What Are the Signs a Lender is a Scam

Hard money lending allows real estate investors to secure loans and finance deals quickly when conventional lending is not an option for many reasons.

Despite the help provided by hard money lenders, they are not regulated like conventional lenders, so it can be challenging to recognize a legitimate lender from a scam. So, vigilance must always be practiced when choosing a hard money lender.

To stop yourself from falling victim to several hard money loan scams, here is a list of the most common scams and the telltale signs you need to exit the deal:

1. Asking for Upfront Fee

Upfront fees paid to the lender in advance is one of the most common scams by hard money loan brokers. Therefore, if the deal does not work out, the borrower has already paid the scammer upfront, making it difficult to retrieve the money.

The lender will usually offer you a generous interest rate but charge an upfront fee to secure the loan. What you need to know is that no lender will lend you money for free. It is always the borrower that is liable to pay the loan. So, if you’re asked to pay upfront, then it’s a scam.

2. Charging Hidden Fees

As we mentioned earlier, hard money lenders do not follow the same rules and regulations as conventional lenders. Therefore, a hard money lender’s interest rates and fees may differ from lender to lender.

Therefore, it’s essential to read the fine print and read the agreement carefully before signing it. This is because some of these lenders may not tell you about specific fees.

Let’s take a simple example:

Some hard money lenders charge you a certain amount of money when signing the loan agreement. Once the property is sold and the loan is paid, they will deduct the amount from the property’s sale price. This is not right and is basically a scam.

3. Interest Rates Way Above the Market Rate

As we said, there is no regulation for hard money lenders, and so interest rates and fees charged by them may differ from lender to lender. That is why you always need to research and find out the current interest rates in the market and make sure the hard money lender is charging you a fair and competitive rate.

4. Refuses to Share Financial Statements and Audited Financials

You need to make sure the lender is in a position to pay back your loan. Therefore, you need to make sure they have sufficient capital and assets.

A hard money lender seeking financing for their property lending business is most likely not a scam. Usually, property lenders prefer to keep their identity and financial records private, but they will reveal this to you if you ask them for financial disclosures.

Some hard money lenders prefer not to disclose their financial statements and audited statements to their borrowers and investors. So you need to question this and not sign any loan agreement until they disclose these statements to you.


There are several hard money loan scams out there, so it is always best to be vigilant and do your due diligence. So, before you decide to apply for a hard money loan, check with your local and state laws and verify the sources and lender’s credibility with your local and state government licensing agencies.

DFW Investor Lending is owned and operated by investors, just like you–but with a unique twist: we are also residential real estate appraisers. With thousands of appraisals and hundreds of rehab projects under our belt and in today’s fast-moving markets, who else could be better qualified to assist you with your real estate needs? Rest assured we provide safe and reliable loans to clients of all levels. If you need a hard money lender in Dallas, we’ve got you covered! Call us at (214)382-2676 to inquire.