Hard money loans (sometimes call private capital loans) can be very useful in certain circumstances for borrowers with commercial real estate.   When a borrower needs capital quickly to close a great buy, needs to pay off a loan that is coming due, or wants to get cash out from an existing property for any purpose hard money loans may be the right way to go.  However, getting ripped off for thousands of dollars in upfront fees without getting a loan is a borrower’s worst nightmare.  Listed below are 6 tips that may help you find the right lender and avoid the wrong one.

1. Google the lender you are thinking about working with.  Don’t just look at their web site or other sites that are created by the lender – look for other Google links that may have titles like:  XYZ Lender – borrowers who have been ripped off / XYZ Lender sued in District Court/ XYZ Lender accused of fraud, etc.  /   Check specific sites like:  www.complaintsboard.com –www.scam.com – www.mortgagegrapevine.com – and www.ripoffreport.com.  Do your internet homework before you give money to a hard money lender, not afterwards when it will be too late.
2.  Whenever possible work with a lender in your area.  Not all cities have hard money lenders, but many do.  Checking references for a local lender is much easier than for a national lender.  Most of the really large hard money lenders operate nationwide and are able to afford substantial advertising and spend lots of money on getting the best positions in search engine lists.  Just because a lender is near the top of Google (with their own web site) doesn’t mean they are ethical or safe to deal with.
3. Be very afraid when lenders ask for a large sum of money up frontto “look into your loan request”.  It is one thing to pay an appraisal deposit when you have a written commitment letter – it is another thing altogether to pay large up front “due diligence fees” just to get a lender to “look at your request”.  Use common sense in this matter.
4. Always use an attorney to represent you in these kinds of private lender transactions.  Although you will pay some legal fees this is probably the best way to prevent being totally ripped off and lose not only a loan but also tens of thousands of dollars in up-front fees that you will never see again.  The scam lenders have great legal documents that they make you sign before they take your money and once you sign them you will almost never recover anything from the lender.  Your attorney needs to review all documents before you sign anything and before you send a lender any up-front money.  Don’t be penny wise and pound foolish when it comes to safeguarding yourself against lender fraud.
5. Ask around to get input from others about the reputation of the lender you have contacted.  Talk to your attorney, your CPA, real estate brokers, your commercial banker.  Don’t deal with a lender that no one has ever heard anything about or that has not gotten good recommendations from people that you know.
6. Find out of the company you are working with is a direct lender or a loan broker.  This is something you must know before you proceed to work with them.  A direct lender controls the money and actually funds the loan.  A loan broker takes a fee (from you!) to put you in touch with a direct lender.  On the internet is it often hard to tell the difference.  Many loan brokers hold themselves out as lenders.  You should ask the company you are talking with to tell you (preferably in writing) whether they are a direct lender or a loan broker.  The difference can not only save you some fees (typically 1 to 2%) but also headaches.  Lenders make decisions.  There are good brokers and not so good ones.  The good ones will let you know clearly up front their role in your loan request.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.