How to Avoid Hard Money Loan Scams and Fraud
Hard money loans make it easy for investors to secure funding for real estate quickly. Instead of going through the extensive process of getting a traditional mortgage loan, hard money loans have fewer requirements and faster approval rates. However, hard money lending is not free of lender scams. While there are several reputable lenders to choose from, it’s essential to thoroughly research the lender or company before working with them. Today, we’ll discuss the signs and how to avoid hard money loan scams.
Contents of This Article:
- What Is a Hard Money Loan Scam?
- Signs of a Hard Money Loan Scam
- How to Avoid Hard Money Loan Scams
- Find a Local Maryland Lender Today
What Is a Hard Money Loan Scam?
Most hard money lender requirements aren’t too extensive compared to traditional mortgage loans. However, this can lead to borrowers falling victim to hard money loan scams.
Hard money loan scams are deliberate schemes where fraudulent “lenders” pose as genuine hard money lenders. False lenders deceive borrowers into paying them money in exchange for a fake loan or significantly less than promised. In a typical hard money loan scam, the lender may ask for hefty upfront fees before approving the loan or require the borrower to provide personal or financial information that can be used for identity theft.
Unfortunately, there are several types of hard money loan scams. For instance, fraudulent lenders may promise a low-interest rate or favorable terms but change them at the last minute. Or, they may convince a borrower to refinance a loan several times and charge substantial fees and interest rates each time. Sometimes, they’ll take your money and never fund a deal at all.
To avoid hard money loan scams, it’s crucial to research lenders thoroughly. Additionally, you’ll want to know what to look for in a hard money loan scam. Next, we’ll go over some common signs of a potential scam, how to avoid them, and what to look for in a reputable lender.
Signs of a Hard Money Loan Scam
Some hard money loan scams are hard to recognize. However, there are generally a few surefire signs of false lenders looking to scam investors out of money. If you’re looking for a hard money loan, looking for these signs while researching beforehand is crucial.
- No Property Evaluation Required
- Unrealistic Interest Rates
- Charging Large Upfront Fees
- No Address or Online Presence
- High-Pressure Sales Tactics
No Property Evaluation Required
When you apply for a hard money loan, lenders generally evaluate the property you’re using as collateral to determine the value and the loan-to-value ratio. As such, legitimate hard money lenders require a property evaluation to determine how much they’ll lend you. An evaluation may include an inspection of the property by a professional appraiser, a review of the property’s history, and comparing the property to similar properties in the area.
If a lender is willing to lend you money without an evaluation, it could be a sign of a scam. After all, without an evaluation, the lender cannot assess the value of the property and the risk of the loan.
Unrealistic Interest Rates
Due to the high risk associated with hard money loans, the interest rates are typically higher than most traditional loans. For instance, the interest rates for hard money loans can range from 7% to 15% or even higher. Of course, it all depends on the lender, the borrower’s creditworthiness, and the property’s location and condition.
If a hard money lender offers an interest rate that seems too good to be true, it could be a sign of a scam. For instance, if a lender offers you a rate of 2% to 3%, it’s improbable that they’ll be able to make a profit. As such, it could be an attempt to lure borrowers into a trap by promising low-interest rates but charging high hidden fees or other undisclosed charges.
Charging Large Upfront Fees
Hard money lenders may charge some upfront fees to cover the costs of processing and underwriting the loan. For instance, they may charge appraisal, application, processing, and underwriting fees. However, legitimate hard money lenders will clearly disclose all costs before the loan is approved.
If a hard money lender asks for a large upfront fee before the loan is approved, it could be a sign of a scam. For instance, scammers may ask for upfront fees to “secure” the loan or cover administrative costs, but in reality, they have no intention of lending any money. So once the borrower pays the large fee, the scammer disappears, leaving the borrower without a loan and no way to recover their money.
No Address or Online Presence
Legitimate hard money lenders should have a physical address and a professional website or online presence. A physical address is necessary to conduct in-person meetings with potential borrowers. Additionally, borrowers need to locate the lender if they need to address concerns or issues.
Additionally, a professional website is essential for hard money lenders. The website should provide information about the lender’s services, fees, terms, and contact information. A professional website can reassure borrowers that the lender is a legitimate business and can be trusted.
However, if a lender has no address or online presence, it could be a sign of a scam. Many scammers use fake identities or operate under fake names to avoid being identified. Additionally, they may operate without a physical address or website, making it difficult for potential victims to report their activity.
High-Pressure Sales Tactics
Scammers commonly use high-pressure sales tactics to convince borrowers to make quick decisions. For instance, these tactics may include threats, intimidation, and aggressive sales practices to create a sense of urgency in the borrower. If a lender pressures you to make a quick decision, it can be a sign of a scam.
On the other hand, legitimate hard money lenders will give borrowers time to review the loan documents and ask questions before making a decision. They understand that hard money loans require careful consideration and due diligence before a borrower can make a decision. Therefore, they’ll give borrowers all the necessary information to allow them to make an informed decision.
How to Avoid Hard Money Loan Scams
If you’re looking for a hard money loan, it’s crucial to take steps to protect yourself from scammers. Here are a few tips to help potential borrowers avoid hard money loan scams.
- Do Your Research- You’ll want to research lenders thoroughly before doing business with them. For instance, check their reputation online by reading reviews from other borrowers. If they don’t have an online presence at all, it could be a sign of an untrustworthy lender.
- Verify Licensing- Lenders must be licensed or registered with a regulatory agency in many states. So, you’ll want to check to see if the lender is licensed and in good standing.
- Read Documents Carefully- It’s crucial to thoroughly review and read all loan documents carefully. Additionally, you’ll want to ask questions if you don’t understand the terms or hard money loan requirements. Ultimately, you’ll want to understand all the terms and fees associated with the loan.
- Get a Second Opinion- If you’re unsure about the lender or the loan they offered you, consult with a trusted financial advisor or attorney before signing loan documents. These professionals can help you understand the loan terms and identify any red flags.
- Avoid Unsolicited Offers- Be cautious of lenders who contact you out of the blue with unsolicited loan offers. Legitimate hard money lenders generally don’t cold call or email borrowers without an inquiry.
Find a Local Maryland Lender Today
Unfortunately, it’s not difficult to quickly fall victim to a fake or fraudulent hard money lender. As such, to avoid hard money loan scams, it’s crucial to do thorough research before contacting a lender. Once you’ve found a reputable lender, you’ll want to build a good relationship with them and follow through on your commitments.
If you’re looking for a trustworthy, reliable lender, look no further than Maryland Hard Money Lenders today. Our team of qualified professionals can help fund your real estate purchase quickly, securely, and efficiently. Contact us today to learn more about our lending process and get started with a loan application.
