How to Spot and Avoid Hard Money Scams

    by Aditi Bansal

Updated on Thursday, April 27, 2017

Choose a good lender and get your real estate investment business off the ground by flipping houses and increasing your returns.

tags  #Hard money loan for real estate  #Hard Money Scams #


Are you looking for easy loans to fund your flip house? Commercial hard money loans provide a quick and easy to access money for real estate developers who may not qualify for traditional bank loans. Unfortunately, there are many scammers out there luring investors into financial troubles. You should, therefore, strive to understand the terms of these loans before making a commitment. The scammers may take your money and further leave you without the much-needed funding you’ve been banking on to get returns in a few weeks or months.

Since scammers are all over and they have no interest in the success of your real estate business, please read on to get some insights of the existing scams and how to avoid falling prey.

Fees Due on Commercial Hard Money Loans before Closing

 A hard money lender may pretend to process your loan. They will prepare the necessary paperwork needed for the loan to progress to the closing stage, and for the disbursement to be done to your account. However, they will demand a small upfront processing fee before closing the loan. When you notice that, don’t fall prey. If any hard money lender asks for a down payment before dispersing the loan, that’s not a lender at all.

Always get every fact right before signing anything. If there will be an upfront fee before the loan processing, it should come out clear at the beginning. When that comes out, simply walk away and seek for a reputable lender.

Changing Terms of Lending

 This scam is hard to detect since it comes with a legitimate loan. You’ll still get your funding but you may be subjected to unpleasant surprise along the way. It’s sometimes referred to as “bait and switch”. The scammer will show you one term when signing up for the loan and switch over to a different term before closing. Involve your attorney whenever you’re signing up for any loan and get a professional interpretation of the terms of lending. Upon verification sign the agreement and leave a copy with your attorney.

Identity Theft

 This is the most common scam in the hard money lending industry. A scammer poses as a hard money lender and then asks for your personal identification documents and confidential information to process your loan application. However, your application is not meant to go through. Don’t expect any approval or loan disbursement since there is no lender in the first place. The intention is to access your social security number, credit card details, and bank account information.

 Always look up your lender before you give out any confidential information. Google the lender’s names and then search their names with the word “scam.” It’s also advisable to ask other real estate investors on the legitimacy of the lender. There are numerous forums online for real estate investors. If you can’t get any positive reviews or the information is scanty, move away and find a genuine lender without giving any documents.

Get References before you sign up for a Loan

 Avoid being scammed by using reputable lenders. The best way to identify a genuine lender is by getting references from other investors who have worked with them before. Your colleagues in the real estate industry could be a sure bet to begin your search. Join a real estate investment club and online investment forums and share ideas.

This page has a focus on Hard money loan for real estate, Hard Money Scams was shared by Aditi Bansal.

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