Private money lending risks

Just as subprime lending was risky for banks, investing in private money loans can be perilous, too. Some examples:

• A now-bankrupt Monterey County private money lending pool called Cedar Funding had its license revoked in May and is being investigated by federal and local law enforcement agencies for possible criminal wrongdoing. It also was sued in the spring by investors who claim that Cedar President David Nilsen was running a Ponzi-like operation, paying earlier investors using funds from new ones.

• In Santa Clara County in February, mortgage broker and private money lender Michael Schneider was sentenced to 28 years in prison for stealing $43 million from investors, many of them elderly local residents.

In addition to the risk that the money in a private money lending pool could be misappropriated, there are other potential pitfalls, including borrowers who default on their loans.

The California Department of Real Estate publishes a booklet for prospective investors called "Trust Deed Investments: What You Should Know." To read it, go to www.dre.ca.gov and click on "publications."

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Private money lending risks

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