Legal Questions for Hard Money Lenders
Property Manager · Summerville, SC · Member since 2010 · 7 posts · 0 votes
Legal Questions for Hard Money Lenders
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15yI am so tired of hearing people getting screwed by these people.
6,500 on a 160k purchase price is outrageous.A residential appraisal should cost about 300 to 400 bucks at market value for most hard money purchases unless it is a really big house.
Now commercial appraisals DO run about 3,000 to 5,000 dollars depending on the asset type and size.
The New York company sounds like they don't want to tie up there money just collect the fee.
Unfortunately I know of another situation on a commercial loan where a few hundred k is involved.This lender change the loan programs on their website 6 times in the last 4 months.
The FBI,attorney general,and a whole bunch of other parties are investigating this lender and going after them.
This lender has been in business for over 7 years and they have a bunch of connections.When a lender holds a large due diligence fee they have little motivation
to finish your file to get paid.
If you talk to commercial investors who have completed a bunch of deals they will NEVER EVER pay upfront fees.They tell the lender to go spin.
If the lender you pay upfront fees too wants to do your loan and even if you pay due diligence fees the lender will sometimes drag their feet.
The reason is they might have 10 of the 20 million dollar loans they are making more money on the points on and then they will get around to your little loan later.
You don't know their escrow company and it could be a shell corp and they are in it together.
Tell the lender you will have YOUR ATTORNEY hold funds in escrow.Your attorney will pay the appraiser directly the fee after they have been vetted.
Lenders who have nothing to hide-hide nothing.If they are full of BS you will here a bunch of excuses as to why you can't do this.
I just don't know how these people can go to sleep at night knowing they do these things to people.
12 Replies
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
You should just post the questions... then BP Nation can have a chance to answer them. You can always go to a SC attorney foir answers but for sure the general questions that we can answer for you here will save you time/money when you talk to an attorney.
- Property Manager · Summerville, SC · Member since 2010 · 7 posts · 0 votes15y
OK here is the situation. I was working with a lender out of New York. They gave me a preapproval for a deal is was looking to do. They requested a due diligence deposit of 6500. I didn't think much of this because another company I had looked at wanted 7K. Once I submitted the deposit an appraisal was ordered. We needed it to come in at 160, but it came in at 130. I went back to the seller and renegotiated the deal and reworked my repair estimate. When I submitted this info to the lender he said that the changes I made to the repair estimate would lower the value of the finished product by another 30k even though most of my savings would come from doing work nyself.
At this point I told the lender that we couldn't do a deal and requested my deposit back less the appraisal cost. A week later I received a statement of what I would get back and it showed that I would only receive 1k from the deposit.
Per the statement I was charged 3500 for an underwriting fee (for a loan that wasn't made.), 650 as an evaluation fee, and the kicker, 1600 for a site visit. By the way, no site visit was ever done.
Here are my questions. I plan on suing them to get my money back.
1. Does anyone regulate hard money lenders?
2. Are they required to be licensed?
3. Can I be charged an underwriting fee for a loan that didn't fund?Any suggestions? Unfortunately after I sent them my money is did more research on the company and found they have a reputation for doing this. I also didn't find their name listed with and licensing agencies. Let me know what you think.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
You could lodge a complaint with your state attorney general and/or your Office of the Commissioner of Banking. You may have some support from these SC offices if, for instance, the NY company isn't registered as a foreign (to SC) entity with the secretary of state. I don't know SC law, but some AG offices are more aggressive than others in addressing consumer protection cases/complaints.
My guess is that you are probably screwed with little recourse... but I am not an attorney. Contacting the above SC resources will just cost you some time and energy... and may make your decision on if you should go forward with legal action a little easier. My 2 cents.
Ok, sounds like you got ripped off.
I've used a hard money lender regularly and the notion of putting a hefty deposit just seems rather odd since I've never been asked to do so before.
Also, in the future, it might help to deposit the money into a third party escrow account with a legitimate title/escrow company to avoid similar problems. And if the "lender" disagrees, then time to move on to a new lender.
Also, most of the hard money lenders that I work with are licensed (here in CA, they hold a license from the Department of Real Estate). I would hope that it is the same or similar states as well.
- Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes15y
There are several "hard money lenders" in NY who make a business from the deposits, not the loans. Sounds like you found one of them.
To your question - most hard money lenders are not licensed, because most of the reputable ones work with real estate investors who run a business. In order to lend to individuals, under the new SAFE act, they must be licensed. Licensing includes requirements such as working as a loan originator doing residential lending for 5 years, or other requirements particular to a state. Therefore, most "national hard money lenders" lend to companies only. Even local hard money lenders follow that protocal. So you will likely find that they are not licensed.
You can file a complaint with the Attorney general of your state or the Banking Commission, as Chris says. But is is likely that the cost of recouping your loss will exceed the loss. Therefore, you are probably screwed, in a practical sense.
Going forward:
1. Always google a person or company, to find the complaints before you plunk down your money
2. Ask around at the local REIA or your other real estate investing buddies (you now have a bunch of them on Bigger Pockets) for references to local hard money lenders
3. It is not unusual to have SOME up front fees. In my case, we charge a deposit ($1000) for the attorney and title work. If you don't close, someone has to pay for that work, so the fees are applied to that. You get anything back that isn't used. - Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes15y
Yes- you should have checked them before paying deposit. Get a local attorney with RE
Lending experience and ask them to write them a letter for refund of underwriting fees.
May cost $500 --
Hard to trust many NY Lenders. I do Commercial Mortgages . Have had a bad
person in NY. One jewis Doctor - claimed to
be lender. One of my client sent $20,000
due deligence deposit ( against my advise
not to send) and he lost. However, after 12
months I received a letter from NY State Court
that they were investigating Frauds by this
so called Lender and eventually he is in Jail now. Yes- file a complaint to Better Business Bureau and Chamber of Commerce in NY as well as with the State of New York Licensing etc. Once they get enough Compaints --they
will investigate and shut him down. - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
I am so tired of hearing people getting screwed by these people.
6,500 on a 160k purchase price is outrageous.A residential appraisal should cost about 300 to 400 bucks at market value for most hard money purchases unless it is a really big house.
Now commercial appraisals DO run about 3,000 to 5,000 dollars depending on the asset type and size.
The New York company sounds like they don't want to tie up there money just collect the fee.
Unfortunately I know of another situation on a commercial loan where a few hundred k is involved.This lender change the loan programs on their website 6 times in the last 4 months.
The FBI,attorney general,and a whole bunch of other parties are investigating this lender and going after them.
This lender has been in business for over 7 years and they have a bunch of connections.When a lender holds a large due diligence fee they have little motivation
to finish your file to get paid.If you talk to commercial investors who have completed a bunch of deals they will NEVER EVER pay upfront fees.They tell the lender to go spin.
If the lender you pay upfront fees too wants to do your loan and even if you pay due diligence fees the lender will sometimes drag their feet.
The reason is they might have 10 of the 20 million dollar loans they are making more money on the points on and then they will get around to your little loan later.
You don't know their escrow company and it could be a shell corp and they are in it together.
Tell the lender you will have YOUR ATTORNEY hold funds in escrow.Your attorney will pay the appraiser directly the fee after they have been vetted.
Lenders who have nothing to hide-hide nothing.If they are full of BS you will here a bunch of excuses as to why you can't do this.
I just don't know how these people can go to sleep at night knowing they do these things to people.
- Real Estate Investor · Canyon country, CA · Member since 2010 · 22 posts · 4 votes15y
In Calif. you have to have a brokers license issued by the Dept. of Real Estate. You are also regulated regarding up front fees.
Other than an appraisal, which our investors don't even rely on, there should be no upfront fees. Until the loan is closed, you haven't earned a fee. The cost of doing business shouldn't be charged to a borrower you haven't performed for. I feel bad for the borrowers in the East Coast.Just say NO to upfront fees. The appraiser should be paid direct also.
SMALL CLAIMS COURT you will win. In Calif. you can get up to $7,000. - Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
I don't think winning is the biggest issue, it's collecting.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Long time ago, I had a neighbor who was a judge. He told me "sometimes you have to take care of things on your own toughness". Go in and negoiate with them and tell him he can explain his preditory lending practices to you for the amounts charged and rebate the money or explain it to a judge.
Sometimes, intimidation, used correctly and forcefully can be a good tool. I'm certainly not advising you to go in and call the guy names, carry a ball bat or anything like that, but if you scare them to the point that they money is not worth the trouble they may face, you might get more back.
Like others have said, many are not registered or hold a license. This sounds commercial, so they are pretty much free to do whatever. You can report them, and report it to the FBI as fraud as they never had the intention of making any loan, but in the end, any money you get back will require you to act on your own toughness. Good luck
- 15yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
While there are legitimate reasons for a lender to charge a fee upfront, the whole practice leads to so much client dissatisfaction that when I started my hard money lending business 11 years ago I decided to never collect any fees upfront. I provide a list of approved MAI appraisers, the borrower (or his mortgage broker) contacts the appraisal firm directly, negotiates the fee, and pays them directly. I inspect the property in question at my own cost, don't charge legal fees until closing, and have the borrower contact the title company and pay any costs directly.
This method of business has proved totally satisfactory. My expenses run about 3% of my income (I work out of home) and inform the borrower that either he or I am free to pull out of the financing prior to closing should circumstances change. I have never pulled out of a committed closing unless I discovered negative information unknown to me at the time of the committment (usually purposefully withheld by the borrower) and have had borrowers close in excess of 90% of the transactions on which they accepted our terms sheet.
All of my lending is on commercial properties; perhaps the financing of houses is a different ballgame and different approach is needed.
- Member since 2018 · 1 post · 1 vote8y
@Champak Shah I’m curious, do you always ask what the religion is of your client’s lenders? (Thought you were a lender) I’m curious why you thought it was necessary to state that you’re clients lender was a Jewish Dr? How do you know what he was. Is that information important to the story? And why would a “NY State Court” write you a letter? You’re not a part of the case. Courts don’t investigate either btw. There’s a lot about your statement that seems peculiar and extremely unprofessional if not directly bigoted.
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