Every investor who has been around long enough has a lender story. The term sheet that looked nothing like the closing disclosure. The phone call at 4 PM on a Friday asking for one more thing. The underwriter who apparently never read any of the emails.
Most of the time these are aggravations. Sometimes they cost you real money.
Here’s the worst version of the scenario, which came directly from a Colorado investor at a recent RE•CON office hours: a borrower confirms their deal structure with a lender for 45 to 60 days. Specific details, confirmed repeatedly. One person signing as guarantor. The lender raises no objections. One week before closing, the lender comes back and demands all general partners sign as personal guarantors. By that point, walking away means losing significant earnest money. The borrowers capitulate. The deal closes on the lender’s new terms.
That investor’s advice was direct: tell everyone you know to avoid that lender.
This is a known problem with a name
In private lending, this pattern is called bait and switch. The lender provides a term sheet knowing they intend to change the terms before funding. They keep the borrower engaged through the loan process and then change the structure when it’s too late to start over (Private Lender Link, May 2023).
The American Association of Private Lenders is clear on the legal exposure: even accidental bait and switch is illegal. Potential claims include detrimental reliance, breach of contract if an LOI was issued, and unfair business practices. The consequences are no different than if the intent was deliberate (AAPL, August 2021). That’s cold comfort when your earnest money is at risk and the closing is in seven days.
The structural problem is the gap between the person you’re talking to and the person who actually approves your loan. Many commercial lenders separate origination from underwriting entirely. The loan officer who builds the relationship and takes your calls has no binding authority over what the underwriter decides. When a problem surfaces, you’ve spent months in due diligence, your earnest money is exposed, and the lender knows it.
What actually protects you
Get the deal structure confirmed in writing, and make sure the confirmation comes from someone with actual authority. Not the loan officer. Not a summary email. A written commitment that covers the rate, guarantor requirements, reserve requirements, prepayment structure, and any conditions that could change the terms before closing. The best protection is a genuine loan commitment signed by someone who can actually bind the institution (FREEandCLEAR, November 2020).
Ask directly, before you go under contract: “Who is the underwriter on this deal, and can I speak with them?” A lender that stonewalls that question is showing you something. A lender that sets up the call is earning your trust the right way.
Some lenders are structured so that the loan officer and the underwriter are the same person, or at minimum the loan officer has direct real-time access to underwriting decisions. When you ask a question, you get a real answer rather than “let me check with the back office.” That structure is worth seeking out on complex deals. It’s also worth paying a modest premium for.
On assumptions specifically
Banks often stall assumption approvals intentionally. The reason is economic: they lose money on assumed loans because they don’t get the origination fees, the borrower keeps a below-market rate, and the bank is stuck servicing a loan it can’t reprice (Private Lender Link, May 2023). If a lender quotes you 90 days for an assumption, build in at least six months and set calendar reminders to follow up every two weeks. Silence is not progress.
One more practical step: build and maintain a short list of lenders you have verified through direct experience or trusted referrals, and use it. Lender reputation travels in this business. The investors who are willing to name names when a lender burns them are doing everyone a favor.
The short version
Get the structure in writing, signed by someone with actual authority. Talk to the underwriter before you’re committed. Know which lenders have a pattern of changing terms at the table. And if a lender ever tells you they need something different a week before closing, you have a choice: capitulate, or walk. Knowing which choice you can afford to make starts with the work you do at the beginning of the process, not the end.
Sources
Private Lender Link, “Bait and Switch: Unethical Practice in Private Lending,” May 2023
American Association of Private Lenders, “The Accidental Bait-and-Switch: Is This You?,” August 2021
FREEandCLEAR, “What is a Closing Disclosure for a Mortgage?,” November 2020
