Hard Money Lender asking for Wire Transfer

[Brian Grignon]

I'm looking to flip a property in my area.  I have engaged with a private money lender to try to get the deal financed.  I received a "conditional commitment" letter from the lender.  To begin processing the loan, he's asking for $4000 wire transfer (PNC Bank).  My question is, is this normal?  Should I be concerned that he's looking for a wire transfer prior to closing?  The letter states the money will be used to fund inspections, title work, appraisal, inspection, internal financial review & legal, loan processing, and environmental survey.  According to the letter, this money will be credited back to me at closing.

Anyone have any experience they can share?  I've spoken to the lender many times, and he's been very willing to answer any of my questions and work with me.  However, he insists that I wire the money, he will not take any other form of payment.

[Larry Turowski]

@Brian Grignon Absolutely do not give him that amount and do not wire it to him!

Hard money lenders are asset based lenders.  All he needs is an appraisal.  There may be all the other things you mentioned, and all those costs, but they'll come out of closing.

It would be very convenient for him to take your $4,000 and then find a condition that makes the loan unsuitable.

[Rocky V.]

Agree with above post.  You should not be given him any money but you can give the funds to a title company which will disburse funds appropriately upon closing.

[Brian Grignon]

@Larry Turowski Thanks for the quick reply! I know it's one of those situations that seems "too good to be true" He quoted me 11% with no points. 100% financing of purchase price and repairs up to 75% LTV. I would love to find another lender than can give me that pricing, but I highly doubt that's going to happen!

The company name is THE MERCHANT GROUP USA LLC and they are based in FL. I did some research and found them online. They do offer merchant services, merchant loans and real estate investment loans. I just don't feel comfortable wiring $4000 to someone I don't know. Thanks again for confirming my suspicions!

[Jon Holdman]

Lenders asking for up front payments -> suspect

Lenders asking for LARGE up front payments -> very suspect

Many of the fees mentioned are typically paid at closing, no ahead of time

Demanding wire transfers -> suspect

Now, let me ask, is this a commercial deal? Or SFRs? Up front fees are more common on large commercial loans. But not at all for SFR hard money deals.

[Stan Butler]

@Jon Holdman pretty much summed it up.

If you are being asked for some kind of Earnest Money Deposit then it would go to the Closing Attorney (or Title Company).  Any fees associated with a loan should be collected at the closing table, with an exception for the Appraisal which is often paid outside of closing.

[Brian Grignon]

@Jon Holdman this is an SFR deal. Not a commercial deal. Honestly, I knew that there was something wrong, but I "wanted" to believe that this was legit. Too good to be true, often is just that. Thanks for your reply.

[Mark Creason]

Brian,

I think you learned a valuable lesson.  Thankfully, it did not cost you.

Mark

[Andy Collins]

You may have to pay some fees upfront, such as an appraisal, but I have always paid that to the appraiser, not to the lender.

I've used hard money many times and never paid the lender any money upfront.

andy

[Jay Hinrichs]

@Brian Grignon 

Sucker terms  ( too good to be true in the market place)

wire funds and a higher fee than is normal as spoken above appraisals are the only things that US lenders ask to be paid for sometimes credit report but that's it. When I had my HML company I asked for appraisal and credit fee.

Florida company  ( not all but many of these deals are in Florida) why because easy to transfer and hide assets with others or spouse.)..

Sucker terms ---  Wire money up front  ---Florida based company  =  Scam  you will most likely pay the 4k  and the lender will decline to fund your loan on some made up BS and you will be out your 4k...

this is a very OLD scam I first heard of it with my dad back in the early 70's usually bigger deals like lenders saying they will fund developers.... you submit a package your a wannabe have no real money but found this great 10 million dollar deal... you respond to lenders that say they have 2 to 25 mil to lend they talk a great game .. then they hit you up for 20 to 50k for up front due diligence they fly out kick the tires lead you on.. then never fund... this is just a smaller version of this I would almost 100% guarantee.

[Gary Alford]

This is one of the things that make BP so great! Glad you decided to come here to ask others opinions before just transferring them 4k. I have come across a few asking for up front fees while I been searching for lenders but normally I just immediately dismiss them because I have never heard of anyone telling me they had to pay up front fees outside of closing especially as steep as 4k. Good luck on finding another source of funding although the terms might not be as good. I say go to local meetings and share your deal and story of this lender and the money is sure to come. Good luck

[Karen Margrave]

@Brian Grignon You already have the answer, and that is a big DO NOT WIRE THEM MONEY!! 

•  If Florida is like California they would need to have a Brokers license issued by the State of Florida. Check for a license, and whether or not it is valid, etc., (on your next venture)
• Having a license doesn't mean a broker isn't shady.
• If a deal sounds too good to be true, it probably is.
• HML is based on risk. Lenders want a strong asset as collateral, a strong borrower with experience in the business they are proposing, a good area where the asset is located, etc. The stronger the package, the better the odds of getting a loan. If you're weak in one area, another has to make up for it.

[Ryan Harthan]

I've been a part of facilitating probably somewhere around 100 HM loans with almost a dozen different companies and have never experienced that.  I'd look for someone else, there's plenty out there.

[Chad U.]

As @Jay Hinrichs has pointed out above,

Here is a perfect example of a Florida scam that myself and some partners/colleauges fell victim to wrt upfront loan application fees for financing of a purchase on an multi-unit apartment deal earlier this year.  Luckily for us we were able to recover the fee, some others were not so fortunate.  Here is the response from our broker who assisted in the investigation:  

"Dear Participants

Please be advised that I have worked with Criminal Investigators and prosecutors to assist in the arrest and incarceration of Douglas Lee Carter; alias MIKE JONES; who defrauded my foreign national borrowers back in March of 2014. He collected upfront appraisal fees, application fees and kept making promises to refund and never did. I contacted the FBI and I flew to Naples Florida and made complaint in person March 2014, provided all documentation ( Letter of Intent), emails, phone records and banking information and all the borrowers provided sworn affidavits. He was arrested and incarcerated on September 12, 2014. He will be spending 17+ years in jail.

He has been charged with;

(1)817.034 Fraud. The act to unlawfully and willing intent to defraud

(2)812.014 Grand Theft. The intent, willingly to deprive numerous individuals from money for their own personal use and no services ever performed.

(3)687.141 Soliciting and collecting money with no intention to fund or finance."

http://www2.colliersheriff.org/arrestsearch/Person.aspx?pin=0000098347