Hard money lending drawbacks from lenders perspective

[Andrew Hooyman]

Hard money lending seems to be popular in my area and every lender that does it just raves about it. I would like to know what the drawbacks are and things to look out for from the lenders perspective? Aside from having trust and knowledge of the house flipper, being in first lien position, making sure you know the market/ARV of the property, and using a qualified attorney, what are some of the numerous other things to look out for? Would love to hear any and all stories/experiences good or bad from hard money lenders that lend money to house flippers?

[Account Closed]

1. If the borrower doesn't maintain hazard insurance the house could burn down and you lose a very healthy part of your equity cushion, if not all of it.

2. Assuming you even get a title policy, there could be a title flaw and the title company refuses to pay a claim ... ever hear of an insurance company finding an exemption in those impossible to read policies?

3. The market could turn and your collateral value goes down by half ... ever hear of the great recession?

4.  If it's a flipper loan you could end up owning a property that is only partially rehabbed leaving you with a big mess to clean up.

5.  You could originate what you thought was a business purpose loan that turns out to be a consumer loan, thus leaving you with multiple state and federal regulatory violations ... ever hear of a flipper that underestimates the resale value and moves into and lives in the house?

6.  You could be improperly licensed and violate state lending laws.

7.  You could wire funds to a scam title or escrow company bank account ... I get notice from every escrow officer I make a loan on in big bold letters to call the office prior to wiring funds, scams are rampant.

8. The borrower could be a pita and although you get your money in the end you have to take Ambien every night for two years to sleep, not to mention the 376 new gray hairs you acquire.

9.  Your spouse could leave you because you made a bad loan and (s)he thinks you are a dope.

10.  It could be one family member lending to another and things go bad and now everybody hates everybody forever.

11.  You could lend your last dime and not have reserves to fight a Bk or go through a foreclosure.

12.  I could go on but I have a cast on one hand and I'm getting tired of writing.