Commercial Loans Blog

Commercial Loan Fraud and Advance Fee Scams

Posted by George Blackburne on Thu, Jul 31, 2008

Fraudulent Commercial Lenders Often Steal Application Fees

Every year commercial real estate borrowers lose millions of dollars to con men posing as commercial real estate lenders. Here is how the scam work:

In order to get a commercial loan, borrowers have to give large application fees to commercial lenders to pay for the appraisal, toxic report, title work and legal fees. These application fees run from $3,500 to $250,000. In most cases, these are legitimate fees required by bona fide commercial lenders to do their investigations.

But sometimes con men pose as commercial real estate lenders. They're not a bank. They don't operate a mortgage investment fund. They don't syndicate wealthy private investors to make hard money commercial real estate loans. Nope. These fraudulent commercial mortgage companies usually don't have a dime to lend. But they have impressive letterhead and a great sales ability.

These con men will buy commercial mortgage leads from some internet source. They'll then call the borrower and say that they make commercial loans. After the borrower has submitted his commercial real estate loan application, the "lender" will then issue a conditional commitment letter (term sheet) with great terms - often just 6% interest in a 7.5% market - that calls for a large application fee.

The borrower is thrilled to get the term sheet and sends in his deposit.  After the check clears, the borrower never hears from the "lender" again. The borrower will call and call, but all he'll get is the sound of a telephone ringing or an answering machine. The borrower will leave repeated messages that eventually escalate to legal threats, but still he'll get get no response.

Eventually the borrower will contact the state authorities, but unfortunately few states ever follow up on commercial loan fraud. It's a white collar crime. Heaven help the ghetto kid who steals $1,000 for dope. The police will track him down and send him away to jail. But if some hustler cons a commercial property investor out of a $50,000 loan fee, his complaint will often rot forever in some unworked file.

So what should a commercial borrower do to avoid falling prey to this con?

  1. Be suspicious of any commercial loan offer with terms far superior to everyone else. If a commercial lender is quoting 6.0% in a 7.5% market, the commercial borrower should ask himself, "What lender is at 6.125% that forced this lender to drop his rate to 6.0% in order to get the deal?" Legitimate commercial lenders don't just lower their rates to 6.0% because they are nice guys. C'mon. Use some common sense here.
  2. Google your commercial lender. Many times complaints from similar victims will show up in discussion groups.
  3. Look at the "lender's" web site. Legitimate commercial lenders will have extensive and expensive web sites, not just three or four pages.
  4. Where does this "lender" get his dough to lend? Banks and savings and loan associations get their dough from deposits. Life companies get their dough from insurance premiums. Hard money lenders get their dough from private investors. If this "lender" claims to be a hard money lender, his web site should have a bunch of pages devoted to enticing private investors to invest with his company.
  5. Be more suspicious if the lender is a "mortgage company", "capital company" or a "funding company" rather than a bank.  He could be legitimate, but you'll need to do more due diligence.
  6. I am always suspicious of any "lender" pretending to be a bank when he is not. Tipoffs include the words "Banc" or "Something Bankers" in the company name. The names of legitimate banks almost always end with the word "Bank".
  7. Trust your instincts. If the deal sounds too good to be true, it probably isn't. If the "lender" is too easy on the paperwork or the length of the procedure, be on guard.
  8. Does the "lender" have a warm body answering the phone or just an answering machine?
  9. One final point. A very wise man once told me that the way to spot a con man in a crowd of 100 people. Ask yourself which of these guys are you SURE is not the con man ... and he will be the con man! They are experts at projecting trustability.

Don't be a victim. There are hundreds of these advance fee scammers at work in the commercial real estate mortgage marketplace.


You can apply to hundreds of commercial real estate lenders for free using C-Loans.com. Just click here.


Your comments are invited.

Topics: commercial real estate loan, commercial loan, advance fee fraud, advance fee scam, commercial loan con men, commercial loan fraud, commercial mortgage fraud, loan fraud

Rich Pickings for Trust Deed Investors

Posted by George Blackburne on Sun, Jul 20, 2008

Wall Street's Departure is Private Trust Deed Investors' Gain

Recently Lehman Brothers Small Business Finance left the subprime commercial mortgage market. Bayview Financial, which includes Commercial Direct, Interbay and Siverhill Financial, has dramatically curtailed its subprime commercial mortgage lending as well. Wall Street has essentially abandoned subprime commercial mortgage lending.

As a result, Blackburne & Brown, a subprime commercial hard money broker that is still in the market, is enjoying a wonderful influx of subprime commercial mortgage requests. It's simply marvelously. We're getting numerous commercial loan requests that easily would have been bankable eight months ago.

If you are an accredited investor residing in California, and if you have been considering investing in first trust deeds, now is a very interesting time. The quality of the first trust deed that a private investor can find these days is unusually attractive. Many of the better quality deals that used to be going to Wall Street and to the banks are now being forced to go to hard money brokers.

To sign up to receive trust deed investment offerings, please click here. To read more about how best to invest in trust deeds, please read my blog devoted to trust deed investing.

Feel free to post your comments or ask some questions by clicking on the comment button below.

Topics: deeds of trust, trust deed, trust deed investment

Commercial Real Estate During the Current Depression

Posted by George Blackburne on Mon, Jul 14, 2008

Why the Recovery Will Take So Long

In a recent excellent blog article entitled The Death of Real Estate Investing, Susan Lassiter-Lyons pointed out that mortgage financing for investors and real estate speculators is drying up.

Investors are being forced to pay all cash to buy up foreclosures, which greatly curtails the number of investors bidding on these properties. The fewer the number of investors competing to buy these REO (Real Estate Owned; i.e., bank foreclosures), the lower the price these REO's will fetch.

I then wrote a blog article with the same title that expanded on Susan's insightful theme. A reader asks:

Where can I get a copy of your (my) book?

My blog article raised the spectre of crushing deflation and referred to my new book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America. You can order a copy here.

Why will the current depression last so long?

Japan's deflationary depression has already lasted 18 years, and the Japanese people entered their depression with large amounts of savings. The magnitude of any depression is proportional to the size of the credit creation binge preceeding it. Our debt creation bubble was a whopper. It may takes decades to liquidate all of this debt.

What is the outlook for the commercial real estate finance industry?

As short as one year ago, the conduits were making more than 50% of all new commercial real estate loans. Now this industry is just a shell of its former self.

The money center banks were all involved in the securitization game, so when the secondary market for CMBS loans died overnight, they were left holding far more commercial real estate loans than they wished. For the time being, most of the big banks will be originating just a few very clean deals.

The small banks - the ones not hurt when the CMBS market dried up - are still lending. But they only have so much money.

Lehman Brothers, which has a portfolio of $200 billion of subprime commercial loans, stopped originating new deals this month. Bayview Financial, another huge institutional originator of subprime commercial loans, has cut its lending volume by at least 70%.

Subprime and even prime commercial loans are now flowing to the hard money lenders. Unfortunately many hard money commercial lenders are stuck with huge portfolios of non-performing construction and land loans.

Fortunately my own hard money shop, Blackburne & Brown, never made any construction loans, and we made very few land loans. We are still actively arranging loans.

But the bottom line is that the entire commercial real estate finance industry is severely depressed. And if commercial lenders aren't lending, this will depress the value of commercial real estate. I expanded on this in my other blog today.

The commercial loans securing most commercial mortgage-backed securities are performing quite well. The delinquency rate is less than 1.5%. Why is the CMBS market getting so badly slammed when the main problem is in the subprime residential loan sector?

The issue is one of confidence in the rating agencies. The rating agencies issued some wildly over-optimistic ratings on residential mortgage-backed securities. Investors in these residential bonds are now getting slaughtered. Commercial mortgage-backed securities are guilty by association.

But there is another issue. The collapse of residential real estate has triggered a recession that will probably lead to a deflationary depression. All real estate could get clobbered in this depression, even if commercial real estate fares far better than residential real estate.

Some final comments:

There is one asset class about which I am very bullish - farm land. But I am very bearish on all other classes of real estate.

I debated selling my little mortgage company office building here in Indiana in anticipation of the real estate bear market; but I decided that there is always a chance that the Fed could drop trillions from helicopters. My advice to you is to only buy real estate that you're going to use. As explained in my book, the deflationary forces on all real estate are far more prodigous than most investors would imagine.

Topics: bear market real estate, depression, economic depression, falling real estate, real estate collapse, real estate depression

The Death of Real Estate Investing

Posted by George Blackburne on Sun, Jul 13, 2008

Some Follow-Up Comments to a Brilliant Blog Post By Susan Lassiter-Lyons

Attention Ben Bernanke and the U.S. Treasury: In a recent blog post called The Death of Real Estate Investing, Susan Lassiter-Lyons has brought up a very important issue.

Unless the Fed and the Treasury develops some sort of financing mechanism to help investors and speculators buy real estate using high-leverage mortgage financing at favorable rates, this meltdown in real estate values is going to continue. And its not inflation that keeps Ben Bernanke up at night ... its crushing deflation.

In my recent book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, our banks get scared and stop lending. Over a trillion dollars in annual payments on existing loans kept flowing back to the banks, but the banks stopped rolling over their interest receipts into new loans.

Since the multiplier effect today is around 20, and since the multiplier effect works in reverse, the money supply of the United States started to disappear. Homes fell over 70% in value, and the banks started foreclosing on most of the homes in the United States.

Well, folks, I fear the scenario that I described in my book may be coming true. The book was written in early 2007, when gas prices were $2 per gallon. I predicted $6 gas and a complete real estate estate meltdown, even more dire than that of today, by the year 2010.

Fortunately Ben Bernanke and the Fed are very aware of the dangers of deflation. By propping up Citibank, Countrywide, Bear Stearns, and now Fannie Mae and Freddie Mac, Ben Bernanke has done a masterful job of preserving our institutions. We are probably in a great depression right now, and Americans will probably have to endure a precipitous decline in their standard of living over the next 15 years. Ben Bernanke can only do so much.

But Mr. Bernanke, if you're out there, please pay attention to Susan Lassiter-Lyons brilliant blog post.If you want to save your banks by stopping the decline in real estate values, the country will need non-owner and commercial financing. It's wealthy investors who have the incentive and the courage to buy foreclosed properties in a declining market. It is these wealthy investors who have the dough to make timely payments on these new mortgages. They just need some leverage and a reasonable interest rate.

Topics: Death of Real Estate Investing, George Blackburne, Susan Lassiter-Lyons