Lender Scams and Warning Signs: Beware & Protect Yourself!

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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

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

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.

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.