September 16, 2014 / 4:16 PM / 4 years ago

UPDATE 1-New York banking regulator probes 'hard money lenders'

(Adds details of probe, names of lenders)

By Karen Freifeld

NEW YORK, Sept 16 (Reuters) - The New York state banking regulator has launched an investigation into potentially predatory practices by lenders who make short-term, high-interest loans secured by homes or other real estate.

Benjamin Lawsky, superintendent of the state Department of Financial Services, sent subpoenas to nine “hard money lenders,” seeking information about their loan policies and marketing materials, his office said in a statement on Tuesday.

The department is probing whether the companies are intentionally structuring hard money loans with onerous terms that may be driving borrowers into default.

“Unscrupulous companies appear to be taking advantage of borrowers in tough financial straits by making loans that are designed to fail,” Lawsky said in the statement, calling the practices “‘loan to own’ schemes.”

The regulator will also investigate complaints that lenders require borrowers to sign deeds in lieu of foreclosure when they take out the loans, which allow lenders to seize a property if someone misses a single payment, denying borrowers the protection of the foreclosure process, the agency said.

Of the nine lenders issued subpoenas, two - Alston Ferris Capital Partners and Rushmore Capital Partners - are in New York City with the rest located in suburban and upstate counties.

Robert Gordon, who manages Rushmore Capital, said the company never asks borrowers for deeds in lieu of foreclosure. He also said he did not know about a subpoena and declined further comment.

Alston Ferris could not be reached for comment.

Other New York lenders sent subpoenas include: Quick Funding LLC of Valley Stream; PMG Lending Group in East Aurora; Manitoli LLC of Mahopac; Meritt Funding Inc of Eastchester; IAS Group of Syosset; Liberty Lending Group of Port Jefferson, and Mercier Realty in Rochester. The lenders either could not be reached or declined comment.

Hard money lenders sometimes change names or set up affiliates to avoid licensing requirements and evade detection by regulators, the agency said.

The Department of Financial Services also asked New York consumers who believe they have been victimized by hard money lenders to contact the agency’s toll-free hotline at 1-800-342-3736. (Reporting by Karen Freifeld and Jonathan Stempel; editing by G Crosse and Tom Brown)

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