By Russell Barneson
By Russell Barneson
In certain situations, a hard money loan can be highly advantageous to real estate investors. They can be closed quickly, have flexible terms, and an easy approval process.
Hard money loans are an excellent method to fund a real estate project quickly. However, they are less regulated than traditional loans, which can be a double edged sword.
Similar to all industries, there are always a few bad apples whom are unscrupulous operators trying to deceive you.
Here are a few hard money loan scams to look out for.
The bait and switch is one of the oldest tricks in the book.
In this scam the lender will make big promises to start out and then after the loan has been closed (or right before) the terms are suddenly changed.
$5 million dollars at 5% and no interest for one year, with a FREE toaster and 100% LTV Ratio
Now I'm no Einstein, but unless it's your mom giving you the above loan, I'd be deeply suspicious of terms like these.
Be on the look out for loans that seem too good to be true.
There are scammers out there making money by charging upfront fees and never actually funding any loans.
It's one of the oldest scams on the internet, also known as the Nigerian Prince Scam, it works as follows:
I will send you $1 million dollars after you send me a $5 thousand dollar upfront application fee.
When submitting documentation to a lender, be sure to verify you're dealing with a reputable business.
Remember, your personal information can be used for identity theft or stealing from your bank account.
The best way to avoid scammers is to do business with people you trust.
Many hard money lenders develop long term relationships with borrowers.
If you are looking to develop a relationship with a new lender, here is a checklist you can use to verify the veracity and quality of their existence:
In conclusion, there are many reputable lenders in the industry, however there are scammers that need to be avoided.
Hopefully our tips and tricks above will help you to better navigate your quest for a hard money loan.
Disclaimer: Crescent Lenders, DBA CrescentLenders.com ("CL") is a California licensed broker under California Bureau of Real Estate License No. #01792267. Regardless of this license, CL considers itself a “finder” for purposes of applicable laws and regulations (California Business & Professions Code § 10130, et. seq.).