Commercial Loans Blog

How to Spot Commercial Loan Fraud

Posted by George Blackburne on Fri, Jan 13, 2012

commercial loan fraudAs the operators of C-Loans.com - the most popular of the commercial mortgage portals - we constantly have to be on guard against advance fee scammers.  Therefore, last night I was teaching my son, Tom, how to spot these crooks.

There are other ways to spot advance fee scammers, but you'll know right away that a guy is just an advance fee scammer if he uses one of the following three phrases:

  1. "We are merchant bankers."  Hogwash!  Use of the phrase, "merchant banker", is a dead giveaway that the guy is an advance fee scammer.  There are probably fewer than 400 true merchant bankers in the whole world.  Merchant banks are typically a subsidiary of a commercial bank (fancy word for a garden variety bank) or an insurance company.  If a bank or a life insurance company is making money hand-over-fist, the holding company will sometimes open a tiny subsidiary to invest the profits into go-go investments, like high-yield bridge loans, mezzanine loans, preferred equity, and direct equity investments into operating companies and real estate development deals.  Folks, there are probably fewer than 400 true merchant bankers in the whole world.  And mere mortals, like you and me, don't ever get to talk to these guys.  So if the guy on the other end of the line is claiming that he is a merchant banker, he's a liar and a fraud.  Run away!

  2. "We make international loans."  In your dreams!  Every country in the world wants to protect its small local banks against huge foreign competitors, like Bank of America, Credit Suisse, and Deutsche Bank.  Therefore every country imposes a 30% withholding tax on all interest earned by foreign lenders.  Even if a bank could earn 10% lending in Mexico, for example, it would only get to keep 7%.  Folks, that's a deal killer.  There are no true international commercial real estate lenders.  Anyone who claims to make international loans is either some idiot rookie mortgage broker or an advance fee scammer.

  3. "We represent a number of hedge funds."  What a load of manure!  I challenge any of you mortgage brokers out there to prove to me that you have actually ever closed a commercial real estate loan through a hedge fund.  Remember, offshore hedge funds can't make commercial loans directly without running afoul of the 30% withholding tax described above.  They can buy existing loans, but they cannot make new ones.  In theory domestic (American) hedge funds could make commercial real estate loans, but they lack the licensing and the expertise.  They do not originate commercial real estate loans.  If some clown is claiming that he represents hedge funds, he is a liar and very likely a con man out to steal your advance fee.

So the next time you run into someone who boasts that he is a merchant banker, he makes international commercial real estate loans, or he represents a hedge fund, you can chuckle to yourself and walk away quickly.

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Topics: advance fee scammers