How to know that Private lenders are legit

Question

How do you know that the private lender is legit?

Jack Tulloch · Answer

Online reviews/testimonials, referrals, asking questions, looking at their online presence,

Chris Seveney · Answer

@Michelle Harrington

1. Email doesn’t end in gmail, yahoo. AOL etc

2. No application or payments up front - payments only go to your title company

3. Speak to then on the phone or via zoom

4. Rates that would make sense. No private lender will lend at rates lower or near a banks rate.

Rick Pozos · Answer

You talk with them on the phone. You go to their office. It will be pretty rare when a lending company does NOT have an office. Ask your friends or other investors if they have used that company before. Or just ask for referrals of companies that they have used in the past.

Eliott Elias · Answer

Use private lenders who have worked with investors you know. Period.

Bobby Feinman · Answer

Great question! I think the other replies were spot on. I would also add that you should check references and testimonials on lenders on this site from other investors like yourself that post on here.

Bobby

Jay Hinrichs · Answer

depends what state the property is in.

if your talking CA.

then a good amount of the Lenders out there wont be licensed to do bizz in CA

you need one of the 3 to make loans on any property in CA.

1. RE broker license

2. State mortgage license with NMLS registration.

3. consumer finance license.

CA has the most compeitive rates in the nation for HML / private loans.

Erik Estrada · Answer

Hey Michelle,

Look out for any private lenders offering no origination/no fees/ no points, very low rates (lower than conventional), High leverage (100% LTV) or anything out of the norm with today's current market.

I would recommend working with a licensed mortgage broker instead. They do all the due diligence to protect you.

Todd Hoffman · Answer

There are some good points in the answers provided above.

Personally, I wouldn't do business if you can't meet in person. Identity theft and advanced fee scams are big risks. You are prudent to be concerned.

I think a lot of smaller private lenders are virtually officing. So the principal registered address may be a virtual office suite or a home. I would still meet with them in person for the reasons described below.

Here is an excerpt from my related post on avoiding lender scams (slightly modified and with a few typo corrections. I have not found out how to link to specific posts):

• Meet with the lender representative in person. In-person meetings mean the scammers (or agents) must be physically present, which often they would prefer to avoid or simply can’t do because they are not in the state or the USA. Additionally, scammers often want to stay far away from personal meetings where his/her picture could be taken. Real private hard money lenders usually (in my experience) want to meet the borrower and see the properties in person to understand the property/project and confirm the borrower is legitimate and likely to succeed. This also gives you a chance to speak with and get a sense of the character of the lender or their representative.
• Be very skeptical and cautious of unsolicited email offers, action demands, or information requests, even when they come from banks or other companies you know or have a relationship with. Often the scam emails will look as though they are legitimate and from a source you know. Scammers may indicate there is a problem with an invoice, a need for updated payment information, to contact them because someone has used your account or your account has been locked out, or that they are offering free things or you something you want, like a loan.
• Check for misspellings or slight changes in lender names and website and email addresses. Is the name singular where it should be plural? Has an extra word like ‘of’ been added? Call the phone number listed on the website of the company. Independently find the website and don’t just rely on emailed links or phone numbers.
• DON’T make big up-front payments (“up-front” meaning paid before the loan funds are wired from the lender). We currently don’t charge any application fees, nor do we charge any other upfront fees. Any upfront fees totaling more than $200, should be a huge warning sign. Scammers may charge large application fees or after a loan has been “approved” charge some sort of “release fee” or require a deposit.
• Verify the company is registered with the secretary of state where they represent they operate. Does the BBB has the same contact information that you have (including phone domain/website?. This is different than verifying NMLS registration, as that has its own issues discussed below. Check that the business is registered with the secretary of state (or other government agency responsible for tracking registrations of businesses in the state). Often scammers don’t register their fake company because it involves a credit card transaction that can be traced back to an individual. This is not foolproof, as a scammer could pretend to be someone else (but more effective when used with calling the company at a phone number on the website and verified as listed on the BBB or other trusted agency website).
• Check that the Lender makes loans. This is easy. You can ask the title company you have chosen if the lender has made loans or check for public records of mortgages or deeds of trust (pay attention to subtle spelling differences or name changes). In Colorado, you can often check online with a county clerk and recorder. Keep in mind that some lenders and brokers use a different name when recording public documents. The Secretary of State (or other state authority) tracks registered tradenames(aka DBAs or aliases) associated with a registered business.
• Check references other than those supplied by the lender. If the buyer or seller chose the title company, you can ask the title company if they have worked with the lender before and if the contact information matches. If you ask the lender, scammers could provide phone or email information to someone they are working with to scam you. If you don't know anyone personally, you can often find borrowers listed in the recorded deeds of trusts or mortgage documents and contact them. Often an LLC will be the borrower, but the person signing for the borrower will be a member of BiggerPockets.com or LinkedIn.com, etc. Contacting borrowers has other benefits as well. You can learn how the lender treated the borrowers, etc.
• Verify the Lender’s address. If the Lender uses a virtual office, you can verify who holds the virtual office with the virtual office company and check the principal office address listed with the state is connected with the person or company you are speaking with.
• Lock/Freeze your credit to lower the risk of someone opening accounts in your name (FTC info on credit freezes https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs). This means when you do want to get credit, you may need to temporarily unlock your credit.

The above steps don’t provide guarantees and are not comprehensive or exhaustive, but collectively they can substantially lessen risk.

---End of Excerpt

I hope the above content (the “Content”) is helpful. It is intended for educational and entertainment purposes only. I am neither an attorney nor a legal or tax expert. The Content is provided “as is” and should be considered potentially flawed personal opinion without warranties and may not be complete, accurate, appropriate, or applicable to all circumstances. It is not a substitute for professional advice; before making decisions based on the Content, you should consult knowledgeable professionals about your specific circumstances. You should not rely on the Content.

Darnell Lockett · Answer

Hi @Michelle Harrington. Good question. You got some really solid advice from the comments about how to see if a private lender is legit. I hope you were able to find one that suited your needs.

Katie Smith · Answer

Hi Michelle! This is a great question I wish more people would be weary of. I agree with a lot of the replies posted already! It's very important to talk to them over the phone, even do a zoom call. I would be happy to chat with you!

How to know that Private lenders are legit

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