Spotting An Advance Fee Commercial Loan Scammer

Every year hundreds of commercial property owners get conned out of millions of dollars by advance fee scammers.

An advance fee scammer is a criminal pretending to be a commercial mortgage lender.  He will issue a very fancy-looking conditional commitment letter, which will call for some huge “good faith deposit” or “third-party report fee”.  Once he gets the deposit, he will disappear with your dough and stop returning phone  calls.

These advance fees could be anywhere from $20,000 to $100,000.  We are talking about serious money.

How can desperate commercial property owners be so foolish?  Forty-five years ago, I worked at an old-time finance company, where we made personal loans, secured by cars, vacuums, and sticks – the personal property (furniture, TV’s, etc.) – of working people.

My old branch manger, my very first boss, taught me a very important lesson about con men. “If you are in a room with one-hundred people, pick out the one person who you are absolutely sure is not the con man.  He will be your con man.”  Con men are very, very good.

Okay, but how can a commercial property owner or commercial loan broker spot one of these advance fee scammers?  Here are some techniques:

  • Are the rates that this commercial lender is offering very low or very high.  If your deal has been turned down by three of four other lenders, and yet this “commercial lender” is offering you a very low rate and low points, there is a superb chance that this “commercial lender” is just a con man.
  • On the other hand, if the interest rate and the points are brutally high, this commercial lender might legitimately want to make a commercial loan to you.  He’ll fund your loan, when nobody else will, because he is desperate for borrowers.

 

  • Take a close look at this lender’s website.  The first thing to look for is an actual physical address, as opposed to just a P.O. Box.  In order for a process server to serve a complaint at the start of a lawsuit, he needs to able to find the defendant.  If the con man refuses to provide a street address, it is because he is ducking other process servers.  If he has no street address, you should run for the exit!
  • Look up the lender’s address on Google Maps.  You should see a picture of the property.  Is it some gleaming office tower or just a little rental house?  If a commercial lender has the dough to make multi-million-dollar commercial loans, he should have a pretty nice-looking office.
  • Does a receptionist or the loan officer answer the phone every time you call, or are you always forced to leave your name and number for the loan officer to call back?  Any legitimate commercial lender, who has the dough to lend millions of dollars, can afford a receptionist.  If you have to leave a phone number each time, it suggests the con man may be screening his calls from prior, pissed-off marks.

 

  • Please grasp this critically important concept.  In order to make multi-million-dollar commercial loans, the lender needs dough to lend.  So many people forget this!  A life company gets its dough to lend from life insurance premiums.  Commercial banks, credit unions, and Federal savings banks (former S&L’s) get their dough to lend from their depositors.  Real estate investment trusts (REIT’s) get their initial capital to lend by selling shares in their corporation.  (They then borrow from banks to achieve additional leverage.)  Hard money mortgage funds have depositors (although these hard money funds are rapidly going the way of the dinosaur.)  Blackburne & Sons, my own hard money shop, gets it dough by assembling a different syndicate of wealthy private investors on every loan.  There are always savvy investors willing to make prudent loans during a crash, as long as the rate is a little higher and the LTV is a little lower.
  • So ask your con man straight out.  Where do you get your dough to lend?  In most cases, the con man will mumble something about “various investors” or the fact that he doesn’t reveal his sources.  Uh, huh… sure.  Miserable butt-wipe!  Heavens I love owning my own company.  I get to say stuff like that.  Haha!  That expression, “various investors”, is a red flag for either a con man or a commercial loan broker masquerading as a commercial lender.
  • Looking at the lender’s website again, can you find an Investor tab?  I find that very, very reassuring.  REIT’s and mortgage funds have shareholders and depositors who provide the capital to lend.  Is entry into the Investor tab even protected by a password requirement?  If so, I am feeling even warmer and happier.

 

  • Is there a Loan Servicing Department tab.  Such a tab really, really warms the cockles of my heart.  It suggests that this commercial lender actually services its own loans.  That is a huge, positive indicator.
  • Is there a News Releases or Press Releases tab on his web site.  Do the press releases look legitimate?  If so, I am feeling better.
  • Is there a tombstone section on his web site?  Many legitimate commercial lenders have such closing announcements; but it’s always possible that a really smart con man might have created such a fake section to seduce you.

 

  • Life companies are the only class of commercial lenders who have correspondents to originate and service their loans in certain areas, like Chicago or Los Angeles.  Every other legitimate class of commercial lenders services its own loans.
  •  So ask your con man, do you service your own loans?  If not, run for the exit.
  • How narrow is your commercial lender’s lending niche or area?  If he tells you that he only makes commercial loans, between $1 million and $7 million, on convenience stores in the Northeast, that sounds very legitimate.
  • On the other hand, if he makes loans from $100,000 to $50 million, on any kind of commercial property, located anywhere in the country, at best he is just a commercial loan broker masquerading as a lender.  If the deposit is huge, he is surely a con man.
  • Google the company name of the commercial lender, along with that of the loan officer, the company president, and the company owner.  Lots of juicy stuff will often show up about con men.
  • But here’s the thing:  If you looked up this article on the internet, you already know the answer.  Your commercial lender is too good to be true.  He is too sweet of a talker.  Your subconscious mind has picked up some clues.  Trust such warning signs!  Your commercial lender is a con man – an advance fee scammer.