Sherman Bridge- WARNING- Beware of hidden fees

[Chris Pflum]

So I decided to give Sherman Bridge a try on my most recent project.  The up front process went well, and I was content with the communication, costs, and process.  Closing went smoothly, and my project proceeded.

Unfortunately, as sometimes happens in these rehabs, we ran into some significant challenges.  We addressed them as they occurred, and had to came out of pocket to cover some significant unexpected expenses, but we got the rehab done, and the property on the market. The renovation turned out great.

After receiving my final draw, I noticed that things did not reconcile in the draw account.  It appeared there was a big hole, and the account was short compared to what it should have been at that point.  Unfortunately, I could find nothing on the draw statements to account for this.  When I started to do some digging on this, Sherman dropped a bomb on me.

I found out there was a date set by Sherman for rehab of the property to be complete. After missing this date, Sherman began taking fees out equal to 1% of the total loan periodically (1% on each fee!). 

There were never any notifications that they were going to do this, or that they had done it. They just quietly did it. 

No documentation, emails, letters, nothing.  They just reached right in and started taking money. And because they didn't document this anywhere in the statements I was receiving, I only figured it out by pressing them to find out why the account wasn't reconciling.

Total shadiness. 

I'm here making my mortgage payments every month, and they're over there stealing money from my draw account. I don't think a lender could behave any worse than they have on this. 

I've tried resolving this with them, but they've gone radio silent.  Unfortunately, it looks like I'm going to now have to get my attorney involved.  Because of this, I strongly warn against using this lender.

[Jay Hinrichs]

Originally posted by @Chris Pflum:

@Jay Hinrichs- I may be of a different mindset than you in that I don't see it as just a 'there you go' situation. The loan due date (maturity) hasn't been missed, and the mortgage payments are all in good standing.  This is strictly the draw account and rehab completion date. The fees were taken without any notification or documentation.  They sent a final draw check that didn't reconcile with what I expected, and a final draw statement that didn't account for where the money went.  The money just wasn't there. It was a pure profit grab on their part.

It's a very risky approach for them to take, because it could put the borrower into a position to not be able to pay their contractors for work that has been done.  Then you've got liens, and a property sale could be at risk.  They could actually force the borrower into default by doing something like this.  Why would a lender want to do this?

I've paid all my bills, so this isn't a risk for me. But that doesn't change the fact they just went ahead and took thousands of dollars out of my pocket. Whether I'll have any luck clawing this back through legal means, we'll have to wait and see.  But in the meantime, this is not something I would want another investor to have to deal with.

It's also very stupid on Sherman's part, because they've now lost any chance at my repeat business.  No company survives very long doing business that way.

 don't get me wrong I totally agree with you I have never heard of this before.. anyone doing rehab lending knows that time lines get blown all the time. its the norm.. it seems like a profit grab for these guys with borrowers who may or may not read all the fine print.. 

there is lender liability in the rule of  law..  but usually what happens is that it cost too much to sue them unless there would be some treble damage type recovery.. so you just suck it up.. and let the world know these guys might not be the best lenders out there..