The Lender Sounds So Enticing: Understanding the Risks of Property Lending

With the constant fluctuation in the real estate market, it can be challenging to navigate the complexities and uncertainties that come along with it. One common dilemma many real estate investors face is securing reliable funding to cover shortfalls in their business. If you’ve been approached or seen pitches on social media from companies or individuals offering large sums of money for your projects, you probably know what I mean. While these funding offers can be enticing, it is crucial that you conduct due diligence before committing.

The Risk of Identity Theft

In the process of securing funding, you’ll likely share volumes of personal data with the potential lender. This data can include details about your assets, liabilities, tax returns, and real estate holdings. However, have you ever paused to consider the risk involved?

Think about the possibility of the person posing as a lender being a fraudster aiming to conduct identity theft. By providing them with all this detailed information, you could unintentionally make stealing your identity incredibly easy. Not only could they use the information to commit further fraud in your name, but they could also use technology to clone your voice through AI, making it even more complicated to prove the fraud. This is a very real risk when dealing with unknown lenders online.

The Threat of Predatory Lending

The second real risk involved when securing funding is falling prey to predatory lenders. While these lenders may indeed provide you with funding, their terms can be crafted in such a way to permit them to remove control of the property from you without going through the legal foreclosure procedures. These so-called “loan-to-own” schemes can be devastating to the unsuspecting borrower.

In some scenarios, the lender may even create an artificial default scenario, where they seize complete control of the property through technical default. The confiscated property can then be sold at market value, with the predatory lender pocketing the profit.

Guard Against the Risk

To guard against these risks, it’s critical to perform due diligence, not only on your property and projects, but also on the lenders. Personal information should be among the last details shared in the loan qualification process. At the same time, due diligence on the lender should be carried out concurrently with their assessment of your project.

It’s predicted that instances of these types of real estate fraud will increase in the future, and vigilance is key in the current climate. As real estate investors, we need to ensure that while we strive to make great things happen, we do not fall victim to unscrupulous lenders. Protecting our interests should always be a top priority.

The next time you’re presented with a tempting funding offer, remember the risks associated with sharing sensitive information and engaging with unknown lenders. Vigilance and due diligence can help ensure you navigate the world of real estate investing securely and successfully.