10 red flags to spot a scammer
Recently, We have seen an increase in the number of lending scams online. Many of these scams offer funding with almost too good to be true terms and ask individuals to wire money for fees in advance. I’ve put together a little list of things to keep in mind when seeking financing to avoid being scammed: This is a list of red flags. It’s not a list of end all deal killers, If you come across a red flag you need to take a pause and complete more due diligence.
Be Wary of Advanced Fee Loan Scams
1) Never pay upfront fees or wire money directly to a lender. While you may be required to pay an appraisal or credit fee, these are the only major exceptions and are usually completed through a credit card transaction. All other transactions should be completed through an escrow company.
2) Requests that you “wire” or “send” money, as soon as possible to a large U.S. city or to another country using a money transfer service such as Western Union or MoneyGram.
3) Requests for money to be sent in advance to cover “processing”, “application”, ”insurance”, or the “first month’s payment” are indicators of loan scams. Legitimate companies or even small business lenders usually don’t ask for expenses to be paid upfront for processing an application.
4) Always verify the lender’s licenses. www.nmlsconsumeraccess.org is a great place to start. You can also follow up with the state regulatory institution(s). Here in California, that would be the DBO or BRE. Licensed lenders are heavily regulated which protects you, the consumer, from being taken advantage of.
5) Be suspicious of any deals that seem too good to be true. 100% financing is extremely uncommon for investment properties, especially if this is your first deal. All real estate deals have some degree of risk, never expect the lender to assume all of the risk. (Please note: There are some programs for owner occupied homes that allow 100% financing. You may talk to a loan officer to see if you qualify for a program like this.)
6) Rates are not static; they change daily and vary by situation. If you see someone offering a flat interest rate with very limited documentation, be very suspicious.
7) While this is not a disqualifying factor, be suspicious of any lender whose email address is not a company affiliated address. For example, a gmail or yahoo account is not common in the legitimate lending world.
8) Do not send any personal information via email to a lender without first verifying their legitimacy. Many fake lenders have been sending out an ‘application’ and requesting it be filled out with personal information and is very vague. A typical loan application is extremely detailed and should be completed under the guidance of a licensed loan officer.
9) Keep in mind, all real estate transactions involve some degree of risk. If it appears that the bank is assuming all the risk, let that be a red flag.
10) Watch for spelling and grammar. If it does not appear that the lender has a good command of the English language, be cautious. You may be dealing with someone outside the United States. Also, always talk to your lender on the phone throughout the process. Never rely on email alone. Asking questions on the phone will give you an idea as to how competent he/she is in the process.
