Top four scams in hard money to watch out for

There are a lot of bad hard money lenders in the private money lending space. Because it is not regulated as much as the banking industry, hard money lending has its share of scam artists. Below is a top 4 list of scams to watch out for when looking for a good hard money lender.

The Fee Collector

When a lender asks for an upfront fee for a sum of more than $1,000 this is probably a scam. There are a lot of hard money lenders who make money from charging upfront fees, and not by actually making loans. These hard money lenders are often called, “fee collectors.” Although there are exceptions, scams in hard money are usually found when a lender is charging $1,000 or more to give you a loan.

Sometimes a lender will require an appraisal or site inspection as a final underwriting condition for giving you the loan. However, in most cases, this type of upfront fee will not be more than $500 and will typically be paid for a third party service.

The Bait & Switch Lender

“Bait and Switch” Lender: The lender promises the borrower a low interest rate and a low fee loan that seems too good to be true. Right before funding the loan, the lender may give the borrower a less desirable loan term, at a higher interest rate. This is called “bait and switch.”

Bait and Ditch” Lender

The lender promises the borrower a loan that may seem too good to be true and then asks for a steep upfront fee, typically over $1,000. The borrower pays the upfront fee. Shortly thereafter, the lender immediately ditches the borrower hoping to get a loan, never funding the loan. This is called a “bait and ditch.”

The Too Good To Be True Lender

Too Good to Be True Lender: Lender promises the borrower low interest rate and low fee loan that seems too good to be true. But constant delays prevent an actual funding of the loan that are not the fault of the borrower. The process can drag on for months with promises that the loan will fund ‘next week.’ In some cases, the borrower may also have given a large upfront fee to the lender.

It is tough to find the good hard money lenders and avoid scams in hard money. So do your homework and look further than the first page of a Google search when searching for bad press on private money lender. Get testimonials from past clients and do your own research.

Be sure to read our next post and watch the video5 Red Flags to Spot a Hard Money Loan Scam

4 thoughts on “Top four scams in hard money to watch out for

  1. How do I go about to find a honest Private Money Lender in Georgia that doesn’t charge a $1000 fee for a loan where I can honestly be secure that they want cheat me out of my deal.

  2. I would like to report FLIP AND FAST LOANS LLC. On the initial phone call they will approve you for 100% closing cost & 100% rehab, tell you they need a fully refundable $2,000 commitment fee wired that day and it will be wired directly back to you after successfully closing.
    After your $750.00 appraisal is received , it takes them a few weeks to hear back from the “Committee”, then they come back with the new updated term sheet a few days from the closing date. Now it’s 85% purchase LTV & 100% rehab and you have no choice but to move forward if you want to pursue the purchase. They also went from two points to four and added few other fees. The %85,000 loan had $7,000 lender fees. I did continue with this purchase on 6/27 and went on for weeks asking about $2,000 reimbursement, nothing.
    During the time I was waiting on appraisal I acquired another property under contract and I thought everything was moving smoothly so I gave them an additional $2,000 commitment fee for the new property, same scenario, I was approved for 100% purchase ,and thinking the commitment fee would be reimbursed. boy was I wrong.
    The second home was a $164,000 loan and of coarse the new terms came in after appraisal and now its $11,000 in lender fees, yes I put that correctly, $11,000.00. By now I knew I was not getting my first $2,000 commitment fee and never going to see my second $2,000 commitment fee and now $11,000 in closing fees I backed out on the deal .
    They only operate the business through text/email. No one will ever answer the phone and every phone number I tried calling on from their text, I always received a full voicemail. Every once in a while I would receive a text asking if I could take a call at a certain time, but it’s only an employee that has no authority in the company, just someone to take all the frustration from the borrower. I did always fell bad talking to her as this was my only option to vent.
    They still have not reimbursed my commitment fee after sending multiple emails and no reply.
    I looked more into their business and the address they use is actually a remote office anyone can set up, they give the business an address and phone number. I don’t even think they live in the states.
    When you see other investors say NEVER pay upfront fees listen to them.
    I’m just chalking this up as one of my many learning experiences I have had in this business. There are so many more issues I had with this company anf if anyone wants to more information of my experience, I have all the emails, text,HUD statements. I am just thankful I don’t have to hear anyone from this company say“ waiting on the Committee for an answer ” ever again I must have heard this 200 times LOL ,

    1. Thanks for sharing this story here and you should share it on the or do a bad google review on their google listing if they have one. This happens a lot in the fix and flip loans and I’m sorry they treated you so terribly and got away with it.

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Corey Curwick Dutton, MBA Park City, Utah

About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.