How to verify a lender is legit

Question

Im pretty sure a lender ive been talking to is a fraud but I want to make sure. Is there a forum or particular place on BP I can go to to see if a lender is legit. I started to get suspicious, so I searched the NMLS number but there was no results. Also the website has an accredited BBB symbol but BBB says the business isn't accredited. What do I need to do next? Thanks for any help!

Alan Nelson · Answer

@Josh Taylor

Not all lenders have an NMLS (I don’t), especially if they only deal with commercial loans.

Might I suggest you consider doing business with a lender much like I do with a borrower—start locally. Ask other investors whom they borrow from. When you talk to a lender, ask for references to borrowers they loaned money to (“What other investors have you done business with I might be able to talk to?”). Then actually call those borrowers and ask about their experience and whether they would borrow again from that lender if they had other options.

When dealing locally, you can learn about a lender’s reputation. Whether on the borrower or lender side, I like local because you can get to know how people do business—in my experience both the deal terms AND the person you’re doing business with are equally important.

if the deal is good, the money will be there—whether it’s with a local lender or a national one. It’s important you’re comfortable with your lender just like I have confidence in and am comfortable with my borrowers. Hope that helps.

A.

Jeff S. · Answer

The NMLS is generally for consumer purpose loans, @Josh Taylor. There are only a handful of states that require a license to make the business purpose loan you seek, and far fewer that require an associated NMLS registration for this type of loan.

For example, to call yourself a lender in CA, you must have either a real estate broker or finance lender license.  Like most states, CA does not
require an NMLS registration to make business purpose loans.  I can’t speak for NC.   Also, the BBB has been debunked a thousand times as an unreliable and irrelevant source of credibility.  By providing fake references to these on a website, when neither is really required and both are easily confirmed, your lender is probably a fraud, certainly an idiot, and no one you want to do business with in either case.

You will get your lunch eaten if you use any of this as criteria, Josh.  Learn the requirements to lend in your state and use that, in part, to base your evaluation.

More importantly, do yourself a favor and stay off the web when looking for lenders.  You have no idea who you are dealing with or even if they represent the company they claim.  Meet your potential lenders face-to-face at local real estate clubs, where you can develop a credible relationship.  Bring a list of informed questions.  If you don’t know what to ask, see my post in this thread:  Private Money Lender – How to Qualify the Lender

Last, ignore the anonymous solicitations you might now receive since you just posted that you are looking for money.   There are some very slick scammers out there and, with all due respect, you’re currently an easy target.

Good luck to you, Josh.

Josh Taylor · Answer

@Scott Wolf yes thats what im thinking. I asked them about up front costs, which he said was all at closing and the website looks all legit. What really got me suspicious was when I asked how much closing costs usually run and he said 4-5k. I thought that was really low on a commercial loan over 500k from what I have read from other posts on here. I haven't purchased commercial property before so i dont personally know

Scott Wolf · Answer

That is a HUGE red flag.  If you want to give them the benefit of the doubt, you can ask whoever you've been speaking to about the NMLS number being incorrect, and maybe they can provide you with the correct one.  But I'd run as far away as possible from these guys.

Josh Taylor · Answer

@Jeff Ronningen No im not stuck with them. Im going to talk to more lenders. I talked to another lender that wanted me to put 25% down instead of 20 because I haven't flip any houses in last 2 yrs. They said lack of experience. I have  2 rentals now and did a flip 3 yrs ago.

Josh Taylor · Answer

@Scott Wolf They have a NMLS number on the website but no record of the number came up when I searched the NMLS lookup. Im looking at my first multifamily property that is a 10 unit complex. It is in really good condition, but with updates, rents are 150+ / mo under market. Its also only 45 mins from me and within walking distance from a major private college. I was looking to borrow for acquisition and rehab, and then refinance after I get the NOI up. Most likely a bridge loan, I figured. I have been talking to conventional lenders so far. Im up for what ever will work.

Scott Wolf · Answer

If it's a private lender, they may not have a NMLS number if they are lending their own money.  The BBB having no record seems funky.  Are you looking for conventional, or hard money?

Craig Jeppesen · Answer

If you are asked to give them money directly it is fraud. Run everything through a legitimate title company and you should be fine. Always follow the smell test. If something doesn’t smell right, it isn’t.

Jeff Ronningen · Answer

@Josh Taylor.  Run.....flee.  Lots of legit lenders to choose from.  Tell him you’ve chosen to go another route. You make it sound like you’re stuck with him......are you?

Dustin Haviland · Answer

@Josh Taylor Private money and legit are very broad terms. Private money lender maybe neighborhood money rather than regulated. That doesn't make it a scam.