How to avoid hard money scams??

[Trish Dunn]

Hi everyone,

My husband and I are putting an offer on a property that needs a decent amount of work. We'd like to use hard money to fund the rehab, but have never done this before. What are some things to look out for??

Thanks!

[Jeff S.]

Your first line of defense is avoiding the solicitations you receive here or from anywhere else, @Trish Dunn. You have no idea who these people are, their background, experience, or integrity. Specifically, Craigslist, Facebook, LinkedIn, Connect Investors, and the like are crawling with scammers. Note that even the lender list on BP is unvetted. Private/hard money lending has exploded, so there’s no reason to take a chance with strangers you meet on the web.

Local real estate clubs, face-to-face, are the safest way to find lenders. If you can’t meet in person to develop a relationship, do it over the phone with a list of informed questions. Meetup is a good site to find local REI clubs. The key is to borrow as locally as you can, from lenders you've met.

Local lenders will understand your area, the prevailing lending rates, and potential obstacles you might face. They will also be more inclined to provide an accommodation to someone they know when issues arise. Rest assured; you will often have issues.

You should always ask a potential lender where they get their money. Many larger lenders now bundle and sell their loans. Understand that if you go this route, you might ultimately not know who will end up with your note and who your lender really is. Are you comfortable with this?

Unless you are doing large commercial deals, where up-front fees are common, you should never pay these. Legitimate lenders will not ask for up-front money. Similarly, appraisal fees, if required, should be paid directly to the appraiser – never to the lender. Other than maybe a $35 credit check, there should be no other fees. And, if a private lender even mentions any sort of private lender insurance, you should immediately hang up. This seems to be the scam du jour lately and there is no such thing. (Don’t I wish).

Last, use some common sense when and to whom you provide your personal financial info. This has value too and can be used for identity theft.

Good luck to you and your husband, Trish.