In the hard/private lending business, as in the mortgage business as a whole, there are brokers, there are lenders, and there are brokers who attempt to disguise themselves as lenders. I will assume we are talking about lenders. Lenders in this field operate in one (or more) of four ways.
1. They lend their own capital
2. They lend capital they have borrowed from lending institutions or private equity funds
3. They lend capital raised from individual investors
4. They utilize crowdfunding to secure the capital needed to finance a loan.
A broker, marketing himself as a broker, and acting as a broker can provide a valuable service by finding a borrower the most suitable financing (or in some cases any financing at all), advising a client on how to make the best presentation, gathering needed documents, putting together an attractive loan application, and explaining and advising their client on the positive and negatives of any particular loan offer. My experience in dealing with brokers from a lender’s perspective is that the best brokers provide these services; however many do not and just act solely in their own best interest trying to make as much compensation as possible on each deal with the least effort and time commitment. Some have no client contact at all acting as middlemen for other brokers just passing along documents hoping to catch a point or two (or three ) in the middle.
The scariest situation for any borrower to be in is to be involved with a broker who disguised himself as a direct lender. Some of these characters are even able to convince lenders they work with to table fund loans in their names so that they can provide “proof” to borrowers that they are lenders. This misdirection often allows them to collect upfront fees from borrowers who believe that the fees are being paid to someone with the authority to approve a loan, which is not the case. Additionally, borrowers dealing with these brokers believe that they all but have a loan secured when in actuality the loan application is being shopped around in hopes of finding a real lender. Further, the pool of potential real lenders is reduced since many lenders refuse to deal with these brokers who disguise themselves as lenders either because they regard their methods as unethical or because of a previous bad experience.
Don Konipol,
Private Mortgage Financing Partners LLC