3 Popular Lending Scams and How to Avoid Them

by 31 Oct 2012

For many real estate investors, it can be a challenge to identify the real lenders from the bogus lenders. Even savvy real estate investors can fall victim to lending scams. Here are 3 of the most popular scams in hard money lending and tips for steering clear of bogus lenders:

1. Many of you have seen the Upfront Fee Lending Scam. A hard money lender may approve your loan and then ask for a hefty upfront fee. Because even real lenders may sometimes charge an upfront fee, this is a tricky scam to avoid.

If the upfront fee is more than $1,000, this can be a red flag. And always ask for references, or verify the lender has closed a loan with someone you trust. A real lender will happily provide multiple references for loans they have closed.

2. The 100% Financing Scam is everywhere. Some lenders claim to offer 100% financing if you buy a monthly membership, or if you pay a “deal review” fee. Rehab lenders will lend on the after repair value of a property, but usually not more than 70% of the after repair value. If a rehab lender is offering more than 70% of ARV (after repair value), this may be a sign that a lending scam is present.

3. Another common scam is the Bait and Switch Lending Scam. The lender promises  low interest rate and fees to “bait” the borrower. Right before closing on the loan, the lender may “switch” the terms. Rather than risk losing a deal, some real estate investors are forced to accept the new loan terms at the last minute.

Do your homework on the lender by searching on popular scam reporting sites such as Ripoffreport.com. Search for bad reviews about a lender on real estate forums and other mortgage-related websites. Real estate investors who have already experienced a bogus lender, could save you time and money.

Bottom line, if it seems to good to be true, it probably is.

Please share your experiences with lending scams and your own advice for avoiding lending scams in today’s market.


  • by Jesse | 10/31/2012 12:33:25 PM

    I was taken by a lending scam this year for $3,000 by some outfit out of New York. They promised the moon and once I gave them the upfront fee of $3,000 they never returned my calls or emails. It was a hard lesson but I won't be taken by an upfront fee collector again !!

  • by Ecel | 10/31/2012 1:01:13 PM

    I was almost the victim of a lending scam. The group promised 100 percent financing and then asked for a fee of $2,100. I knew it was a scam when they didn't even look at our paperwork just gave us an approval right away then asked for money.

  • by Home In Maryland – Avoid Lending Scams &laqu | 11/7/2012 7:05:46 PM

    [...] 3 Popular Lending Scams and How to Avoid Them | The Niche Report. [...]


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