Have you encountered private money loan scammers before? Financial scams are on the rise, so there’s a big chance you’ve come across one of them whether you’re aware of it or not. In this blog, you’ll find out how you outsmart private loan scammers using three easy strategies.
When Banks Say No, Private Money Lenders Say Yes
While conventional banks are imposing much stricter requirements for loans and urgent funding is needed, real estate investors turn to private money lenders. Private money loans are asset-based loans that are offered by individuals or companies. Many real estate investors use private money (a.ka. hard money loans) when there is an urgent deal that needs to be funded or when they lack the necessary credit and document requirements to apply for a conventional loan. Private loans also have more flexible loan conditions, which makes them great for investment properties.
What Makes Real Estate Investors Vulnerable to Scammers
Private loan scammers like to take advantage of investors and developers seeking capital for their investments. Usually, you’re on a tight schedule and there’s pressure for you to get the cash you need ASAP. It could be that a bank declined your initial loan application or you’re simply looking for lenders with lower rates. You might have an investing partner who bailed out and you’re near the closing table. Or your property is due for refinancing but your credit score isn’t making the cut. Knowing you’re in an emotional state of urgency is what these private loan scammers take advantage of. They can easily recognize the sense of urgency and are experts in making you believe that they’re actually going to help.
How To Spot A Fake Private Lender
Identifying the most common red flags will help protect you from falling prey to these private loan scams. Here are 3 simple things you can do right now.
- Be aware of their most common schemes.
- Check the lender’s website from top to bottom.
- Verify their address with the building administrator
Be aware of their most common schemes
Fake private lenders are often advertising on social media and other online forums with enticing baits. They may offer very low rates or don’t require any collateral. They may also come back to you rather too quickly with a loan term sheet and then require you to pay an “application fee” or “underwriting fee.” These are all warning signs that you should probably move to find a more reputable lender.
An established hard money lender would never ask for fees upfront and will close your loan through a Title company. The only fees that should be paid at the beginning is for the formal appraisal. However, the appraisal fees are paid to the appraiser and not the lender. Your lender will often let you use your own licensed or accredited appraiser as well.
Check the lender’s website from top to bottom.
If they do have a website, the first thing to check is their website’s security certificate at the very top. On your browser, type in their website on the address bar and check if to see if the site loads a padlock sign which should look like this:
Most malicious sites will not have this icon which means the information you enter in the site is not protected and can be shared to third parties. Next, scan the website pages for misspellings, grammar errors, or plagiarized content. You may try copying text from their homepage or blog and run it with plagiarism checker sites such as Grammarly or DupliChecker to see if they merely stole their content from other websites.
Verify their address with the building administrator.
Once you get hold of the lender’s office address, do a Google Maps search and find out where their office building is located. You can call the building administrator or property manager to know whether the company is indeed located there and for how long. This is a good way to find out if they are indeed located where they say they are because a lot of private loan scammers would pretend to have an office in the U.S.
Finding a Reputable Lender
A private money lender can be useful in helping you fund your real estate investments. So it’s important to use due diligence when partnering with a private lender for the first time. It’s best to build a relationship with a reputable hard money lender that you can use over and over for your transactions.
If you’re looking for a lender in Houston and nearby areas with the necessary experience and proven track record, feel free to reach out to us at GL&L Holdings. We are a family-owned, hard money lender who can provide flexible loan programs for both residential and commercial investment properties. You can learn more about us through our website and connect with us through our social media pages. Feel free to send us a message to discuss your deal scenario.
We’d love to help you fund your real estate investments and achieve your financial goals.