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New York State Launches Probe Into Hard Money Predatory Lenders
Sep 16, 2014

Benjamin M. Lawsky, Superintendent of Financial Services, announced that the New York State Department of Financial Services (DFS) is launching an investigation into possible predatory lending practices by companies that originate short-term, high-interest loans to New Yorkers secured by a borrower’s home or other real estate – a practice known as hard money lending. Hard money lenders do not typically evaluate a borrower’s ability to repay and likelihood of default, and there are concerns that some lenders may intentionally structure loans with the expectation of foreclosing on and taking possession of the property. DFS has initiated this investigation by sending subpoenas to nine hard money lenders. Lawsky said: “While many hard money lenders may be engaged in legitimate financial activities, certain unscrupulous companies appear to be taking advantage of borrowers in tough financial straits by making loans that are designed to fail. Preying on consumers who are in distress is unacceptable in any form, but these types of ‘loan to own’ schemes are simply unconscionable. We will vigorously investigate any lender that is trying to push a borrower over the foreclosure cliff.” DFS is investigating whether companies are intentionally structuring hard money loans with onerous terms—typically featuring high interest rates, numerous upfront fees, and enormous balloon payments at the end of the loan’s term—so that borrowers are driven into to default. DFS is also probing complaints that hard money lenders are requiring borrowers to sign deeds-in-lieu of foreclosure at loan origination, which permit a lender to take possession of the property as soon as a borrower misses a single payment, thereby denying the borrower the protections of the foreclosure process. A list of the nine lenders to which DFS issued subpoenas is included below. DFS is demanding a range of materials as part of its investigation, including marketing materials, terms and conditions provided to hard money loan applicants, and policies for approving hard money loan applications. A subpoena is a demand for documents and is not itself an indication of specific wrongdoing within a particular company. Alston Ferris Capital Partners (New York City) IAS Group, LLC (Nassau County) Liberty Lending Group (Suffolk County) Manitoli LLC (Putnam County) Mercier Realty, Inc. (Monroe County) Meritt Funding, Inc. (Westchester County) PMG Lending Group (Erie County) Quick Funding, LLC (Nassau County) Rushmore Capital Partners (New York City) Because hard money lenders do not always advertise their services online or in other publicly available forums, and in some cases change their names or set up affiliated entities to avoid licensing requirements, companies may be seeking to evade detection by regulatory agencies.
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