Has anyone sued a hard money lender?

[Chris Fuller]

It seems that defaults using hard money are on the rise. Who is the best attorney to look into bad practices by hard money lenders? 

[Jacob G.]

what was the loan on?

[Jay Hinrichs]

out of sheer curiosity what bad practices.. ?  you mean borrower did not pay and lender is foreclosing.. ?

[Ryan Blake]

@Chris Fuller

If the lender broke the agreement you signed, an attorney that specializes in contracts would be best. What did they violate? FYI, most lenders lose money when they foreclose on a property so it is something that lenders typically want to avoid.

[Theresa Harris]

If the rise in defaults are due to people not making payments, then that is their problem and they shouldn't be surprised.

[Chris Fuller]

I am seeing several big name lenders get sued for excessive rates, devaluing properties and putting borrowers in a worse position. I have experienced myself with hard money that they will not pay out the construction draws as outlined in agreement pushing borrowers into foreclosure. Lenders forcing borrowers to sign forbearance agreements that are not in best interest of borrower. 

If you look up case law you will see the how many cases are getting filed against hard money lenders especially when a hard money lender has junior lenders that lend to them 'meaning the hard money company". Junior lenders have now started suing hard money lenders because the lender did not act in their best interest. 

I figured there would be others on Biggerpockets in similar situations, since there are so many legal cases ongoing, but it may be that Biggerpockets caters to Hard Money Lenders...

[John Chapman]

I'm not sure I'm understanding  your post @Chris Fuller. Are you saying that hard money lenders are starting to deliberately breach lending agreements so as to deliberately push borrowers into foreclosure? If so, I can't see how that's a money making scheme. Foreclosure isn't an opportunity to make excess profits so much as an opportunity to mitigate losses, particularly if you have a performing borrower. Plus, most HML lenders I know make more money from points and fees, meaning they want to recirculate their money as fast as possible. Foreclosure drags out how long their money is tied up.

Disputes/gripes over  draws are pretty common.  Some companies are worse than others, and word gets around about bad ones.

As for HML's relationships with junior lenders, how does that impact you, the ultimate borrower? Bottom line is that there are always shady characters in all areas of real estate.

[Chiquita Smith]

I’m trying to get a referral to an attorney I took out a hard money loan the lender is not dispersing the funds that they charge me interest for a front the money sitting in an escrow account and they’re not releasing the draws per the agreement so I’m trying to speak with an attorney to see how I can get this expedited

[Jay Hinrichs]

Quote from @Chiquita Smith:

I’m trying to get a referral to an attorney I took out a hard money loan the lender is not dispersing the funds that they charge me interest for a front the money sitting in an escrow account and they’re not releasing the draws per the agreement so I’m trying to speak with an attorney to see how I can get this expedited

there is usually a reason for this other than they are just not doing it.. there could be a default of some kind that has frozen the process.. And keep in mind lenders at their sole discretion can stop advancing funds if they feel there collateral is in jeopardy  

[Linda Rich]

Quote from @Chris Fuller:

It seems that defaults using hard money are on the rise. Who is the best attorney to look into bad practices by hard money 

 I have the same problem when the lender didn’t cam me any funds for the draw. All the money was sitting in the escrow account and I was only giving one draw. I paid the loan for 2 1/2 years 

I paid insurance every 3 months at a very high amount. Every 3 months was 650.  The lender put my house up for foreclosure I was never late. The lender did so many damages to me. I had to get an attorney which cost 12 thousand to save my home. This lender has an list of people on his trustees   trustees 1. The lender, 2, the insurance company, 

3, The title company, 4, the appraisal, 5, the 

residence agent?  6,  The debt collector attorney 

My attorney was good and my home is saved 
With in 1 day if you the   sale 
I want to sue this company  

If anyone has information to share please reply 

[Linda Rich]

Quote from @John Chapman:

I'm not sure I'm understanding  your post @Chris Fuller. Are you saying that hard money lenders are starting to deliberately breach lending agreements so as to deliberately push borrowers into foreclosure? If so, I can't see how that's a money making scheme. Foreclosure isn't an opportunity to make excess profits so much as an opportunity to mitigate losses, particularly if you have a performing borrower. Plus, most HML lenders I know make more money from points and fees, meaning they want to recirculate their money as fast as possible. Foreclosure drags out how long their money is tied up.

Disputes/gripes over  draws are pretty common.  Some companies are worse than others, and word gets around about bad ones.

As for HML's relationships with junior lenders, how does that impact you, the ultimate borrower? Bottom line is that there are always shady characters in all areas of real estate.

[Linda Rich]

Quote from @Linda Rich:

Quote from @John Chapman:

I'm not sure I'm understanding  your post @Chris Fuller. Are you saying that hard money lenders are starting to deliberately breach lending agreements so as to deliberately push borrowers into foreclosure? If so, I can't see how that's a money making scheme. Foreclosure isn't an opportunity to make excess profits so much as an opportunity to mitigate losses, particularly if you have a performing borrower. Plus, most HML lenders I know make more money from points and fees, meaning they want to recirculate their money as fast as possible. Foreclosure drags out how long their money is tied up.

Disputes/gripes over  draws are pretty common.  Some companies are worse than others, and word gets around about bad ones.

As for HML's relationships with junior lenders, how does that impact you, the ultimate borrower? Bottom line is that there are always shady characters in all areas of real estate.

 Yes the lenders are breaching their contracts, contracts,  putting houses in foreclosure and not giving any money for the payout draws.

Help what do 

[Chris Seveney]

@Jay Hinrichs

I know do one HML who I think is here on BP who changes the name of his company every other week and acts as a warehouse lender but does not have the funds on the back end and turns around and sells the notes.

One problem was they were originating loans and trying of course to sell at par but when rates went up they had to sell for less so my guess is they would not fund the entire construction.

This is why of course it’s important to vet your private lender.

[Jay Hinrichs]

Quote from @Chris Seveney:

@Jay Hinrichs

I know do one HML who I think is here on BP who changes the name of his company every other week and acts as a warehouse lender but does not have the funds on the back end and turns around and sells the notes.

One problem was they were originating loans and trying of course to sell at par but when rates went up they had to sell for less so my guess is they would not fund the entire construction.

This is why of course it’s important to vet your private lender.

quite a few of the HML sell their paper thats whay Peer street is in business thats their main focus  buying HML originations.. the HML has to have the funds up front to make the loan of course then they get back filled 3 to 7 days later.. just like we did with our bank LOC's .. if pricing changed in that 3 to 7 days I guess i could see that as a problem but you would think there would be  some warning since the second leg of the transaction happens so close to the original loan funding.

[Chris Seveney]

Quote from @Jay Hinrichs:

Quote from @Chris Seveney:

@Jay Hinrichs

I know do one HML who I think is here on BP who changes the name of his company every other week and acts as a warehouse lender but does not have the funds on the back end and turns around and sells the notes.

One problem was they were originating loans and trying of course to sell at par but when rates went up they had to sell for less so my guess is they would not fund the entire construction.

This is why of course it’s important to vet your private lender.

quite a few of the HML sell their paper thats whay Peer street is in business thats their main focus  buying HML originations.. the HML has to have the funds up front to make the loan of course then they get back filled 3 to 7 days later.. just like we did with our bank LOC's .. if pricing changed in that 3 to 7 days I guess i could see that as a problem but you would think there would be  some warning since the second leg of the transaction happens so close to the original loan funding.

Sorry I should have been more clear:
This person does not have the $ upfront - that is the issue. They are allegedly making loans without all the money upfront and only a portion of it....  For example they raise $400k from investors then lend someone $700k with $400k upfront and $300k for construction. When the borrower goes to get the next draw if they have not sold the loan they do not fund it and have gone dark. Then they open another LLC and do it again... 

This is why people need to spend five minutes just googling and looking on BP who the lender is, there are several threads for example on BP about the person I am referring too. 

[Carlos Ptriawan]

Quote from @Chris Seveney:

Quote from @Jay Hinrichs:

Quote from @Chris Seveney:

@Jay Hinrichs

I know do one HML who I think is here on BP who changes the name of his company every other week and acts as a warehouse lender but does not have the funds on the back end and turns around and sells the notes.

One problem was they were originating loans and trying of course to sell at par but when rates went up they had to sell for less so my guess is they would not fund the entire construction.

This is why of course it’s important to vet your private lender.

quite a few of the HML sell their paper thats whay Peer street is in business thats their main focus  buying HML originations.. the HML has to have the funds up front to make the loan of course then they get back filled 3 to 7 days later.. just like we did with our bank LOC's .. if pricing changed in that 3 to 7 days I guess i could see that as a problem but you would think there would be  some warning since the second leg of the transaction happens so close to the original loan funding.

Sorry I should have been more clear:
This person does not have the $ upfront - that is the issue. They are allegedly making loans without all the money upfront and only a portion of it....  For example they raise $400k from investors then lend someone $700k with $400k upfront and $300k for construction. When the borrower goes to get the next draw if they have not sold the loan they do not fund it and have gone dark. Then they open another LLC and do it again... 

This is why people need to spend five minutes just googling and looking on BP who the lender is, there are several threads for example on BP about the person I am referring too. 

 Maybe Chris Fuller can disclose the name of his lender then.

[Jay Hinrichs]

Quote from @Chris Seveney:

Quote from @Jay Hinrichs:

Quote from @Chris Seveney:

@Jay Hinrichs

I know do one HML who I think is here on BP who changes the name of his company every other week and acts as a warehouse lender but does not have the funds on the back end and turns around and sells the notes.

One problem was they were originating loans and trying of course to sell at par but when rates went up they had to sell for less so my guess is they would not fund the entire construction.

This is why of course it’s important to vet your private lender.

quite a few of the HML sell their paper thats whay Peer street is in business thats their main focus  buying HML originations.. the HML has to have the funds up front to make the loan of course then they get back filled 3 to 7 days later.. just like we did with our bank LOC's .. if pricing changed in that 3 to 7 days I guess i could see that as a problem but you would think there would be  some warning since the second leg of the transaction happens so close to the original loan funding.

Sorry I should have been more clear:
This person does not have the $ upfront - that is the issue. They are allegedly making loans without all the money upfront and only a portion of it....  For example they raise $400k from investors then lend someone $700k with $400k upfront and $300k for construction. When the borrower goes to get the next draw if they have not sold the loan they do not fund it and have gone dark. Then they open another LLC and do it again... 

This is why people need to spend five minutes just googling and looking on BP who the lender is, there are several threads for example on BP about the person I am referring too. 

Gothca... on one of my deals ( we were selling and the buyer had a hard money lender) I asked for POF they sent me the lenders rehab escrow account as a POF.. I told the dude they cant use those funds to fund new deals the money is committed..  I can see this happening though and I suspect its pretty common when money is cycling your always getting payoffs so there is funds to front for rehab.. But to short someone on rehab funds and say your sorry is a very poor practice and really leaves a borrower in a bad spot.. I suspect that would be cause for some serious litigation if the borrower sustains a financial loss.

[Jeff S.]

California (ok, cue the eye rolls) requires that all brokered construction loans over $100k be fully funded and escrowed to avoid the draw money from disappearing when you need it. That is, the lender must send the entire amount of the construction loan to a neutral party, such as a loan servicer or funds control company, before the deed of trust is recorded and with clear instructions on how it is to be disbursed (or reclaimed by the lender) using a draw schedule.

Whether required by law or not, you should always expect this of your lender and no credible lender should have a problem with it. Most will charge interest on the entire amount anyway.

Escrowed construction money only guarantees the funds are there, not that you will necessarily receive them. There are always two sides to every story and, as @Jay Hinrichs mentioned, you must still do your part to show the construction work was completed properly and that you are still in compliance with your loan.

With the various stories, I don’t know who all the bad players are above, but this thread is 4 years old and with 7 posts, I’m sure at least the OP is long gone. Nor do I know specifically who @Chris Seveney is referring to, but I agree with him it’s clear that there are several lenders on this board (and they come and go) who are playing games and not anyone you want to do business with.

It’s a shame that with all the money BP charges, they don’t actually vet their lender list. Seems that should be part of the deal. Of course, this doesn’t exonerate the bad guys.