Private lending Warning #4

Private lending Warning #4…OVERFUNDING THE PROPERTY WITH MULTIPLE LOANS

Have you ever had a borrower need money now?

They have the deal of a lifetime and don’t have time to mess with using title for closing. They’ll even record the deed themselves to speed things along. After all, they have successfully closed hundreds of deals, so you can trust them to record your deed.

CODE RED!

DON’T TRUST ANYONE TO CLOSE YOUR DEAL EXCEPT TITLE.

As mentioned above, thieves will try and claim title is just a waste of money and they would rather see you get a better return than throw it away using a title company.

For example, take a look at this $30-million-dollar scam that took place in western Colorado:

A scam artist raised over $30 million from local investors by promising them first deeds of trust on the properties he was buying. To save time and money (or so he claimed) he asked most of the private lenders to come into his office and complete the paperwork. He then took their money and gave them a loan and deed. Each lender thought they were in first lien position.

Unfortunately, they weren’t.

The borrower lied to all of them.

When the Feds finally showed up, all of these lenders were left with about $5 million to split. That might sound like a lot, but it wasn’t. Most of their money and investments had vanished. And it all happened because these lenders chose to trust the borrower and not use a title company to close their loan.

The few who did use title forgot to tell title a very important fact: “I want to be in first lien position.”

So, they too lost most of their money.

Yep, you read that right. If you don’t tell a title company you expect to be in first position, you might end up in a much lower lien position (like 3^rd or 4^th). That means if something goes wrong with the loan, you’ll have other lenders ahead of you that get paid first.