no title insurance claim since there was no mtg to find/resolve. 

 Hmmm, I'm not sure you've seen how the promissory note was written or how title has been vested. Anyway, in a lawsuit, ALL parties involved get named. Been there done that. It gets people's attention pretty quickly. ;-) It gets long and tedious but by involving title insurance it raises a LOT of dust.

Since we don't know the state or the jurisdiction and we haven't seen the promissory note and we don't know for sure that the property deed has actually been recorded, it requires an attorney to sort this one out anyway.

This is a dispute between lender and borrower. Period.

Suing the new owner and/or involving a title insurer (there is no insured in this scenario that can make a title claim) is a waste of resources.

Lesson learned = unsecured loans by definition have no security. At least add a confession of judgment provision to the note if you're going to lend like this.

Account Closed Yeah, I’ve been there done that too....spent almost $60k chasing $19k, came out okay in the end though. But in this case, it doesn’t really mattter what’s in the promissory note.....there is no mtg/deed of trust securing the property...the new owner and title co. are off the hook with one hearing, if that, since Nothing was recorded in the public records securing the note.

Originally posted by @Tom Gimer :

This is a dispute between lender and borrower. Period.

Suing the new owner and/or involving a title insurer (there is no insured in this scenario that can make a title claim) is a waste of resources.

Lesson learned = unsecured loans by definition have no security. At least add a confession of judgment provision to the note if you're going to lend like this.

 Your Comment: "This is a dispute between lender and borrower. Period."

That actually depends . . .

If he thinks it has sold but is only in escrow, it makes a heck of a difference. I can file a memorandum of lien prior to recording and stop the whole thing. The Title company will want to know why I filed it. That gets the conversation started and stops the closing long enough to get an attorney involved.  It isn't an "eloquent" solution, but it works.

Wow, this is a GREAT community, thank you for all of the amazing input.

Account Closed - You're absolutely right on lesson learnt. I still have fight in me however. These guys are giving me fraudulent numbers and lying about payouts on their Excel doc. They are also refusing to respond when inquiring about these numbers. I am in Massachusetts if that helps at all. I've talked to a few good lawyers but am not 100% with any yet. Working on starting a family and buying a house myself so I've been trying to remain strategic in timing. 

I appreciate everyone's help so far. Thank you kindly.

Also, if I missed any 

@Thomas S. Well, at least your note provides for recovery of attorneys fees and costs. You should be able to find a collection attorney willing to take this on. If it came to litigation, he or she would likely sue the LLC members individually as well as the LLC itself regardless of the fact that the note was from the entity. If you are able to get judgments against the individuals you can likely attach their homes and garnish their paychecks. Good luck.