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PLP-050 Identifying And Avoiding Lender Scams

PLP 50 | Lender Scams

PLP 50 | Lender Scams


There are so many lender scams spreading through the internet that sometimes, you can’t even tell which ones are true and not. Suffice it to say, it has become easier to fall into these traps. The good thing is that you can learn some ways to avoid them. Learn the ways and means that you, as the borrower, won’t fall into any types of lending scams. Identify the red flags when it comes to offers and know where to put or give your money.

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Identifying And Avoiding Lender Scams

Lending scams, how many times do you go to Facebook or Instagram or on the BiggerPockets forum, sometimes I’ll see complaints or lamentations about lending scams. We’ve all received the emails about the Nigerian prince or some rich uncle in the Middle East and you can get a cut of $5 million or whatever. You go to Facebook and you see, “I am a private lender or I’m a hard money lender and I can get you anything from $20,000 to $5 million, asset-based lending only,” and there’s going to be like a Gmail or Hotmail account. Some of these people are legitimate. I used to do my lending out of a Yahoo account. The difference between me and this guy on Facebook, I was not advertising I could lend you millions of dollars. In fact, I wasn’t even advertising. I wasn’t putting it out there that I’ve got money to lend. If someone is going to get a broker a deal and get a commission on $5 million, even if it’s only one point, that’s enough money to where I’m thinking in my head. You can take that $50,000 and go to GoDaddy and get you a legitimate email address or a company URL and a company email address. You wouldn’t rely on Yahoo or Hotmail, one of my favorite ones to see. Not necessarily a dead giveaway, but something to look at. It’s something to consider, especially if they’re a hard money lender and they’re using Hotmail or Gmail.

If it walks like a duck, talks like a duck, and smells like a duck, then it probably is a scam.
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Some legitimate businesses do use that and I know some people that still do. However, they have websites. They have proper companies, insurance policies in place and employees and things like that. That’s something to look at. One of my favorites is that generic stock photo of somebody smiling and they’re trying to play it off like it’s themselves. It just reeks much like that email from the Nigerian prince. I don’t know if this is something that viscerally hits you and these are the obvious ones. You can tell that if it walks like a duck, it talks like a duck, smells like a duck, it probably is. That’s a just a couple of examples. What I’d like to talk about are ways that you, the borrower, cannot get into any types of lending scams. Sometimes people get to the closing table and find out that their lenders have a piece of crap or all of a sudden are going to require something to where they’ve got you over the barrel. Banks have done this to people as well. I know it’s errors and omissions or whatever or we forgot to get this, we have to get that. I get it. Some of it is legitimate, but sometimes there are crooks out there trying to lend money. There are also crooks out there who are trying to do houses and trying to buy it several times and borrow from other people at different times and get money and never repay it back. Buyer beware, lender beware and investor beware for sure.

One of the things that I recommend is that if a lender is asking you for fees upfront, that’s a red flag. The only fees that you should be paying upfront are appraisal fees and perhaps a property inspection because that’s a legitimate expense that is part of the loan. I require people to pay for those services and those documents. However, they don’t pay me. They pay the appraiser. I don’t get a cut of that. I have a panel of appraisers. You can choose one of these people talk to them and see which ones you like better but we’re going to use my appraiser, if it’s my money bottom line. The borrower will pay the appraiser directly. I don’t see the money. I don’t need the money. That is fine and same thing if I do require an inspection and if I don’t see the house, sometimes I like to require an inspection just to get another set of eyes on it and some photos and little narrative with the condition of the house but again, I would never take that money and pay the inspector. I have a panel of inspectors. Kevin’s my number one, but I would have the choice. They pay the inspector directly. I don’t see or touch a dime. There’s no reason for me to do that. That would be a red flag right up front.

PLP 50 | Lender Scams

Lender Scams: Every now and again, you get a bad apple. Someone borrows a bunch of money and they leave.


The next thing is to keep yourself safe as a borrower when it comes time to put money to pay some money. You don’t give it to the lender directly. Let’s use an example of your closing at a title company, which I always require because a title company has escrow accounts. Any money that I pay goes into escrow. If something happens at the last minute and we decided not to do the deal, that money comes back. I still have access. There’s an independent third party who’s handling those funds. As a borrower, I would never give money to the lender or never provide anybody money outside of an appraiser or an inspector or some third-party service that maybe is a septic inspection. The list goes on and on, but never give the money to the borrower. Put it in escrow. Never give money outside of escrow. Always have escrow. It’s a little safety net for you. Never provide money outside of escrow. When I say escrow, usually it’s a title company. You’re probably wondering, “What about closing at an attorney’s office?” That’s fine as long as it’s an escrow and as long as it’s my attorney, I don’t have a problem with that or at least it’s an attorney that I’ve been able to vet. I don’t necessarily tell people what title companies or attorneys they have to use.

That’s going to be their choice, but I do want to know the attorney. I want to do my own little due diligence on them, see what the history of the firm and knowing that if they’re going to hold money in escrow, they know how to play by the rules just like the title company. That’s a pretty strong bet that things will go the way they should. That’s about it. You can see forms everywhere, lending scams and unfortunately the people that you see around Junior City. Every now and again, you get a bad apple. Someone borrows a bunch of money and they leave or someone that is a lender and shuffles money out from you or takes the deal. It knows that it’s a bad deal and it takes the deal anyway just to take it back or let you do as the investor do all the footwork. It makes the terms and possible to have it be a successful loan. Those are just some of the things that you need to look out for. Be on your toes and trust your gut at the end of the day. You can go get all the references about people but trust your gut. Never pay money outside of escrow and be suspicious of anybody who wants to loan you money, but they need money first. On the next episode, my plan is to talk about lenders fees much like this, but on the closing costs and what we used to be called the HUD-1 or the HUD statement. A settlement document or whatever they call it now, but the HUD-1, we’ll talk about those fees and what’s reasonable and where you can shave some costs away if you’re so inclined.

At the end of the day, be on your toes and trust your gut.
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About the author, Keith Baker

My ultimate goal is to create an economy for Real Estate (and other) Investors where banks are no longer needed. An economy where every day people look to each other for leverage and support. During the day I am an insurance adjuster for the oil field, where I handle millions of dollars of other people's money (OPM), and by night I invest in Real Estate and host this podcast. I hope you have an excellent experience and find real value within this website and the Private Lender Podcast. Please leave comments or submit your questions on the Contact Page.

I wish you prosperous, safe and happy lending and investing!

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