- Preventing Commercial Mortgage Fraud

In the new economy commercial borrowers need to be careful of commercial mortgage scams promising funds are available while asking for due diligence or application fees up front.

Over the past three years during the recession there was a virtual shut down of lending for most commercial property and project types. In some cases this led to individuals and companies looking for new and "creative" ways to make money. One of the ways some chose to do it was to charge "due diligence" fees or "application fees" for new loan requests. Borrowers in many cases are desperate because maturing commercial loans put pressure on commercial property owners to refinance before reaching their balloon date.

After trying to refinance with their current bank only to be turned down due to decreased cash flow and values borrowers turn to commercial or (residential cloaked as commercial) brokers to find the money they need to take out the first loan. Brokers, also desperate for income (in some cases) would tell the borrower the funds were available at a higher rate but there would be a due diligence / application fee the bank wants first to cover costs of determining if the loan request qualifies.

Many borrowers paid these fees only to find out later there were no funds available nor any true intent to find it. In many cases there was only a desire on some broker / loan officers part to make money on the fees later telling the borrower the bank denied the loan request for false / fraudulent reasons. This commercial mortgage scam is doubly tragic when one considers the consequences to the borrower of not just being deceived into paying non-required / fraudulent fees for a loan that was never going to take place but in the lost property by default as well as the jobs attached to it.

The loan officer or broker running this commercial mortgage scam doesn't know or care about those consequences because commercial lending is largely unregulated which was exactly what the problem was on the residential side during the boom. It is truly a buyer / borrower beware environment. All the elements for rampant fraud are in place.

1. Nearly 2 trillion dollars in commercial loans coming due by 2012
2. Commercial Lending still at a virtual halt
3. Commercial brokers and loan officers face no regulation or licensing requirements

Smart commercial property owners should be wary of any broker or loan officer who tells them funds are available for refinancing of commercial property then asking for due diligence and or application fees up front to "get the process started". This type of fraud hurts the industry on every level and is rarely prosecuted due to the fact that the government assumes all parties are businesses who can fend for themselves hence the lack of regulation., the largest venue for lenders and borrowers to find each other in the U.S. and Canada has taken important steps for 2011 to help protect borrowers from being defrauded in this manner. has built into its system a licensing requirement for all commercial brokers and lenders. While there is no requirement in any of the 50 states for a commercial broker to be licensed most of the legitimate companies and individuals fulfill their state licensing requirements anyway so they can do residential business from time to time and to ensure clients they are trained and qualified to serve.

In 2011 will only allow licensed commercial brokers to provide loan services to referred borrowers thereby creating a layer of protection. Additionally no broker, lender or loan officer who charges up front fees will be allowed to enter or remain in the system. If brokers currently in the system charge up front fees and the practice is made known to staff the broker / lender account will be deactivated pending resolution of the practice.

We believe a transparent and fair environment is the only way to properly operate and look forward to a successful 2011 for all industry participants.

Categories: Real Estate

Tags: commercial leads, Commercial, Commercial Mortgage Fraud,

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