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Hard money lenders have ALWAYS demanded very high interest and rather inflexible terms. Most are geared to relatively short term financing, and I have never personally heard of a mortage being for longer than about 5-7 years with a balloon payment.
I don't really understand what you mean by "reputable", but in my experience no one that truly does lend to those with poor credit is going to allow any slack in payments or opportunity to devalue the collateral. When it comes to either commercial property or residential (including owner occupied) the screening that a hard money lender does is KEY -- if the property is not going to generate cash flow or if the occupant has no record of solid income the risks of the borrower defaulting and an ugly eviction can quickly wipe out the profits from even a very high interest rate....
I'm bumping this thread because of the horrifying story I read today in the Seattle Times about a hard money lender who gives new meaning to the word "DIS-reputable:"
Excerpt: Kandi is the lender of last resort for some people who've been turned down by banks because of poor credit or limited income. He says his requirement for a borrower is merely "a pulse and a legal ability to sign." He admits he charges borrowers as much as he can get away with — 45 percent interest in one case — and makes it clear to them that if they fail to comply with the loan agreements, he will take their property. "I am a wolf," he explained.
A loan shark in wolf's clothing, pretty much. Yes, I know it's up to even unsophisticated borrowers in desperate straits to do their due diligence and have a lawyer look over ANY document they want to sign for refinancing, but I was blown away by this guy's arrogance.
No wonder he travels with a pistol, a bulletproof vest, and a bodyguard. Wow!
Amazing. Now why would anyone want to use a hard money lender?
A few years ago, the hard money guys were charging people thousands of dollars for seminars on flipping.
The victim was taught to buy property for 30% or 40% of market value, and resell it in 60 days to pay off the note.
Of course, it was all predicated on using the hard money lender.
No resale? The hard money guy foreclosed.
I had one fellow in the office who was completely convinced the scheme would work, and who hinted that I was holding back good inventory from him.
This was after the bloodsuckers took $7000 from him to "teach" him how to get rich in real estate.
He had no contractors. Figured I could hook him up.
He had enough cash for equity to get the hard money for a property.
They had him convinced.
As far as I could tell, all it was was a scheme to use him as a bird dog, locate a bigger loser with property that could be picked up on the cheap, and then foreclose on this poor guy and ruin him.
And, they took an easy 7 grand from him, just in case he chumped out and couldn't find anything for them.
It was sickening.
And from what I can tell, it is not an uncommon approach. Have the victim put 30% or 40% down, and when he fails, as he is nearly certain to, then take the property from him at the loan amount. Instant equity for the shark.
Mike, I know my business real well and I do allright where I am at. I just have this rule about getting involved with something that sounds so sketchy as this. I don't walk away from these kind of deals, I run. The truth is that their are plenty of good ways to make some money that don't involve the scam. It does seem that when the economy is not doing so well all these "make a buck" programs come out of the woodwork. Everyone seems to be joining an MLM, or trying to flip a house, or investing in things that they don't have a clue about, just to make a fast buck. I don't mind MLM's when a person believes in the product that they are selling and uses that product every day. The problem I have with those is the people who are not commited to the product and just want to get everyone involved in their business. I learned how to draw circles at one of these meetings years ago. LOL
The story from Washington State sounds very much like the hard money lenders I have encountered in Illinois and NW Indiana, as I said these are not people that tske missed payments lightly.
If you sign over a quit claim deed and you don't understand why they would want you to do so it precisely because they know that with that they can short cut around normal foreclosure -- you lose a tremendous layer of legal protection!
I find it sad and amusing that the wolf in the article is now investing in "medical marijuana" as I have seen dozens of stories about the crazy profit in that area. Chasing a quick buck does not require a moral compass...
Mike, I know my business real well and I do allright where I am at. I just have this rule about getting involved with something that sounds so sketchy as this. I don't walk away from these kind of deals, I run. The truth is that their are plenty of good ways to make some money that don't involve the scam. It does seem that when the economy is not doing so well all these "make a buck" programs come out of the woodwork. Everyone seems to be joining an MLM, or trying to flip a house, or investing in things that they don't have a clue about, just to make a fast buck. I don't mind MLM's when a person believes in the product that they are selling and uses that product every day. The problem I have with those is the people who are not commited to the product and just want to get everyone involved in their business. I learned how to draw circles at one of these meetings years ago. LOL
Soon,
I actually saw more of this sort of scam activity when things were really pounding along, including the media supporting a never-ending bull market.
The scammers were trolling for people who thought they were missing out on the treasure hunt, telling them how easy it was and then ripping them off for all they could.
Typically, it was people who were vulnerable and financially unsophisticated, who weren't affluent enough to absorb the financial lesson without great pain.
I did know a guy that had a used car lot. His thing was to get these old cars and have the people pay him $200 up front and then $59 every week. If you missed a week he would repo the car. The funny thing was that he only had $200 into the car in the first place. Oh and if you tried paying once a month your car would be back on his lot. The agreement was once a week. Even if you paid four weeks in advance, you still had to pay that $59 payment the next week. People always thought that they were getting a deal. These people that bought couldn't do it any other way as their credit was bad as it was. Seems to me the same kind of mentality on a smaller scale. I know he had several cars that he resold a few times. LOL
I did know a guy that had a used car lot. His thing was to get these old cars and have the people pay him $200 up front and then $59 every week. If you missed a week he would repo the car. The funny thing was that he only had $200 into the car in the first place. Oh and if you tried paying once a month your car would be back on his lot. The agreement was once a week. Even if you paid four weeks in advance, you still had to pay that $59 payment the next week. People always thought that they were getting a deal. These people that bought couldn't do it any other way as their credit was bad as it was. Seems to me the same kind of mentality on a smaller scale. I know he had several cars that he resold a few times. LOL
I think I knew his clone, or his DNA source....
And it was all cash, to boot.
His lot was at a bus stop, and when it was going good, he said he often had two or three people get off a bus and get a car.
"Everybody Rides!"
"I don't care how you get here, you're driving away in your new car!"
I think he was a little more upscale. He had $500 cars...
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