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Fake Hard Money Lender Scam

Hi, my name is Robert Woodruff, I am the President of the Florence Real Estate Investors’ Association. I’d like you to pay close attention to what I’m about to tell you. The information you are about to receive in this blog can mean the difference between achieving your dreams, or suffering your worst nightmare.

Over the past few years I have had the unfortunate opportunity of meeting many investors who have been taken by fake hard money scams. In this blog, I’m going to explain the circumstances around 3 of these events. One of these events transpired with a close investor friend of mine that I met through my club, another was my own experience, and lately I have had another investor from Florida who contacted me with the same experience. Except for me, for the sake of the investors involved, their names will be changed to protect their privacy. However, I will use the very same names that the scam artists used.

Jim was a hard working guy. He worked his way through our REIA club first by learning how to wholesale, then started collecting houses, and then achieved his financial freedom by buying mobile homes for cash flow. It didn’t take Jim very long to realize that mobile home parks & commercial investments had the best cash flow of any other investment. Jim did a really great job by buying his first mobile home park No Money Down in Louisiana, just outside of New Orleans.

Jim received a call one day from an investor friend. His friend told him of a hard money lender he recently spoke with about funding one of his deals. The terms of the hard money loan were better than any hard money terms he had ever heard of. Jim was excited to hear about this new hard money lender program. He got the hard money lenders number and contacted him to test the waters. After speaking with this hard money lender, he began searching high and low for deals on mobile home parks all across the country. After finding 3 great deals, he returned to the lender to discuss financing. The lender had him send the paperwork for the deals to him by fax. They exchanged normal paperwork, including a non-compete that the lender was glad to sign so that there wasn’t any question of the lender stealing Jims’ deals.

After speaking with the lender and receiving a proof of funds letter to give to his sellers, Jim promptly sent the lender $15,000 dollars. This money would be considered a “due diligence fee” so that the lender would continue with the funding of his three deals. Jim glady paid the due diligence fee out of his own pocket. Then he began contacting all of the small money lenders he could find(father, brother, sister, friends & friends of friends)to acquire an additional $20,000 down payment for each deal to close. The amount he now sought was $60,000. Jim didn’t worry much about the total amount of $75,000 that he was giving the lender because the hard money lender assured Jim that since his deals were around 50% of value(ARV), he would receive all of the cash back on closing day plus lots more to put into his pocket. “Up to 70% of the value of each property” Since Jim found some really great deals, paying $75,000 was a drop in the bucket concerning he would walk away from closing with a couple hundred thousand dollars. After collecting an additional $20,000 per deal to close from his family and friends, Jim promptly wired “Terry” the money.

After being “stiped” do death by the hard money lender over a 6 month period, Jim finally succumbed to the fact that he lost all of his money to an individual that wouldn’t hesitate to lead him on for yet another 6 months if needed. It was still hard for Jim to believe what had happened. He still wishes today that the hard money lender was not a scam artist and that the deals had closed like they were supposed to. For good reason, see, if Jim’s deals had went to closing like he thought they would, those 3 mobile home park deals would have brought Jim an extra $50,000 per month. It would have changed his life and the life of his whole family.

Instead of achieving his dreams, Jim achieved a nightmare. But this just wasn’t just his nightmare, the nightmare now included his family, friends, and trusted private money investors. Jim was now on the hook with everyone he knew for being so ignorant to have lost every ones money. In an attempt to pay everyone back, he sold everything in his portfolio that he had worked so hard to build. Then, Jim applied for the best paying job he could find to keep his family afloat. Unfortunately, the job is in New Mexico, thousands of miles away from his wife and children in Florence, SC.

Just as Jim’s friend had turned-him-on to this hard money scam, Jim had turned-me-on to the scam as well. The deal sounded legit until I realized Jim was in a state of emergency. By the time Jim contacted me that none of his deals were closing, I had already been suckered out of a $3,000 dollar “due diligence fee” from this person calling himself “Terry”. Terry sounded very professional, and assured me his company was legit. He put me in contact with two other individuals who supposedly own and manage the company and they both assured me that they could handle anything I put in front of them. “Essentially, they were tag-teaming me.” They even assured me that they could fund my accounts receivables’ for my durable medical equipment company (DME). These guys don’t just target real estate investors, they also target small business owners.

After paying Terry $3,000 for a due diligence fee, I noticed the paperwork he had sent me looked like something I threw together when I was a beginning investor. By using a ruler, I quickly realized he had photocopied something that he had taped together. I was immediately upset that I didn’t pay better attention to the paperwork before I wired him the money. I guess I was suffering from the same dilemma Jim had. I wanted this deal to be true so much that I carelessly overlooked something I could have easily caught. The money I lost wasn’t much in comparison to what I would have made if the deal actually turned out to be true, but it wasn’t true.

Recently, I received a call from a lady investor from Florida. She had used a local reputable hard money lender to give her a second mortgage on her personal home on Wadmallaw Island. She then used to money to shore-up her real-estate investing portfolio. She had bought too many houses before the market fell and needed a strong influx of cash to bail herself out.

Most hard money lender terms are for 6 months. After the six months, they apply another origination fee to the balance of your loan to refinance you again. After 12 months, most will take your property and any equity you have remaining. This lady needed another hard money lender to refinance her or risk losing her own house. She called around and spoke to not one, not two, but THREE! Three Fake Hard Money Lenders scammed her for a total of $12,000 in due diligence fees. She called me back after the weekend and told me a law firm out of Pennsylvania now scammed her for an additional $1,200 dollars and stopped taking her calls.

This lady is about to lose roughly $500,000 in equity in her posh island home to a hard money lender because all the hard money lenders she called were fake and took up all her time she had left to refinance. She contacted me for the first time within a few days of losing this property. Because she needed $150,000 to shore-up her mistake of buying too many houses, she now lost over a half-million dollars in equity, and her personal island home. As you can imagine, the $14,200 she lost to these fake organizations was just a drop in the bucket, “Thou, it marked the onset of a much bigger loss.”

As far as I am concerned, there is no better or noble of an action than trying to make a difference in the lives of our families thru investing. I applaud every successful investor who wasn’t shy about doing the hard work, and separating themselves from their comfort zone to learn something new. Indeed, I know how hard and stressful the whole process can be. This is why I took the time to write this blog. I’m giving you this information in hope that you will not make the same mistakes we have. Knowing the information in this blog can mean the difference between achieving your dreams, or suffering your worst nightmare.

If it’s too good to be true, chances are it isn’t. For your own sake, the sake of your family, friends, and investing colleagues, remember this blog when considering hard money lenders.

If you would like to learn something that seems too good to be true, but IS TRUE, then I encourage you to join me at “TheKeystoCashFlow.com”

*Robert Woodruff is a multiple business owner, philanthropist, real estate investor, president of the Florence REIA, and author of; “The Keys to Cash Flow.” Robert lives on a small island outside of Florence SC with his lovely wife of 15 years and two boys. For more information on topics like these or to know more about Robert, Visit him at his site or join him on facebook.

 

 

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