Beware Fake Lenders: How Foreclosure Borrowers Lose Thousands

When a commercial property is headed toward foreclosure, the pressure to find financing fast can push borrowers into bad decisions. One of the most costly is paying upfront money to a lender who does not exist. H. Jack Miller, founder of Gelt Financial, a private lender that has been making commercial and investment real estate loans since 1989, says his office hears from borrowers in this situation almost every day. “Someone will call up or send us an email,” he said. “I was ready to close. I gave this guy $5,000 and he just disappeared.”

Miller warns that a polished website is no longer proof that a lender is real. “Within an hour, we could put up an unbelievably nice looking website,” he said. “We can create some articles, maybe real, maybe not real, that make us look legitimate. And we’re a total scam.” He recently reviewed the online profile of a man in Florida who presented himself as a real estate success story, complete with awards and features in what appeared to be a major national magazine. The logo looked right, but the web address was a misspelled lookalike of the real publication’s site. The lesson is simple: when a lender points to press coverage, click through and check the actual web address. Scammers also win by telling desperate borrowers what they want to hear. In today’s market, a typical private loan might offer around 65% loan-to-value at roughly a 12% interest rate. A fake lender will promise 90% loan-to-value at 6%. “If they get five people quote them between 11 and 13%, and one guy quotes them 6%, they believe it,” Miller said. “But that guy doesn’t exist.” This matters even more for borrowers already in default, since banks are federally regulated and generally cannot lend on a property in foreclosure.

To check a lender before committing, Miller advises looking at reviews from real borrowers, finding out how long the company has been in business, and being cautious about how much you pay upfront. Legitimate firms make their history easy to find, the way Gelt lays out its background on its About Us page. Borrowers should also ask whether the lender specializes in their situation and avoid picking a lender only because it offers the lowest rate or highest leverage. Fraud in this space works because of timing, as borrowers who are down on their luck feel pressure to grab the first offer that sounds like a way out. Miller tells them, “You’re not alone. Don’t be embarrassed. Everyone goes through hard times. It’s all about the rebound.” Taking a day to verify a lender can feel impossible when a sale date is close, but losing a $5,000 deposit to a fake lender costs both money and time, which is exactly what a borrower in foreclosure cannot afford to lose.