Signs of a Hard Money Loan Scam

Couple Talking to Banker at the Bank

Hard money loans have become a common tool used by real estate investors who need lump sums of money quickly to seize profitable opportunities before they slip away. Unlike traditional lending sources which require a much longer timeframe before releasing funds, hard money loans can get money in the hands of investors quickly with little risk since the loan uses the property as collateral.

While most providers of hard money loans in Houston, TX, are legitimate private parties willing to invest in property-backed lending opportunities, there are some loan providers who run fraudulent schemes on borrowers. Hard money lenders aren’t held to the same regulatory standards as traditional lenders, and therefore the industry features loopholes which can be exploited by unscrupulous lenders. Fortunately, it’s not hard to spot scammers in many cases if you know what to look for. Keep reading to learn how to get hard money loans in Texas without falling into a scam.

Shady Rate Structure

A sure sign of a scammer is a lack of transparency when it comes to loan rates for hard money. Rates should be honest and fair. Though you will usually pay higher interest rates on hard money loans when compared to traditional funding sources, rates shouldn’t be exorbitant. Rates above 18 percent should be a red flag that something may be awry. Likewise, if the lender gives you a rate that seems exceedingly low, such as below 10 percent, something foul may be afoot as well. Lenders who give you a low rate upfront may later come back with exorbitant fees that can drive prices higher. You’ll also want to avoid any lenders who won’t present you with a clear-cut APR. If they won’t provide you with that basic information in a forthright manner, move on to another option. 

Abbreviated Application Process 

One of the benefits of hard money loans is that the application process is streamlined so that lenders can provide funds to real estate investors quickly and efficiently. That doesn’t mean that there shouldn’t still be an application process that requires you to submit key details and sign a contract. If a lender fails to require you to apply before providing you with funding, there’s a chance that there are nefarious ends in store for you. The process should include filling out forms and allowing the lender to inspect the property. It usually takes several days. If the lender you’re considering doesn’t want to see the property and requires no up-front paperwork, there could be a fraud in the making. Also, if a lender claims to provide funds for anything, it could indicate bad intentions.

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Phantom Lenders

A reputable lender is easy to find by using internet search engines. Most good hard money lenders have been around long enough to build a successful business under a recognizable name. If you search for a lender online and can find nothing about the company, it may be a sign of a scammer. Many lending scammers operate a short time under one name, then shutter the operation and open another under a new name to prevent former bilked customers and authorities from catching up to them. A lender with good business practices and ethical lending standards will want its name to be known. A company that remains in the shadows is there for a reason.

If you’re considering hard money lending in Texas, be sure to use this advice to avoid potential scams that can submarine your real estate transactions and create frustration. To learn more about the characteristics that separate scammers from legitimate hard money lenders, visit Investor Loan Source at https://ils.cash/.

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