• Michael O'Connor

Tips for Protecting Yourself from Mortgage Scams

One issue you might not have thought about while researching financing for your commercial property is how many new, creative scammers are out there just waiting to promise you great service, request and receive an upfront fee, then disappear without a trace!

Do your due diligence on your due diligence partners!

While researching mortgage services, lenders, and those serving the commercial real estate community, it's easy to let your guard down and assume that a company with a nice looking website and professional sounding name is totally legitimate. Our recent experience indicates otherwise.

AAI was recently contacted by someone from "Norwest Mortgage" out of Roswell, Georgia. He contacted us by email on behalf of an out-of-town client, and provided all the information we needed to send a cost estimate. We responded immediately with our Phase 1 Environmental Site Assessment proposal and they asked us to get started. In this business, it's unusual to request payment upfront, so we contacted the borrower, set up the site inspection, and drove the 3 hours south to do the inspection. Ten days later we emailed a pdf of the completed report to the borrower and the lender (our client), along with our invoice, but soon heard from the borrower that he'd been "ghosted" by the lender after sending them $2,000 to pay for an appraisal. We immediately attempted to contact the lender to investigate, and it soon became apparent that the borrower had become an unwitting victim of a classic "upfront fee" scam. Phone calls and emails to the "lender" have since gone unanswered, the borrower lost their $2,000 for the appraisal fee, and our invoice for a similar amount for the Phase 1 ESA has been ignored.

One of the more devious aspects of this scam was the fact that the fake lender knew the industry well enough to go through the motions of ordering a Phase 1 Environmental Site Assessment (which they never intended to pay for) as part of the loan acceptance process, just to add legitimacy to the transaction. The lender also requested that AAI contract directly with them, which we did, insulating the borrower from the obligation to pay for the Phase I ESA. So, the fake lender didn't get any money from AAI, but we did 20 hours of work for them that they never intended to pay us for, and that we can't collect from the borrower (who will also never see his $2,000 appraisal or appraisal fee).

The warning signs we diligently ignored...

Once we started doing the due diligence we should have done before lifting a finger on this project, we realized how many warning signs we ignored along the way, such as:

  • The lender asked us to contract with him directly, instead of having the borrower pay (which is the most common scenario) or at least co-sign our contract.

  • The borrower said they thought the lender was legit because he's been getting their spammy marketing emails for years. Those types of emails are almost always fraudulent.

  • The lender asked the borrower for an upfront fee. This is not unheard of, but it represents an undeniable risk.

  • A quick online search for "Norwest Mortgage" showed that it's not currently registered as an active business in Georgia, and a search of the phone number brought up a different name.

  • The lender never answered the phone, asking us to "only communicate via email"

  • The lender's voicemail greeting did not reference the "Norwest Mortgage".

  • Neither the loan officer nor "Norwest Mortgage" were listed in Linkedin or other online business directories.

  • The lender's email address was a gmail account, not a private domain.

  • One of the pages of the lender's website had not been updated from the “Lorem ipsum dolor sit amet" default text.

  • On closer examination, the emails from "Norwest Mortgage" were not professionally written, with several paragraphs containing ALL CAPS and several different fonts sprinkled throughout.

How we're changing our business practices in response

We're implementing the following due diligence steps into our new client workflow:

  • No matter how legit a prospective client seems, we now look them up on google and Linkedin. Do they have a legit looking website? Are they listed in corporate directories?

  • We ask for several references, along with current contact information.

  • We also look up the business name in their home state's Secretary of State's website. By law, a company has to register its name with its home state, either as the actual business name, or a "doing business as" or "dba". If they're not listed, we ask them why. If their answer sounds suspicious, we refuse to take their business, or insist on full payment in advance (and we don't start working until the check clears!)

  • If we do see warning signs, we let the borrower know we think there might be a problem, and we warn them not to send any money to anyone until we're comfortable they're legit.

  • When in doubt about any aspect of the client, we ask for advance payment. If they get indignant or have a clever excuse, we politely decline their business.

Use common sense!

The old saying goes, common sense isn't so common, but if you follow DUE DILIGENCE WHEN ORDERING DUE DILIGENCE, you'll avoid getting ripped off by unscrupulous fake lenders and other service providers. And they don't necessarily only rip their victims off for money. Sometimes, like we found out, they'll contract with a consultant to conduct a Phase 1 ESA, asbestos survey, or underground tank survey as a decoy to fool their main victim, the unsuspecting borrower, into sending them an upfront fee. And once that check clears, the money is untraceable, and that borrower is out of luck.

We're happy to report that these scams are rather uncommon, and using these safeguards will go a long way to protect you. This is the first time we've been caught up in a scam like this despite 13 years in business. However, once is more than enough! If one company avoids getting ripped off by "Norwest Mortgage" in the future, our effort has been rewarded.

If you have any additional questions about navigating the commercial real estate due diligence process, be sure to give AAI a call at (503) 233-8565. #duediligence #mortgagescams #fakelenders

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