Lender Red Flags: Which Lenders Have You Had Bad Experiences With?

Question

As both an investor and a broker, I’ve worked with a variety of lenders, and while many are solid, some have issues—whether it’s delayed closings, surprise fees, or poor communication.

I’m curious to hear from the community: have you had any bad experiences with lenders that we should all be aware of? Which lender was it, and what were the biggest problems you faced? I’d love to hear about the red flags to watch out for, so I can hopefully avoid the same headaches.

For me, clear communication and transparency upfront are key, but I know not every lender operates that way. What’s your worst experience, and how did you handle it?

Chris Seveney · Answer

@Deborah Wodell

There was a guy who used to post on BP from Maryland who did private lending and was a fraud, changed company names many times and what he would do is write construction loans, fund the initial amount but didn’t have the money for the draws. He would try and sell that original loan to investors so they could also fund the draws but he got caught in interest rate spikes and left a lot of people high and dry as he was writing loans at lower rates and when rates spiked the loans were worth a lot less.

I cannot recall the name but others may know of him.

Erik Estrada · Answer

Not so much the lender but the account executive working at the company. If you have a bad rep, you will have a bad experience.

I have saved many fall out deals from reputable lenders that I use on a day to day basis, It's just the client is not very familiar with the lender's process/ guidelines and/or the rep was being very unethical (bait and switch.. etc..). It's important and an investor/mortgage broker that you carefully vet your lenders and understand what each lender is looking for.

Yes there are many scammers out there as well, but honestly you can sniff them from a mile away. Honestly anyone that falls for it did not do a good job at researching and just "pushed it in".

Jay Hinrichs · Answer

junk fee's that show up on the hud at closing

lenders all offer the same points pretty much but dont disclose junk fee till the settlement statement comes out .. and points is just a bait and switch.

One lender hit one of my clients that I was doing a JV with... for 800 dollar property tax monitoring fee.. really on a 12 month loan..

but what happens is borrowers just focus on the points with no clue to the junk fee's  or using brokers who add fee's and points on top of the actual lenders fee's again bait and switch.

Clayton Silva · Answer

The common theme from this is definitely last minute fees.  Not to justify this, but it is super important for lenders to have the hard conversations up front.  Much of the time there is a reason for a last minute fee increase.  Common reasons:

1) Change of closing date (instead of closing end of month, if it gets pushed to beginning of next month, prepaid taxes, interest and insurance will increase because you have through to months end)

2) Appraisal comes in low and LTV goes up. If your LTV changes from say 70 LTV to 80 LTV or even from 79 LTV to 81 LTV it can put you into a different interest rate pricing bracket and change the cost of rate.

3) Changing vesting at the last minute to an LLC can require a last minute legal review.

Now all that to say, there are definitely junk fees and other last-minute nonsense that gets added so lookout for those.  Working with an LO that is willing to have hard conversations as soon as they come up can help set expectations throughout the process.

Jacqueline Wright · Answer

Hey Deborah,

Great question—unfortunately, there are some lenders out there that really make the process more stressful than it should be. One of my biggest red flags when dealing with lenders is lack of transparency around fees. I once had a lender who quoted me a certain rate and closing costs upfront, only to sneak in additional fees right before closing—total nightmare! I had to scramble to cover the extra costs and it completely threw off my budget for the investment.

Another red flag for me is delayed communication. If a lender isn’t responsive during the initial stages, I’ve learned that’s a strong indicator that it’ll be a painful process all the way to closing. I now make it a habit to set clear expectations with lenders upfront and ask about their average response time

Stuart Udis · Answer

How many fix and flips have you completed in the last 3 years….how many new builds have you completed….how many rental buildings do you own…. If you get a loan application like that and they tell you your interest rate or leverage will be based on the answers expect the loan administration to also be robotic which is often adverse to your objective as a borrower.

Erik Estrada · Answer

Some of the ways I vet lenders:

1. Do they have a Linkedln and a review page?

2. How long have they been in the industry? Are they constantly switching places (and if so why??)

3. Do they answer their phone when I give them scenarios? Are they relying too much on their account managers to do all the work for them?

4. Are they licensed?

5. When I give them scenarios, are they trying to do whatever it takes to push it in or do they give me several follow up questions to make sure we aren't wasting time?

6. Is it a lender that provides rate sheets? What is their rate lock policy? Do they provide access to brokers on guidelines?

7. Is there any upfront deposit? If so, what is their refund policy?

8. Can I use my own AMC and third party?

Clayton Silva · Answer

Correct, and having the hard conversations ASAP as they come rather than letting things get worse is critical

Lender Red Flags: Which Lenders Have You Had Bad Experiences With?

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