How to tell if a lender is legitimate or trying to scam you out of your money

While the business transition from office to online is beneficial in numerous ways, it also leaves us borrowers more vulnerable to lender scams and fraud. There are a lot of private lender scams out there, and sometimes fraud is ridiculously easy to identify; however, as technology progresses, so do the abilities of scammers. It is essential that you learn how to spot the signs of a real estate scam, so I compiled a list of seven major signs that you might be dealing with a scammer:

  • Too good to be true. Typically it is safest to assume that anything that seems too easy or too good to be true actually is too easy or too good to be true. Scammers try to lure unsuspecting, hopeful borrowers in with promises of extraordinarily high LTV’s, low interest rates, and 100% financing. When you feel like the terms to which they want you to agree are unbelievable, trust your gut and get out of there.
  • Pay now, lend later. You should be suspicious anytime a private lender asks you to wire funds upfront in order to “process the money” or some other similar excuse. It is especially shady if they request that the money be wired to another bank account that is not in their name. Overall, any lender that asks you to wire money anywhere is probably untrustworthy.
  • Eyes on the prize. Speaking of upfront fees, you start asking questions if the lender does not ask any questions about the property and only seems concerned with the initial payment. A good lender wants to know about the project for which they are loaning money; if they don’t show any interest in the property, they probably aren’t actually planning to give you a loan.
  • Radio silence. When your lender dodges all of your phone calls, emails, and messages, that should automatically be a sign that something fishy is going on. On top of that, if they constantly mistype, use the wrong wording, or get defensive when you question them, you should almost definitely drop them as a lender, because chances are they’re a fraud.
  • Cryptic and dodgy. A lender should be fully transparent and open with answers to any questions you have. They should also be able to provide references, comprehensive procedures and policies, an official email (not a Gmail account!), and the best funding options for you. If they can’t properly answer your questions or avoid giving clear responses all together, that is a major sign that they are not legitimate.
  • Lacking knowledge. Lenders do not have to be real estate experts, but it seems strange that somebody who regularly involves himself in the industry knows nothing about it, especially when it comes to commercial lenders. Your lender should have basic working knowledge of different real estate deals and which loan options work best for them.
  • Nowhere to be found. One of the biggest red flags should be no online presence, especially if the lender contacts you online. If they do not have a company website or it’s apparently “under construction,” it’s best to avoid them.
    • You can look up potential lenders online to see if they are licensed. A good resource for this is the Nationwide Multistate Licensing System (NMLS). Some lenders are exempt from having to register on NMLS, but they still need to be approved by the state, so you can check your state website and see if they are registered there as well!

If the idea of getting scammed completely turns you off to searching for private lenders online, then one way to find legitimate lenders is through references! Speak to other trustworthy investors and get referrals from them; the best is when they themselves have worked with the lender before, so you know that the lender is reliable.

On top of that, keeping paper trails is very important whenever you enter into any sort of deal with a lender. If you happen to find yourself in the midst of a scam, you should immediately consult with a local attorney and explore filing a lawsuit to recover your lost funds. Having records of your interactions with a scammer will definitely help support your case.

Whenever you need to work with a lender, it is critical that you make sure that their business is legitimate before you make any sort of transaction. There are so many different tell-tale signs, so if you something puts you off, stay away from that lender. Your gut is so telling, so you should always trust your gut instinct if you feel that a lender might be shady.