How to Avoid Hard Money Lending Scams
Hard money lending makes it possible for real estate investors to quickly get loans needed to finance deals when conventional lending is not an option, whether due to the type of business (flipping houses), a short time frame, or other needs.
However, hard money lenders are not regulated in the same way as conventional lenders, and when searching for an investment loan online, it can be difficult to recognize a legitimate lender.
To avoid becoming the victim of a scam, borrowers must be vigilant in their research before applying.
Types of Hard Money Lending Scams to Watch For
Real estate investors can fall victim to various types of hard money loan scams. Below are a few common scams and the red flags to watch for:
Hard Money Lender Asking for Upfront Fee
A lot of “hard money lenders” will ask for cash upfront. They might ask you to wire them thousands of dollars, calling it a “due diligence fee” or a smaller amount as an “application fee” or “documentation fee.”
Regardless of what it is called, don’t do it. If the deal doesn’t go through, or you are paying a fake hard money lender with no intention of funding your loan, your money is gone.
If a hard money lender asks for money upfront or wants you to send money to anyone other than a title company, this is a red flag. Find another lender.
If you do wire money to a title company, verify the company yourself before doing so.
Fake Hard Money Lenders & Identity Theft
When you submit a loan application, you provide personal information you expect to be kept private – information a criminal could use to commit fraud. By setting up a professional-looking website with a “loan application” form, fake hard money lenders easily steal from unsuspecting people desperate for a real estate investment loan. Those applicants never receive a response on their submitted application and don’t realize until later their identity was stolen.
Don’t submit your personal information online without first verifying the legitimacy of the lender.
If It Sounds Too Good to Be True…
“Hard money loans from 25K to 10 million with a 6% interest rate” and no documentation requests. Sounds too good to be true, right?
At that interest rate, yes, it is. The average interest rate on a hard money loan is about 10-15%. A rate much lower than that is a red flag that you could be dealing with a fake lender planning to defraud you or an actual lender trying to pull a bait and switch scheme.
Bait and Switch Hard Money Loan Scams
Unfortunately, bait and switch hard money loan scams occur often. Knowing the investor must secure funds within a short time period, a lender with dishonest business practices will offer low-interest rates and other enticing terms, and then change the terms at the last minute. With no time left to find another lender, the investor must accept the revised, less favorable terms or lose their deal. See our article on a hard money loan calculator for more help.
A Few Ways to Avoid Hard Money Loan Scams
The best way to avoid a hard money loan scam is to find a good lender, build a relationship and stick with the same company for any future lending needs.
How do you find a legitimate hard money lender?
Word of mouth. Online reviews. Reference checks. A legitimate hard money lender will welcome the opportunity to share references with potential borrowers.
Title companies are regulated by the State, so they’re a good way to check the legitimacy of a hard money lender. Ask for the name of a title company the lender has worked with, research and find contact information for the title company and call them. If the lender won’t provide a title company, find another lender.
DFW Hard Money Welcomes Inquiries
DFW Hard Money is committed to 100% transparency with no hidden terms or conditions, and we happily share references with investors. We provide our loan terms online for applicants to read in advance. You can view our reviews and call or visit our office in Arlington, Texas.
We want you to know who we are and feel confident when applying for a loan at DFW Hard Money.
We invite you to browse our site, learn about our lending terms, requirements and conditions.
Check us out online.
Request additional information. When you feel ready, you can apply for a hard money loan online.
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