How To Know If Lender Is Legit?

Question

Hey BP,

So I've been trying to get in real estate in the past year, but HML in my area (Philadelphia) have a lot of upfront cost plus fees just to purchase a property. Some are even requesting 20k just to purchase and additional money for rehab. I'm 23 just got out of college so I don't have that money at the moment.

I have a colleague that has a private lender that only funds the rehab, and my colleague found him on Craigslist. So I did the same. Issue is that a "lender" reached out. After I contacted him, he immediately asked what I think my loan amount will be, once I told him, he said no problem and emailed me a loan application. Mind you, only thing he requested was identification didn't ask to verify my income, check my credit score, nothing. He says I need to give him $1,100 as origination fee to cover the background screening and other fees, but his offer is too good to be true. He says that once I request the loan he will then verify my income and background check.

5% interest rate, low monthly payment, 100% funding (purchase + rehab), no prepayment penalties and could close in 2 weeks. He's shown me a picture of his account, his face + ID, and even a video of him in frame stating his name.

I just feel uneasy because the deal sounds way too good to be true. What is the norm the BP community come across when dealing with private lenders?

Scott Wolf · Answer

@James C. trust your gut. Anyone looking for a $1,100 application fee is not legit.  All fee's should be paid at the closing table, with exceptions for the appraisal, and survey if needed.

Guy Gimenez · Answer

The issue is you've been trying to take the quick route instead of the right route into real estate. This isn't HGTV. Craiglist is for buying things, not finding lenders. If you're truly wanting to start a real estate business, you start by building relationships. This is your main objective for the first year and IF you're able to build the right relationships and you can show your commitment, you'll not have an issue with finding the money. Attend every local REI MeetUp (virtually or in person), study/research 2 to 3 hours per day, learn what due diligence means when it comes to potential partners, lenders and properties. Jumping in with both feet before you know anything about the business you're entering is the absolute best way to ensure you fail...and lose money in the process.

Kevin Uzelac · Answer

@James C. if something sounds too good to be true it most likely is. If it was true HM lenders would not be able to compete.There are plenty of private lender scams that will ask for money up front. You will also run into wholesaler scams, lead generation scams etc.

One thing I would ask for going forward before working with any private lenders or anyone else in real estate is ask for referrals. Depending on what they do licenses and insurance could help verify them as well.

Jeff He · Answer

@James C.

Run don't walk. It looks like a scam.

You can usually ask your real estate agent if they have any lender recommendations. If you're looking to get into investment real estate, you should be working with agents that have exposure or personal experience to it, which means they definitely have references.

Rick Pozos · Answer

Western Union?? Why would anyone use western union??? That lender is a SCAM!! stop talking to them.

You close a real estate transaction with an attorney or title company depending on your state. No one is going to send money through western union. PLEASE do not send them any money. Go to some real estate meetups in your area. Meet some people. Ask them who they are using.

James C. · Answer

@Kevin Uzelac

Will do Kevin, I'll move on and be patient. Thanks for the help.

Kevin Uzelac · Answer

@James C. sounds like you did your due diligence on this. These scammers will go to extraordinary lengths to make the scam and unfortunately they work on a lot of people. Definitely just go with your gut.

James C. · Answer

@Kevin Uzelac

Hi Kevin, good point. I forgot to mention that they did provide references because I was very hesitant because it sounded too good of a deal. He first declined because he wanted me to just trust him and my $1,100 isn't a lot of money to scam over.

He then finally provided 3 references. All three had different names and replied at different times, all praising him. One even went so far as showing a Western Union invoice. Looked up the address the buyer chose, and realized it's one of those virtual mail offices if you don't want people to know where you live. I even tried to look up the IP address for all 3, but no luck. Only thing that stood out was that each reference says "cos" instead of because. That's the same way the "lender" texts. So he's most likely not legit.

I guess I would be an easier target because I lack funds to do it myself, that's why I'm trying to do wholesaling to raise capital.

Jared Rine · Answer

@James C...that's a scam. You can smell it a mile away.  No private money is doing that type of stuff with regards to the terms.  And you shouldn't be paying any type of upfront fee.  Trust the gut, always.  Plus lenders doing a lot of biz don't or aren't on CL.  Not knocking it, just saying, as there's no reason to be.

James C. · Answer

@Guy Gimenez

Good point Guy,

I have read real estate books and watched YouTube videos the past 2 years but really I need to expand my network and be patient. I was trying hard to get into it now because I felt like I was ready. I'll take your advice and apply it. I appreciate the help.

How To Know If Lender Is Legit?

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