Key takeaways
- Borrowers: never pay a large upfront fee before receiving written terms and a third-party valuation.
- Investors: "guaranteed" high returns and pressure to act fast are the classic signs of a Ponzi scheme.
- Everyone: close through licensed title or escrow, and verify wire instructions by phone.
Scams that target borrowers
The advance-fee loan scam
A "lender" approves you quickly, often for unusually good terms, then asks for an upfront "processing", "insurance", "underwriting" or "commitment" fee to release the funds. After you pay, more fees appear, or the lender disappears. Legitimate private lenders may collect a modest appraisal or application fee, but large fees before a written term sheet and valuation are a major red flag.
Fake or cloned lenders
Scammers copy real lenders' names, logos and websites with slightly different domains or email addresses. Always find the lender's contact details independently, check state licensing databases where applicable, and confirm you're talking to the real company.
Bait-and-switch terms
Terms change at the closing table: higher points, new fees, a lower loan amount. Get the term sheet in writing and compare it with the closing documents line by line.
Scams that target investors and lenders
Ponzi-style "funds"
Promoters promise steady, high returns from "real estate loans" but pay early investors with new investors' money. Warning signs: guaranteed returns, perfectly smooth performance, vague loan-level details, and pressure to reinvest or recruit friends.
Fake or overvalued collateral
The property doesn't exist, isn't owned by the borrower, is pledged to several lenders at once, or is worth far less than claimed. Defend with your own valuation, a title search and a lender's title insurance policy.
Wire fraud
Criminals hack email accounts and send altered wiring instructions minutes before closing. Always confirm instructions by calling a number you verified independently, never one listed in the email.
Looking for legitimate lenders?
Our partner network agrees to written terms before fees and closings through licensed title or escrow.
Request matches →The 21-point private lending due-diligence checklist
For borrowers vetting a lender
- Did you find the lender's contact details independently (not just from an email or ad)?
- Is the lender licensed where required, and in good standing (e.g. NMLS Consumer Access or the state regulator)?
- Do you have a written term sheet: rate, points, fees, term, extensions, prepayment and default terms?
- Are upfront fees limited to reasonable third-party costs, such as an appraisal?
- Have you spoken with at least two recent borrowers as references?
- Is the draw process (inspections, fees, turnaround) in writing?
- Is closing handled by a licensed title company, escrow agent or attorney you can verify?
For lenders and investors vetting a deal or borrower
- Did you order the appraisal or BPO yourself?
- Does the title search confirm the borrower's ownership and show no undisclosed liens?
- Will you be in first lien position, with a lender's title insurance policy?
- Is the loan at a conservative LTV/LTARV (e.g. 75% or below)?
- Have you verified the borrower's identity, entity documents and track record?
- Is there a personal guarantee from the principals?
- Is the property insured with you named as mortgagee or loss payee?
- Is the exit plan realistic, with a plan B?
- Did an attorney prepare or review the note, mortgage or deed of trust and guaranty for the property's state?
For investors vetting a fund or platform
- Does it provide audited financial statements and loan-level reporting?
- Are realized defaults and losses disclosed, not just current performance?
- Does the manager invest its own capital alongside investors?
- Are redemption rules, fees and fund-level leverage clearly disclosed?
- Are there any "guaranteed" or "risk-free" claims? If yes, walk away.
If you think you've been scammed
- Contact your bank immediately to try to recall any wire.
- Report to the FTC at reportfraud.ftc.gov and the FBI's Internet Crime Complaint Center at ic3.gov.
- For investment fraud, submit a tip to the SEC at sec.gov/tcr and contact your state securities regulator.
- Notify your state attorney general and, where relevant, the state lending regulator.
- Keep every email, text, contract and payment record.