Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
There’s a fairly new scam in private money loans that is being pushed by fake private money lenders. Any non-bank loan from a private money source is considered a private money loan, including bridge loans, hard money loans, and all types of alternative financing. If anyone offers you a loan, but first asks that you purchase some sort of insurance such as life insurance, loan insurance, etc., this is a scam. The only type of insurance required for a loan is hazard insurance for the property itself. This is obtained through your own insurance agent as well, and is very similar to homeowners insurance for a personal home.
If anyone offers you a loan but requires you to obtain life insurance or some other form of insurance other than hazard insurance for the property itself, this is likely a scam.
Posted by Corey Curwick Dutton, Private Money Lender
The only type of insurance required for a loan is hazard insurance for the property itself.
Really two. A legitimate lender will require hazard insurance and a lender's title insurance policy. Both of these are paid for when you close, not up front, and they are not paid to the lender.
Many scammers have figured out that some borrowers know not to pay up-front application fees, due diligence fees, or "success" fees, so they had to make up another up-front fee that no one has ever heard of. This too will pass, and they will come up with something else.
I would not call the SBA a scam lender. But if your loan is under $500,000 and they are requiring life insurance (and it's not a SBA loan), I would certainly request a 2nd opinion. So I agree, but that advice is not correct in all cases.
Also depending on how the HML arranges the deal, they may require liability coverage with hazard insurance.
Just to clarify, there is only one type of insurance that is paid upfront, PRIOR TO CLOSING. This is the property hazard insurance. The title insurance is paid AT CLOSING. Further, you can also choose to have the property hazard insurance paid out at closing as well, and not pre-paid. But the hazard insurance is something only YOU control, this means you order if from your chosen insurance agent. Title insurance is typically ordered by the lender and is paid at the CLOSE OF THE LOAN and not before the loan closes, as in the example I used above where lenders demand some form of insurance is paid prior to the closing of the loan. I'm trying to prevent readers from being confused by Jeff S's comment. Hope that helps clarify a bit more for the readers here.....
Derek, my post refers to a private money, non bank loan. SBA financing is government backed financing and is most often originated through a bank. This is NOT private money financing. Please don't confuse the readers for the sake of arguing...
The "Loan Repayment Terms" agreement included a Loan Transaction Fee of $1,350. The "Loan Contract Note" agreement included a Loan Insurance Policy Fee of $3,820. Then after that was paid, he sent me a copy of the "wire transfer order". Then later said that it was being held up because the insurance company was requesting a "Non-Collateral Insurance Certificate" to complete the wire transfer.
He contacted the Insurance Company and the cost was $4,250; but after pleading with them they agreed to accept half ($2,125) up front and the balance after the loan is funded.
We're still arguing about me paying the $2,125 directly to the insurance company. He's talking about his company's policy & non-disclosure agreements.
So I Googled and came across this article. Yeah, I've been scammed Out of $5,170!