11 Ways To Tell a Loan Offer May Be a SCAM

Written by Posted On Friday, 02 June 2017 15:27

Real estate investors who have spent time in real estate investment forums, Facebook Groups or other online real estate investor networks have probably come across loan offers that are scams designed to separate you from your funds.

Getting involved with a loan scam will lead to wasting time, losing money or even having your identify stolen.

Online loan scams usually work the same way. The scammer offering the (too good to be true) loan terms agrees to move forward and fund the loan request as soon as they receive some type of upfront payment from the borrower. Once the borrower makes the mistake of providing an upfront payment the scammer says they didn’t received the payment, there was some problem with the loan or application, or they simply disappear with the borrower’s money.

Red Flags for Loan Scams

Below are some of the more common red flags which should alert you that the loan offer could be a scam. One issue by itself doesn't necessarily mean the offer is a scam but if you come across a few of these different red flags proceed with extreme caution and make sure you know who you are dealing with.

1. The lender requires money upfront

This is the most obvious red flag. The scammer may claim this is a standard procedure and call it an insurance fee, application fee, appraisal fee, advanced payment, processing fee, taxes or a deposit.

The scammer will require the payment is wired (usually through Western Union, Money Gram or similar service) or request the payment as a prepaid debit card. The scammers only accept the payment in a way that is difficult to trace, leaving the borrower unable to retrieve their lost funds.

In most loan transactions, the fees are rolled into the loan amount and the borrower isn't required to pay anything out of pocket.

In some situations, it will be required that the borrower provides the lender with upfront money such as for an appraisal or a credit report fee but these are relatively small amounts of money. The borrower needs to make sure they know who they are dealing with prior to providing any payments.

2. Poor grammar, misspelled words and broken English

If the written communication contains many misspellings, grammar issues and strange word choices it may be a scammer from overseas. Many scams originate from places like Eastern Europe or Africa.

3. The loan is unsecured

Loans which are unsecured (no collateral) are very high risk for a lender. If the borrower defaults on the unsecured loan the lender will likely not be able to recover any portion of the loaned amount. The majority of loans require some type of collateral such as real estate, business assets or even a car title.

4. Many different loan types are available

The majority of lenders specialize in one type of loan and focus primarily in this type of lending. Scammers will often offer many different types of loans including investment loans, home loans, personal loans, business loans, student loans, car loans and any other type of loan they can come up with. Scammers attempt to cast a wide net to catch as many victims as they can.

5. Extremely low interest rates

Scammers always advertise very low interest rates, usually in the range of 1-4%. Experienced real estate investors knows that these low rates are not available except in specific situations with a bank. Scammers also advertise a 1-2 year initial period without payments or introductory periods with 0% APR.

6. Guaranteed approval and no credit checks

Legitimage lenders have to know the borrower is able to pay back the loan amount. Reviewing the borrower’s credit report/history is usually the best indicator of the borrower’s likelihood to repay the loan.

Lenders who do not focus as heavily on credit history will require the borrower has a sufficient amount of equity in the real estate or asset used as loan collateral.

7. The borrower is rushed to make an instant decision to obtain the loan

Scammers may claim the loan offer must be accepted immediately by the borrower or it won't be available. This is an attempt to ensure that borrower does not have time to do the needed research on the “lender”. This forces the borrower into making a bad decision. Any pressure put on a borrower to immediately accept a loan should be seen as a major red flag.

8. No company website

Real hard money lenders have company websites where they post information about their loan programs, provide background information about the company and employess, highlight recent loans they have funded and provide information about topics within their industry. Successful lenders have the money to invest in the design and building of a website.

9. Generic email addresses such as Gmail or Yahoo

Nothing against Gmail, but loan scammers are known for choosing this email service (as well as Yahoo) as their email service provider of choice. If they were truly a legitimate lender they would most likely have an email hosted with the domain name of the company website in their email address.

10. 100% financing is offered

Many aspiring real estate investors without capital to invest often want to borrow 100% of the purchase price (100% financing). Legitimate lenders very rarely agree to do 100% financing for many different reasons. Scammers offer 100% financing since they know aspiring real estate investors who are turned down elsewhere will jump at the chance to have the whole purchase price financed.

11. Unable to provide licensing information

Real lenders have some sort of licensing, registration and/or affiliations with professional organizations. It is a requirement for many lenders that the display their real estate licensing information and business address on promotional/markeing information. Many lenders are members of the Better Business Bureau in their area but this is not required.

In Summary

Listed above are many of the common red flags that may indicate the "loan provider" is a scammer. Anything else that seems out of place or unprofessional should also make the borrower stop and think. Always protect your money and personal information.

Remember to never submit sensitive and personal information such as bank account information, Social Security numbers, address, date of birth or any other personal information until you are certain you are dealing with a legitimate direct hard money lender.

Article first published by North Coast Financial, Inc. - https://www.northcoastfinancialinc.com/11-ways-to-tell-a-loan-offer-is-a-scam/

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Jeff Hensel

North Coast Financial, Inc. is a California hard money lender with over 37 years of experience specializing in various types of hard money loans including probate and estate loans, investment and rental property loans, bridge loans, fix and flip/rehab loans, purchase loans, cash out and refinance loans and other hard money loans with California real estate as collateral.


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