How to identify fraudulent hard money lending practises

paperfree Aditi Bansal

Updated on Thursday, May 04, 2017

Proceed with caution when dealing with money lenders and always read the fine print before pending your signature on any paper presented.

tags  #Fraudulent Hard money loans  #Hard Money lender #


High-interest loans dominate the hard money lending industry. In this industry, cases of fraudulent money lending often make headlines, with different customers complaining of losing their money or getting duped into unfair and unconstitutional contracts. There are factors you must consider when looking to take a loan. You should pay more attention to the contract and the reputation of the lender especially in the hard money lending sector, where conman-ship and lies dominate.

Fees that are too High

One obvious red flag is the exorbitant lending fee, common among deceitful money lenders. All loans come with additional fees to cater for processing services, insurance, appraisal and other charges synonymous with hard money lending. However, watch out for phony money lenders who include hidden charges, especially when you approach them with an urgent issue. The best way to tell if you are getting a raw deal is to shop around. Compare fees from various money lenders to get an idea of the market rate for different fees, and the definitions of the fees. If the lender you are working with is significantly higher than all the other lenders you speak to, you are better off taking your business elsewhere. Establishing a business relationship with such a person may leave you in more financial trouble.

Including Loan Points in the Contract

There are significant differences between the traditional loan sector and the hard money lending sector. The most obvious difference you will notice is the structure each sector uses when issuing out loans. In some instances, hard money lenders will borrow a leaf from the traditional lenders and charge loan points. However, you are better off taking a loan from someone who does not charge loan points. Historically, loan points help lenders create room for questionable credit and buy down interest rates. On the contrary, the whole idea supporting hard money loans works on the principal that your credit score has no influence over your ability to qualify for a loan. Once you understand this, you will question any hard money lender charging you points before processing your loan application.

Fees before Loan Processing

An honest hard money lender will always offer you an agreement that allows you to pay back the money you owe him or her on the back end. Such an agreement allows hard money lenders to set up their loans as balloon loans where your make interest-only payments until you repay your loan plus interest fully. However, if you insist on paying a large amount upfront, your lender will most likely accept the offer. If you come across a money lender asking you to pay a large amount of money upfront, proceed with caution. Unless you are paying for additional closing costs that come with your loan, do not make any large payments upfront. There is nothing to protect you against a dishonest money lender who chooses to take your money and run away with it. Money is a sensitive issue and you must be extra cautious especially when dealing with anyone who claims to be in a position to lend you money. Honest lenders understand that their clients often approach them from a point of need and therefore do not have the money or means to raise money to put on the front end of any transaction. They understand the impact such a move would have in lowering the number of customers they receive.

This page has a focus on Fraudulent Hard money loans, Hard Money lender was shared by Aditi Bansal.

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