Lender Scams and Warning Signs: Beware & Protect Yourself!
Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votesLender Scams and Warning Signs: Beware & Protect Yourself!
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Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15yThere are many red flags. Basically as Charles mentioned, if you get a feeling a lender (broker, HML) is telling you what you want to hear before your pay the application fees, taht's the first red flag.
You need a B.S. Meter in this business. The better something sounds that is contrary to the norm, your BS Meter should sound off and light up. While everyone, to a degree has a BS Meter (most people get one in junior highschool and it is developed with common sence over time) some have units that need to be calibrated.
The best way to calibrate your BS Meter is to study the subject in a conventional manner. The best way to do that is study real estate financing rules and regualtions, really boring stuff, but that's the way it is. Just because someone says they have a degree in finance or they passed a mortgage brokerage exam or even a bar exam, does not give them credibility in real estate financing. The subject is not taught in depth in any formal educational program.
Pay particular attention to what is known as "prudent lending practices". These are the conventionally accepted norms ofoperations that any prudent lender would follow in making a real estate loan. If someone says they can get financing under terms or conditions that do not follow these guidelines (which is possible) expect to pay more in fees and interest rates to compensate for the additional risks associated with these variances from the norm.
What would you do if you were a lender? Would you make a loan like the one being described to you?
Those who usually get ripped off are those who are desperate. They have poor credit or insufficient capital, maybe both. But the biggest reason people get ripped off is because they don't know any better! They are willing to trust those who tell them what they want to hear. They turn their BS Meter off.
There is an old saying: Financing is the key to real estate that opens doors for you. And, if you really don't understand real estate financing then you really can't understand real estate!
The biggest problem I see for many investors is that begin by listening to guru programs orfollowing the advice of other investors as they insist on skipping the basics and diving straight into something they see as having a profit potential. They fail to accomplish any due diligence with themselves. As fast as rules, regulations and laws are changing today, following the advice of another investor might just take you down a road to make the same mistakes that investor makes and your mentor may not know the difference. What I'm saying is that it is up to you to calibrate your BS Meter.
Your BS Meter should go off as any lender presents something that varies from the norm, they further away they get, the louder it should be blasting in your head!
Some (not all) of the indicators could be:
Up front loan fees that are outside the norm for the type and loan amount you are seeking; and
Not providing a loan committment in a timely manner. This means a good committment that is not contingent on verifications or committee reviews!
Only having one qualified appraiser to appraise a property. If the applicant is paying for an appraisal, there should not be an "in-house" appraiser. And,
Loan fees should be estimated at the time of application, even in commercial deals!!!!! If that lender has been making SBA loans, they know about what an environmental report will cost. They will know what bond fees will be and what underwriting fees will be by the investor.
Residential properties (owner or non-owner occupied) may vary widely from one region to another. Brokers are nowrequired to disclose premiums received as well as all other loan costs in a Good Faith Estimate of Loan Costs.
I have seen people call foul when the per diem interest was estimated at some two digit figure and then end up being in the high three digits. This is not a scam, it depends on the actual closing takes place. Lenders should be using 15 or 30 days.
Borrowers need to get a signed estimate of costs at the time of application.
Borrowers should give brokers or lenders instructions, that all verifications and credit should be approved prior to spending moneyon any appriasal, but often schedules won't allow this as it could be weeks before an appraisal is completed. If the borrower is aware that there are credit problems, credit should be viewed first before spending other loan fees.
Loan scams are usually found by big name lenders who provide loans on line. Quicken Loans runs a shaddy practice.
They require you to submit a credit card number to pay for the fees before speaking with a loan originator. The originator is pretty much a sales person to "get the ball rolling". People have called back within minutes of the on line application to stop the process and the originator did not stop anything. You have a ding on your credit card for $500.00 which is non-refundable. Even after being assured your loan request is terminated or cancelled, a few days later you might see someone stop in front of the property and take a picture from their car. You just had your property appraised!
As to the BBB, that is absolutely worthless. The BBB only tells you if anyone has filed a complaint, not that the company is in good standing. The clerk at the BBB may not even tell you the truth either, especially if ABC Bank is amember and provides hefty contributions to the office party! Pure politics!
Call the Attorney General's Office and the local prosecutors office and see if they have any actions against them. Call the local police department and ask for the fraud division and ask them if thatname has crossed their desk! They are not to discuss any ongoing investigations, but many times a detective will say something like "I wouldn't go there if it were me". Check court records by name. Now, in fairness, a large bank or lender may have several cases so you have to consider the amount of business they conduct and understand that if they file a floreclosure action, the borrower may have filed a counter suit. But not finding your lender there might be a good thing.
But the best way to no when you are dealing with pure BS, is knowing what is definitely not BS, that would be programs that sound like they conform to prudent lending practices, rules, regulations and laws!
Sorry it's so long!
107 Replies
Thanks @Joshua D. for this post, even though it's six years old. Lenders scams never grow old. It is prevalent six years ago and it is now. It's out there and I am experiencing it myself.
As our late president, Ronald Reagan said, "trust but verify". It's easy to trust someone but one needs to verify and ask, "show me the books, the portfolio and references" when someone simply verbally blurted out in his podcast that he did 300 deals in the past. I fail to do this. I simply trusted him, just because, he is a smooth "talker" and used to be a well known person in the BP community, but now as far as being a real estate investor is concern, he is out of the picture, according to a hard money lender.- Consultant · Phoenix, AZ · Member since 2017 · 152 posts · 23 votes9yI have had fraudulent lenders and scammers promise me in writing to lend me $20,000. They had said there were no fees. Then there was a fee. I never gave them any money. People lie. Steal. Cheat. Frickin mamamalia. Lol
- Consultant · Phoenix, AZ · Member since 2017 · 152 posts · 23 votes9ySorry, it was $20,000,000.00
- Consultant · Phoenix, AZ · Member since 2017 · 152 posts · 23 votes9yI have found all the lenders to be scams. It seems that it is quite impossible for me to get a large loan. They All want my money. They are the lenders, they should provide the money. But NO it’s my fault! Lol
- Atlanta, GA · Member since 2017 · 151 posts · 11 votes8y
had a lady want to sell me a house on a quit claim deed! For dirt cheap on a house flip! But if I asked for a warranty deed the house price sky rocketed! My spider sense set bells off! Lol
- Consultant · Phoenix, AZ · Member since 2017 · 152 posts · 23 votes8yI have found absolutely no lenders who are legitimate who will fund me. There’s no recourse against these fraudulent lenders I guess since no law enforcement agency will investigate them and they fly under the radar as they steal money, cause companies to lose clients, accounts, and believability. Thanks for your post.
- 8yManon SheimanPro MemberRental Property Investor · Santa Maria, CA · Member since 2016 · 36 posts · 17 votes
"Loan scams are usually found by big name lenders who provide loans on line. Quicken Loans runs a shady practice.
They require you to submit a credit card number to pay for the fees before speaking with a loan originator. The originator is pretty much a sales person to "get the ball rolling". People have called back within minutes of the on line application to stop the process and the originator did not stop anything. You have a ding on your credit card for $500.00 which is non-refundable. Even after being assured your loan request is terminated or cancelled, a few days later you might see someone stop in front of the property and take a picture from their car. You just had your property appraised!
As to the BBB, that is absolutely worthless. The BBB only tells you if anyone has filed a complaint, not that the company is in good standing. The clerk at the BBB may not even tell you the truth either, especially if ABC Bank is amember and provides hefty contributions to the office party! Pure politics!"
Why do you say that Quicken Loans runs a shady practice? They are partnered/incorporated into (I don't quite understand the relationship) with Rocket Mortgage now. They advertise heavily in tv that they will approve your loan in sthg like 15 minutes, without any paperwork (as it's all done online), and they make it sound like a super easy quick way to get a mortgage, but in the end, they are really asking for all the standard documentation, just that you give them permission to access your bank accounts online instead of sending paper copies, and you send tax returns, W-2s, etc. via electronic means.
They told me that they are the largest producer of mortgages in the USA, and that they don't sell to FNMA, they service the loans themselves. For one thing, why should I even care who acquires the loan, what difference does it make, and for another thing, why should I believe that? When I hear one thing that sounds untrue, I tend to mistrust anything else they have to say.
Their interest rate is not the lowest advertised either, and he had a line for that, saying that other lenders quoted online are lying.
They have a site that I should look for houses on, but it had far different offerings than Zillow or other RE sites, weird. They wanted to hook me up with an agent also, which I didn't need.
He was a great conversationalist, I will say.
As for BBB, I learned years ago not to trust their ratings in any way, shape, or form. They are paid for by the company themselves, the same as with the good old Good Housekeeping Seal of Approval (does it still exist? ha!). It's good to read all the consumer complaints on the company, however, and be forewarned. But with all that, they will still have a A+ rating, as all the complaints have been "resolved". What a lot of hooey.
I'm getting so jittery after reading all these scams that I'm thinking of just paying for the properties all cash and refinancing later through my major bank.
- Lender · Thornton, PA · Member since 2014 · 106 posts · 56 votes8y
I recently became a lending “broker”representing multiple lenders including traditional, alternative and private lenders. I became interested in the lending side of the Industry after being involved as an investor and utilizing all three capital providers and getting an upfront closeup view of the lending world.
I have been a member on BP since 2014 and admittedly have not been an active poster, I guess you can say I was more of an active stalker, just following everyone’s post etc... and generally enjoying the forums, post and accessing the tools available for PRO members ( you should all try to become PRO members when you can) the tools are worth the cost of membership.
I too have been weary of lender scams and schemes and thoroughly vet every one I have spoken to and met (you should too).
I reviewed many companies to independently represent prior to making a commitment to my current company and wanted to align myself with professionals who have been in the trenches and are here for the long haul. We are as transparent as we possibly can be and will let you know if we can get you funded with 2-24 hrs of receiving your information.
Upfront fees other than appraisals and title insurance (which are3rd party) should always be a red flag to potential borrowers and you should start looking elsewhere when a broker or lender starts off with them. Some lenders may have minimal upfront fees to do credit and background checks, legal and other out of pocket expenses once the borrower excepts the lenders term sheet but for the majority of the lenders we represent their fees as well as our fee come out at closing, meaning we got you funded and it’s a good day with money flowing back and forth and high fives all around.
So do your lender/broker due diligence just like a property inspector does what he/she does... thoroughly.
If you have any questions about finance products, just ask and I will do my best to answer them for you And it won’t cost you a dime.
Kevin
- Alhambra, CA · Member since 2017 · 3 posts · 0 votes8y
Hello, I’m a new Real Estate Investor requesting advise...
I have a company which I’m really interested in doing business with “LENDER”. They offer a “Portfolio of 3, 4, 5.. turn key ready investment properties” of course with the upfront 20% down. But hearing about “scams out there” is scary to trust this legit deal.
Please advise on steps to take..thanks
Sincerely,
Olivia
MIKASA PROPERTIES LLC
- Investor · Atlanta, GA · Member since 2016 · 241 posts · 86 votes7y
The biggy is asking for a processing fee or a good faith fee from $10-$40K depending on the deal size up front before funding.
- Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes7y
Why do business in your personal name anyway. Work as a LLC or corporation. Don't risk your personal credit standing for business purposes. Business lines of credit, which allow borrowing from your company is the best way to avoid lender scams.
- 7yTim SwierczekPro MemberLender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
@Manon I like your post and you are correct in most of your assessement of Quicken Loans. As an industry insider we have all known for years they are one of those companies that is all about advirtising. They can mask thier poor prodcut with massive volume of loans to uneducated borrowers. They lied to you when they said they don't sell to Fannie. The bottom line is all lenders sell to either Fannie Mae or Freddie Mac, even if they retain servicing. No lender has the kind of money it takes to fund all those loans. That includes all the big banks. Even Fannie & Freddie fund their loans through selling bonds, but neither Fannie nor Freddie service their own loans, lenders do that.
Originally posted by @Manon Sheiman:
"Loan scams are usually found by big name lenders who provide loans on line. Quicken Loans runs a shady practice.
They require you to submit a credit card number to pay for the fees before speaking with a loan originator. The originator is pretty much a sales person to "get the ball rolling". People have called back within minutes of the on line application to stop the process and the originator did not stop anything. You have a ding on your credit card for $500.00 which is non-refundable. Even after being assured your loan request is terminated or cancelled, a few days later you might see someone stop in front of the property and take a picture from their car. You just had your property appraised!
As to the BBB, that is absolutely worthless. The BBB only tells you if anyone has filed a complaint, not that the company is in good standing. The clerk at the BBB may not even tell you the truth either, especially if ABC Bank is amember and provides hefty contributions to the office party! Pure politics!"
Why do you say that Quicken Loans runs a shady practice? They are partnered/incorporated into (I don't quite understand the relationship) with Rocket Mortgage now. They advertise heavily in tv that they will approve your loan in sthg like 15 minutes, without any paperwork (as it's all done online), and they make it sound like a super easy quick way to get a mortgage, but in the end, they are really asking for all the standard documentation, just that you give them permission to access your bank accounts online instead of sending paper copies, and you send tax returns, W-2s, etc. via electronic means.
They told me that they are the largest producer of mortgages in the USA, and that they don't sell to FNMA, they service the loans themselves. For one thing, why should I even care who acquires the loan, what difference does it make, and for another thing, why should I believe that? When I hear one thing that sounds untrue, I tend to mistrust anything else they have to say.
Their interest rate is not the lowest advertised either, and he had a line for that, saying that other lenders quoted online are lying.
They have a site that I should look for houses on, but it had far different offerings than Zillow or other RE sites, weird. They wanted to hook me up with an agent also, which I didn't need.
He was a great conversationalist, I will say.
As for BBB, I learned years ago not to trust their ratings in any way, shape, or form. They are paid for by the company themselves, the same as with the good old Good Housekeeping Seal of Approval (does it still exist? ha!). It's good to read all the consumer complaints on the company, however, and be forewarned. But with all that, they will still have a A+ rating, as all the complaints have been "resolved". What a lot of hooey.
I'm getting so jittery after reading all these scams that I'm thinking of just paying for the properties all cash and refinancing later through my major bank.
- Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes7y
I agree with Tim and Manon. But, I would avoid naming any lender by name as having got me into their scam. As one poster indicated, "Trust only yourself". I know investors who use only lines of credit from major Banks in real estate deals and only Flip. Smart investors avoid scams by never making transactions in their personal names anyway but, only through their business entity. To make this story short, the investors I know lend to themselves only and pay themselves back at the closing of each deal.
- Lender · Houston tx · Member since 2019 · 10 posts · 10 votes7y
This is an awesome thread and it's stressful to start reading hoping that the company you are with doesn't have bad boy tendencies and I'm happy to report, we don't show any signs of scamming, LOL!
No Junk Fees, The only pre-payment is appraisal after the loan is approved. Loan approved in 24-48 hours and a good history of closing deals.
I know it's an old thread, but it's full of the right type of information to help you get real financing and not have the wool pulled over your eyes.
- 4509 Vulcan 218, El Paso Texas · Member since 2018 · 16 posts · 1 vote7y
Yes I have one. COGO I paid a non refundable fee of $197.00 Only to find out bad the deal was. Not including the $197.00 It was over $8,000 just to get the loan. I was not happy with the deal. So now I have an offer on a property that I don't have the cash to close on if they except my offer. I need an investor who would like to here about the deal and work out a deal with me.
- Real Estate Broker · MI · Member since 2014 · 594 posts · 183 votes7y
@Joshua Dorkin Thanks for the post. At the REIA I head up in Brighton Michigan I was asked how to know if a private money lender is the real deal. I will be referring my members to this post! There is so much experience in this thread.
I have been fortunate enough to not have any problems with my private money lenders.
How is that?
Trust and brutal transparency.
Transparency is another way of saying, be honest. A few of my investments didn’t go as planned. I was brutally honest with my lender and he was thankful to be informed.
**How he replied to me was just as important as me being honest with him. He wasn’t angry, he wasn’t fearful, and most importantly he didn’t put me down. He offered to help figure out a way to better the situation. FYI, this private money lenders is out of state. Nevertheless, I did meet with him a few times and spent a fair amount of time getting to know him before borrowing his money.
For me, there is no secret sauce because my experience has been based on trust and brutal transparency even when there is bad news to share. .
Thanks again for
- Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes7y
Out of all the Post under "Lender Scams and Schemes," I found that only Scott Matthew C., the was the one who even hinted on the fact that it is possible for the borrower to scam and scheme on the lender. I known as a Broker of private, conventional, hard money loans and private mortgages. When you ask for no processing fees, and trust that the information given on an application is true, this risk is on the lender after the borrower has your money. In my case, once the individual was in my house under a private mortgage, she ignored the terms of my private mortgage agreement resulting in me as the Lender being victim to a Scam
- Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes6y
Here are my 6 time proven methods to identify internet scammers trying to rip you off with advanced fee fraud. Just had someone on LI exposed as a scammer who said he would loan $650k on a commercial building with $10k out of pocket, or actually into his pocket. He did not pass any of my smell tests.
1. Advance fee
2. Last name is their first name, Steve Kevin in this case
3. Called their phone# & it sounded like I was calling another country
4. He sounded like he was from Africa
5. His address was an apartment building
6. In Chrome, right click on their pic & "Search Google". You will see it brings up all occurrences of that picture. In this case, 4 of him and 3 of another guy, who he stole the body from and put on a different head
- Real Estate Agent · Tampa, FL · Member since 2020 · 19 posts · 7 votes6y
I have a client who really wants to house hack or buy a property and make it a co-living house. I have known my client for a couple years and he indicated he was an investor as well as having the ability to do plumbing work. He decided to ask me to help him. He got me POF that seemed to be very shady, but I couldnt convince my client that it was very sketchy that it took so long to get the letter. The company is called Gateway Capital Mortgage and they also operate as DeVore Financial Services - NMLS #174594. I don't know what my client did with this company, but my client was angry when I told him I will not put any offers in using this lender.
- Lender · All 50 States · Member since 2015 · 401 posts · 250 votes5y
I know this is an old thread, but I recently ran into a scenario that I believe to be mortgage fraud (i.e. you go to federal prison for this one)...
A borrower came to me asking what programs we offer and how they were different than a competitor. I asked, what program he was currently using from the competitor. Here's what he told me...
1. The lender was giving him a simple and straight forward 65% LTV of ARV loan towards the purchase rehab of the property.
2. The lender was also was providing an additional (separate) hard money loan for 15% of ARV. This additional loan does not fund. These funds are all held in escrow for the duration of the loan.
Fast forward to payoff/refi...
When the borrower refi's with a local bank, it appears to the new lender that there is an 80% loan against the subject property. Banks are much more lenient on refi's than purchases and so they tend not to dig in as deeply on the property or the situation. So the new lender approves the loan and pays off the 2 loans for the 80%.
From the payoff proceeds received on the 15% loan, the original lender deducts his transaction fees from the loan and pays out the overage to the borrower. There are two very big things wrong with this scenario...
1. They are doing this to simulate a cash out refi without the new lender knowing that that's what they are doing (can you say falsifying and misleading?). Most banks won't do cash out refi's at 80%. Most stop at 75%. This ploy to get paid off for 80% is tricking the banks to over leverage themselves in the deal.
2. The second loan is a bogus non-existent loan. It requires zero cash to create because there are no funds needed for funding the second loan. The payoff on the backend supplies the funds necessary to pay the fees to the original lender and for the borrower to get his cash out.Lying, falsifying or misleading a lender can easily be considered to be mortgage fraud; especially if that lender is a federally insured bank or credit union. While the feds probably wouldn't prosecute the borrower (assuming they turn on the lender - and I'm sure they will), it's hard to argue that he wasn't an accomplice in the fraud; he could explain the loan in detail, so he clearly knew what was going on. He may not have understood that it is likely to be highly illegal, but he still knew.
As an active investor and lender, I love a good creative deal. But, if you ever run into a lender that has some "extremely creative" ways to get deals done, be very very afraid...
If it seems to good to be true, it probably is.
- 5yMatthew CrivelliBusiness MemberLender · MA · Member since 2021 · 1k+ posts · 1k+ votes
Listen people, you have to bring something to the table with real estate. Private lenders are always looking for the same things. Cash or collateral and decent credit. Of course there are work arounds if you are lacking in one department but this is where scammers exploit you guys. Anything up front outside of an appraisal is going to be a scam. 100% financing is for the very experienced and even then the deal has to be right. IF IT SOUNDS TO GOOD TO BE TRUE IT USSALY IS! I have also found some common key words to look out for. "Kindly" "Legitimate" "No Credit Check" "Fund in 48 hours" Bridge loans being advertised at 5%. All are common bait to lure you in. If someone is saying yes to all the obstacles other lenders have brought up, they are most likely going to try to scam you. Find someone you trust who isn't using a whatsup app phone number you will be okay! Question everything!
Freedom Capital Funding, LLC523 Reviews Hey Joshua - Thanks for asking. I am also on Connected Investor and mentioned to one member that I wanted to be on his buyer's list. I have since gotten 20+ private lenders emailing me saying they will fund up to 1million at 4% for 30 years with only my drivers' license. No Downpayment. SO not sure. Haven't followed up. Does that sound fishy to you??
- 5yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
Originally posted by @Lisa King:
Hey Joshua - Thanks for asking. I am also on Connected Investor and mentioned to one member that I wanted to be on his buyer's list. I have since gotten 20+ private lenders emailing me saying they will fund up to 1million at 4% for 30 years with only my drivers' license. No Downpayment. SO not sure. Haven't followed up. Does that sound fishy to you??
Those people are 100% a scam.
- Real Estate Agent · NJ · Member since 2021 · 574 posts · 127 votes5y
As a legit lender it is very frustrating and sad to see some of these investors get scammed!
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