Bridge loans have become an increasingly popular and essential segment of the lending industry, especially for those wishing to purchase commercial and investment-purpose residential real estate. This increase in availability has also brought about an increase in the number of loan scams, especially within the tightly controlled commercial lending sector. While loan scams have always been around, bridge-loan scams have a few unique characteristics that set them apart from typical scams. These types of scams also try to capitalize on the fact that their targets are looking for quick money with good terms (or terms that are too good to be true). There are three main types of bridge-loan scams of which borrowers should be aware:

1. The Upfront-Fee Scam: This type of scam is both the most common and the most difficult to detect because legitimate bridge lenders also charge upfront fees to cover due diligence. In the case of a scammer, this fee may be disguised as a wire-transfer fee to cover the costs of the fund transfer.
   How to spot the scam: Watch for the following red flags: emails riddled with grammatical errors and typos; lenders who request payment of transaction insurance before they will issue the funds; lenders who offer to let you deposit the upfront fee with an attorney; lenders who offer to partner up with borrowers to invest money overseas but then ask for an upfront fee; and upfront fees that are significantly higher than those charged by other bridge lenders in the area.
2. The Bait-and-Switch Scam: This type of scam often involves legitimate, but dishonest, lenders who change the terms of the loan at the last minute once the borrower’s other financing options are no longer available. These scams are hard to avoid when you’re working with a lender for the first time, so it’s a good idea to ask a new lender for references or check out online real estate and mortgage forums to see what others are saying about them before you submit your loan request.
   How to spot the scam: Watch out for lenders who offer low interest rates or fast closings with little documentation required. Then, at closing, the lender may change the interest rate, ask for additional equity, or demand a percentage of the ownership of the property before they will finalize the loan. The key to avoiding most bait-and-switch scams is to remember that if it seems too good to be true, it probably is!
3. The Identity-Theft Scam: This type of scam is used by an entity that simply wants to get the information necessary to steal the borrower’s identity by offering irresistible loan terms.
   How to spot the scam: There are four main warning signs of identify-theft scams: interest rates below 5% or loan terms of more than ten years; the entity claims to be a US company despite being located overseas; offers of quick closing without requests for documentation and due diligence on the asset that will secure the loan; requests for sensitive personal information about the borrower rather than the property early on in the process (e.g., social security number, date of birth, bank account information, etc.).

The best way to avoid getting caught in a bridge-loan scam is to do your due diligence before you apply for your loan. Reputable bridge and hard money lenders will be happy to provide you with references of other borrowers who have closed loans with them as well as term sheets and commitment letters that establish the terms of your loan long before closing time.