Real Estate Tips |6 min read

#1 Sign of a Hard Money Loan Scam: A Guide for Investors

Loan scams are rampant, everywhere you turn. It’s harder than ever to discern whether a loan company is legitimate or not when you’re looking for hard money loans.

If you don’t play your cards right, you could easily find yourself in the grubby hands of a hard money loan scam. No matter how savvy borrowers think they are, loan scammers will always find new ways to sink their claws into them when they least expect it. Luckily, you can stay one step ahead of them. As professional hard money lenders in Maryland, we have heard countless horror stories about loan scam victims. So today, we’ll help make sure you don’t get ensnared by sharing some expert advice.

Table of Contents

Types of Hard Money Loan Scams

Unfortunately, there is no end to the plans that loan scam criminals can devise. They are always scheming up new ways to steal your hard-earned money. Here are some of their most common strategies:

  • “Advance Fee” Scams: With “advance fee” scams, fake lenders guarantee to provide you with a loan if you give them an upfront fee. The loan scammer could even send you a fake check for the loan amount to try to reel you in by sending a fake check. The lender then asks you to deposit this amount into your account. When you deposit this check, the fake lender withdraws the funds, and all that money goes down the drain.
  • The Sinister “Ghost” Loan: With these loan scams, the fake loan company comes to you ready with a loan offer. They could even back this up with fake documents or sites that look legitimate. And yet, the minute you give them your personal, private information, they ghost you forever. Hence, the “ghost” label.
  • The “High-Interest Rate” Scam: Here, loan scammers offer you loans with much higher interest rates than other hard money lenders do. Furthermore, they could charge extreme fees if you miss a payment.
  • The “Ponzi” Scheme: With “Ponzi” schemes, fake loan companies swear to provide you with loans that grant you a high ROI. Like other loan scams, they may even display fake documents or websites that look like they’re from real, established lending institutions. However, when you put down money for the loan, it dissipates into thin air. The fake loan company will just use it to pay other investors. Effectively, they never deliver results from your investment.

Loan Scheme Red Flags

Loan scams have many red flags that you should look out for. They have little tells that signal their true nature. You should always be on guard if you find lenders with the following qualities.

  • Unsolicited loan offers: If lenders reach out to you through less formal means, such as email and social media, that can indicate they are not a true, established company.
  • Suspiciously perfect requirements: If hard money lenders have unrealistic policies, like rates that are too good of a deal, or promise to approve you, no matter what, that is a bad sign. It shows that they are primarily out to lure you in, without thought of the consequences. Lenders who follow their word want to be responsible and adhere to best practices, even if it doesn’t appear as easily marketable.
  • Shrouded in secrecy: If a lender refuses to give you more thorough information about their business practices or answer your questions, that’s extremely suspicious. It indicates that the whole structure is a sham.
  • The lender communicates aggressively: If the lender treats you in a pushy way, is subtly threatening, or otherwise is overly forceful, it signifies that they are a fake and predatory lender. They’re using coercion to tip the power balance between you in their favor.
  • The lender pressures you to decide quickly: If the lender wants you to commit without extensive forethought, this means they want to snatch you before you think twice and can backpedal. The fake loan company wants to make you feel like your back is against the wall. Almost like the loan is a scarce resource, and you have no choice but to take it now and ask questions later.
  • The loan provider rejects requests to put the offer in writing: If a prospective hard money lender refuses to have written records of your deal, that can mean they don’t want a paper trail to track their actions. It means they don’t want to be liable and aren’t confident they can hold up to scrutiny. Like they’re hiding something.
  • The lender asks you to give them sensitive information at the beginning: You should question why exactly the lender is so eager to use your most personal information from the get-go when you haven’t even cemented a deal yet. They don’t need to process your info for any valid reason, so the only remaining motives you could think of may be lurid and dangerous.
  • The lender isn’t located in your country: If your hard money lender is not stationed and doing business in your country, then they don’t have the tools to properly handle loans there. However, they do want to steal the money of victims in your area with loan scams.
  • They offer you a loan even though you didn’t apply for it: If a lender grants you a loan out of the blue, not knowing who you are or your qualifications, then the provider wants to lure desperate people into their trap quickly. These loan scammers are preying on borrowers in need, the ones whose guards are down because they need loans so urgently.
  • Their website doesn’t look professional and has fake endorsements: If you’re barged with a parade of popups, shiny promises, and graphics that look like they come out of a 1999 ClipArt collection, it can mean that the organization isn’t a funded and backed organization. Instead, it may have been created from someone’s basement.

A Hard Money Loan Scam Cautionary Tale

In 2018, the federal government found that Woodbridge Group, a fake network of hard money lenders, was a loan scam artist. In this case, investors were the biggest victims. Woodbridge, an unregistered group, scammed over 8,400 investors in the company out of $1.3 billion in a coordinated Ponzi scheme.

Robert Shapiro, the former CEO, gained around $36 million from his web of lies, prosecutors stated. He has been sentenced to 25 years in prison.

If this case doesn’t illustrate the importance of legitimate lenders, we don’t know what does. Luckily, for every loan scam criminal out there, there are plenty more reputable hard money lenders the government recognizes as real entities. For instance, our Maryland department ID number is W23218100.

Find a Legitimate Lender in Maryland

You can stay better prepared and protected from hard money loan scams if you identify the different forms they take and the tactics they use to reel you in, like “advance fee” scams. Most importantly, you can avoid getting involved with fake loan companies like the Woodbridge Group.

However, if you don’t want to jump through hoops just to find a reliable lender, we are always here. We have a proven record of past funded projects, clear-cut lending policies, and a set loan application process. Contact us today to get a hard money lender that cares about customer satisfaction.

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