Private Lending Warning #5…FAKE OWNERS
How would you like to lend someone money on a property that you think you’re in a good, secure position with? But then you find out they never owned the property to begin with?
Trust me, it happens.
Everything looks great until payments don’t arrive, and you hire an attorney to foreclose on the property. That’s when you find out the borrower never owned the property and had no right to put a lien on it. Worse, if a lien was actually placed on the property that someone else owns, you will have the extra cost of releasing the lien.
Believe it or not, there are brazen thieves in the world who will fake ownership in properties. They might rent and/or borrow money on them.
So, where does that leave you and your money?
Unfortunately, by the time you discover all of this, most or all of your money will be gone. You’ll probably never find the person who stole it. If you do, they will likely have spent it all.
How do you protect you and your money from a fake owner?
Most thieves are always looking to talk you into a shortcut.
They will tell you, “It’s just a waste of money to involve outside resources for a simple process like a loan.” After all, you both can go right down to the county and record the mortgage or deed (aka, the lien). You can literally watch them hand the lien over to the county and get a receipt to prove it’s recorded.
The county does not check who owns the property when an item is recorded. They simply record what’s handed to them.
So, great. They recorded the lien, but the lien is not valid, and your money is not secured. More likely, it’s gone.
This is another reason you should involve outside resources on such a large money transaction.
The key to stopping thieves is to require every loan be closed, insured, and recorded by a title company. A title company will check and verify the borrower actually owns the property and you’re in the lien position you’re expecting.
If a thief is good and brazen enough to fool the title company, the title company will pay you back your money and write off the loan. But this only happens if you actually pay for a title insurance (aka, a loan title policy).
Title insurance gives you peace of mind that your loan is secured and valid.
Most thieves will never agree to this because they know they’ll get caught. To avoid getting caught, they will try talking you out of purchasing title insurance. They usually do this by pointing out the costs and time involved.
Regarding these so-called costs: If a borrower goes to a traditional lender or bank, they will pay thousands of dollars more than a private lender. So, the cost of title is on the borrower, not you. If they don’t want to pay for title insurance, then fine. They can find another lender and you can find a better borrower; someone who’s grateful and happy to pay a little extra to ensure your funds are secure.
Never listen to a borrower if they claim these costs are nonessential. A quality borrower will be focused on protecting your money by using third party resources, like a title company to close and record.
Private Lending Warning #5