Lender Scams: 3 Things to Look out For
This article pertains to some of the scams that are out there when it comes to finding the best Lender for your next Commercial Loan.
- LENDER? BROKER? If you’ve been in the industry long enough, you will know that there are tons of “Lenders” out there who proclaim to be Direct-Lenders, but are really Brokers. I mean, there’s nothing wrong with being either, but when it comes to ethics, wouldn’t you think it would be a good idea to actually tell your customer who you are right off the bat? Nothing is worst then feeling duped because this “Lender” ended up fishing out your file to dozens of Lenders, because in actuality they are a Brokerage. So just make sure you always ask the right questions and Google the company you approach before making any commitments.
- CONVOLUTED LOAN PRODUCTS: Any Lender out there who sells a Loan Product to you that doesn’t make any sense to you, seems unorthodox, or doesn’t have anything connection to them writing you a check and wiring to you…it’s a scam. Several months ago, I worked with a client that approached a Lender who was selling them on the idea of some Life Insurance Bond Policy program that was convoluted at best and required the Borrower to put $50,000 as an upfront/non-refundable cost! Now you tell me if that’s something you would go for…
In a general sense, the loan offers that Lenders give to you should be clear-cut and detailed in a Letter of Intent that is issued to you at the onset of the funding process. This letter details all of the things that you need to know about the Commercial Loan.
So when in doubt about a Loan Product, be sure to answer detailed questions and if you still don’t get it, ask again until you fully understand their offer and how it works. Because at the end of the day, this is an investment you’re pursuing, so wouldn’t it be wise to know everything about it?
- UPFRONT FEES: If any Lender charges you more than $2500 up front as a “Processing Fee”, then the red flag should come up. In some rare cases, some Lenders do charge a $5000+ fee which is basically contributed to some third-party costs and such to get the deal properly through underwriting and is also tacked on as your equity into the deal. Any fee charged should also be refundable in the case the Lender backs out of your deal. That’s why it’s important to see it in writing as to what these upfront costs (if there are any) will be used for.
Most fees should be paid at the CLOSING of the loan – whether through a check, a wire transaction or through the loan proceeds. For example, for our service, we charge a Broker Fee, which isn’t an upfront cost, but is dealt with at closing, usually through Escrow. Some of these Lenders will charge absolutely ridiculous amounts – $20,000, $50,000 “retainer fees” and it’s sad to say but there are people out there who one – are desperate to get money to fund their deal and two – just don’t know and don’t do their research…that pay those obscene amounts.
We implore you to do your research. Look these companies up on Google and request references. Any successful Lender will be more than happy to provide a list of their successful fundings.
ALL THE BEST!