7 California Hard Money Lending Scams You Can’t Afford to Ignore
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Hard money loans can be a powerful option for real estate investors looking to fund a project quickly and efficiently. Unlike traditional financing, they often come with fast approvals, flexible terms, and the ability to close in a matter of days.
However, hard money loans are less regulated than traditional bank loans because they are typically private, short-term, and funded by individual investors or small lending companies rather than federally insured banks.
This flexibility can be a huge advantage, but it also means there is less consumer protection, leaving borrowers more exposed to unscrupulous operators. To help you navigate the risks, here are 7 California Hard Money Lending Scams You Can’t Afford to Ignore.
1 . The Bait and Switch
The bait and switch is one of the oldest tricks in the lending world, and unfortunately, it still happens regularly. In this hard money scam, the lender makes big promises upfront, only to suddenly change the terms right before the loan closes.
In this type of scam, a lender starts by making attractive promises: low rates, favorable terms, and fast funding.
But once you’re deep into the process (sometimes right before closing), the terms suddenly change.
Rates increase, fees appear out of nowhere, or repayment conditions become far less favorable than originally agreed.
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Make sure to discuss the terms and read the fine print, remember the devil is in the details.
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When the lender requires an upfront deposit before receiving funds, you should be very wary of moving forward.
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Verify that the lender openly shares their lending guidelines and processes online. If this information is hidden, vague, or difficult to find, treat it as a serious red flag.
2. The Unicorn Deal
$5 million at 5% interest, no payments for a year, 100% LTV, and a free toaster to sweeten the deal!
Sounds amazing, right? Unfortunately, unless your mom is the lender, offers like this don’t exist in the real world.
Be wary of any hard money loan that sounds too good to be true, because it almost certainly is.
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Hard money loans usually carry higher interest rates than traditional loans, typically between 9% and 14%. If someone’s offering you a hard money loan far under 9%, it’s likely a scam.
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No collateral required? That’s a major red flag. Hard money loans ALWAYS rely on collateral to secure the lender’s position.
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Be cautious of unclear or inconsistent instructions during the application process.
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Never pay upfront fees or wire funds until you have fully verified the lender’s legitimacy.
3. Upfront Fees
Some hard money scammers make money by asking for upfront fees and then never funding the loan.
This is one of the oldest tricks on the internet, similar in spirit to the classic “Nigerian Prince scam”: the promise of a huge payout after you send a relatively small upfront payment.
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Be wary of non-standard fees that aren’t commonly used in the hard money lending industry.
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Avoid lenders who ask to be paid before funding your loan. Legitimate hard money lenders do not collect large sums before funding.
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Watch out for hidden fees. Always read the contract and fine print. Real lenders will disclose all upfront costs, sometimes rolling them into the loan itself rather than collecting them beforehand.
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If the lender does not clearly post their lending guidelines or make their process transparent, it’s a major warning sign, and you should walk away immediately.
4. Fake Hard Money Lenders & Identity Theft
Identity theft and imposter scams remain among the most common and costly scams today.
According to the latest FTC data, there has been more than a fourfold increase in reports of impersonation scams, with victims losing tens and even hundreds of thousands of dollars.
In 2024 alone, adults aged 60 and over reported losing millions of dollars to scammers posing as trusted government agencies, businesses, or other legitimate organizations.
When providing documents to a lender, always verify that you’re working with a legitimate and reputable business.
Remember, your personal information can be used for identity theft or to steal from your bank account.
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Never give out your social security number, date of birth, address, or any banking information unless you are convinced you are dealing with a reputable lender.
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If they promise you payments in connection with providing credit card numbers and other personal information, it could be a hard money scam.
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Be wary of lenders that only use WhatsApp or a Gmail address to communicate.
5. Collateral or Title Fraud
In this scam, the lender tricks the borrower into signing over the property title or other collateral before the loan is funded—or sometimes without the intention of funding at all. The scammer may promise a loan, get the borrower to transfer the deed, and then disappear with ownership of the property.
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Be cautious if the lender pressures you to rush paperwork or skip legal review.
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Never transfer the property title or deed outside of a secure escrow process before the loan funds are received.
6. No Title or Escrow Services Being Used
Some scammers try to bypass title companies or escrow services to speed up the process, asking borrowers to wire funds or sign documents directly. Without a neutral third party, you risk losing your money or your property, as there’s no one ensuring the transaction is handled properly.
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Legitimate hard money lenders always use a title company or escrow agent to handle documents and funds.
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Avoid any lender who pressures you to skip escrow or wiring through a trusted third party.
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If the lender insists on direct transfers without a professional review, it’s a MAJOR warning sign.
7. Ponzi Schemes
Ponzi schemes are one of the most destructive types of investment scams, and hard money lending is not immune.
In this type of scam, the lender or operator promises high returns on real estate investments, but instead of generating legitimate profits, they pay earlier investors using the money from new investors.
This creates the illusion of a successful investment, while the operator pockets large sums of money or misuses funds.
Eventually, the scheme collapses when there isn’t enough new money to pay earlier investors, leaving many people—often retirees or first-time investors—devastated.
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Promises of consistently high returns with little or no risk. Legitimate hard money loans carry real risk, and no investment is guaranteed.
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Returns are paid out before any project revenue is generated. This may indicate funds are coming from other investors, not legitimate profits.
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Lack of transparency or verifiable records for where your money is going. Real lenders provide clear documentation and trackable accounting.
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Pressure to recruit other investors or continually add new funding to maintain returns.
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Difficulty withdrawing your money or accessing statements about the investment.
Tips to Avoid Common Hard Money Scams
The best way to avoid hard money scammers is to do business with people you trust.
Use this list to verify whether a new hard money lender is reputable before doing business with them.
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Rates should be honest, fair, and published on their website as well as in other communications.
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You should be able to do a quick gut check by looking at their website and other social media profiles on sites like Facebook or LinkedIn. Though obviously an online presence can be faked, you can generally get a good feel by looking around the internet at their marketing material.
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Do an online background check. Search online for “the company name” + “complaints” or “reviews.” You can also check for reports with the BBB and in Ripoff Report.
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The hard money lender's email address should match their domain. Be suspicious if they are using a free email address service, for example, if their email address ends in @gmail.com or some other type of domain that is indicative of a free service.
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Legitimate lenders will have pre-established requirements for approval. If they have no requirements for loan approval, this is a huge red flag.
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Verify the lender’s license and reputation before sharing any documents. In California, all lenders must hold a valid license, which should be displayed on their website. Check their license at the CalBRE Public License Lookup.
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Do they approve loans WITHOUT evaluating the property? All real lenders will do their due diligence. This generally includes a physical assessment of the property or an appraisal by a third party.
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Like most investment deals, a legitimate hard money lender will always require you to sign a contract. If an investment does not have documentation and paperwork involved, it would be fraught with risk for both parties.
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Request references. A reputable hard money lender will not take offense if you ask for references; in fact, they will understand since they may require the same from you.
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Phone the lender and ask for the name of a title company the lender has worked with. Title companies are regulated by the state. If the lender won't provide a title company, find another lender.
The Bottom Line
In conclusion, while many reputable hard money lenders operate in the industry, there are also scams to watch out for.
Do your homework; research a lender’s background, verify their licensing, and trust your instincts.
If an offer sounds too good to be true, it probably is. When in doubt, walk away and find a more reliable lender.
Following these tips will help you navigate the hard money lending process safely and confidently.
Handpicked Resources
Hard Money Guide Hard Money
Why Local Matters Hard Money
How To Find The Best Hard Money Lender in California Hard Money
Common Hard Money Documents
Commercial Hard Money Lenders Hard Money
What Happens if You Default
About the Author
Russell Barneson Hard Money Lending
Russell is a seasoned real estate investor, writer, and hard money lending strategist, as well as the co-founder of Crescent Lenders. He holds a degree from the University of Southern California’s Marshall School of Business. Outside of work, Russell enjoys surfing and spending time outdoors with his dog, Amy.