How to identify fraudulent hard money lending practices

Proceed with caution when dealing with moneylenders, and always read the fine print before putting your signature on any paper presented.

last updated Sunday, June 30, 2024
#Fraudulent Hard money loans #Hard Money lender

John Burson     Subscribe
How to identify fraudulent hard money lending practise


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 agreement and the lender's reputation, especially in the hard money lending sector, where conmanship and lies dominate.

Fees that are too high

One obvious red flag is the exorbitant lending fee, a standard among deceitful money lenders. All loans come with additional fees for processing services, insurance, appraisal, and other charges synonymous with hard money lending. However, watch out for phony money lenders with hidden charges, especially when approaching 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 work 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 is the structure each sector uses when issuing loans. Sometimes, hard money lenders borrow a leaf from 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, supporting hard money loans works on the principle that your credit score does not influence your ability to qualify. 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 an agreement allowing you to pay back the money you owe them on the back end. Such an agreement allows hard money lenders to set up their loans as balloon loans, where you make interest-only payments until you repay your loan plus interest fully. However, if you insist on paying a significant amount upfront, your lender will most likely accept the offer. If you come across a money lender asking you to pay a large amount upfront, proceed cautiously. Unless you are paying for additional closing costs with your loan, do not make any significant 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 able to lend you money. Honest lenders understand that their clients often approach them from the 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.


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