The tabloids are, and always have been, full of fraud stories relating to securities, real estate, and hedge funds. However, lately there are an influx of scandals relating to the hard money lending industry. These fraudsters are tainting the good faith of our industry. These misconstrued conceptions of the industry are leading borrowers away from the honest lenders, to other sub-category divisions like private lending. Borrowers now-a-days refuse to pay any upfront fee’s to lenders, and push the expense of due-diligence off to the lender. This cautious advance is understandable given recent history. One of the more common methods of deceit in the hard money world is found by way of “up-front” fees. So called lenders charge up to $20,000 up front, then disappear altogether, taking the borrower’s precious funds with them.
From an honest lender’s perspective, charging an up-front fee is absolutely necessary to stay in business. A properly functioning lender cannot possibly survive if it must stomach all expenses such as travel, hotel, and inspections for each individual deal. These alternative perspectives raise a certain dilemma: How does a borrower know if a lender is trustworthy? First of all, if a lender is charging more than a couple of thousand dollars in up-front fees, it probably is not reliable. Second, honest lenders will usually stipulate in the letter of interest (LOI) that they will refund to the borrower any unused funds. Third, a good practice is always to ask the lender for referrals. This will almost guarantee that a fake lender will show its cards.
So what does the path back to hard money look like? We can’t possibly expect to eliminate the liars and fraudsters from the industry. What can we do then? We must be smarter lenders and smarter borrowers, working together to expel deceit and foster an environment of high standards within the world of hard money. Hard money brokers are not exempt from this categorical imperative. A broker must maintain this high standard by investigating all potential lenders before recommending them.
If honesty and integrity are two of your values, then contact Hard Strategy lending today. With five years of experience in the industry, our greatest pride is our integrity. If we can’t fund your deal, we will approach our network of pre-qualified lenders to get the deal done. Let’s join together to restore the good name of hard money lending!