Funded $240k in one advance. $60k of it went to a different project.
I spent years running renovation crews, so I thought the one edge I had as a lender was reading a scope. That is exactly the thing that cost me.
Deal was a 1930s four bed in a solid older neighborhood, as-is $330k, ARV $520k on his comps and about $495k on mine. Borrower had done six flips and I had walked two of them. I lent $240k, 73% of as-is, 12 month term, 11.5% interest only, 3 points. No construction holdback. His rehab budget was $78k and he said he was funding it from a sale that closed two weeks earlier. I looked at the scope, judged it a $70k job with maybe $8k of surprise, and funded the whole $240k at closing because holding back $60k would have meant draw inspections and I did not want the administration.
Work stopped in month five with the roof done, the kitchen gutted, and nothing else. What happened is that his other project, a bigger one I did not know the size of, ate the money. He admitted about $60k went there.
My choices were to start foreclosure in a judicial state, which my attorney put at nine to twelve months from filing, or to fund the finish. I did a modification and advanced $55k against an escrowed draw schedule with an inspector I paid for. Total exposure $295k plus accrued interest. It sold in month 16 at $498k, and after his costs I collected principal and about $14,300 of interest. I had priced this at roughly $44k over twelve months. So call it a little over 3% annualized on money that was out sixteen months and had my full attention for eleven of them.
Nothing here was a fraud claim I could have won. The money went into real construction on a real house that was not mine.
What I would do differently. Rehab money sits in an escrow account controlled by a third party and gets released against inspections, every time, even when I could do the inspection myself in forty minutes. And I would require a written schedule of his other active projects with budgets and remaining spend, plus a liquidity statement, because concentration in his portfolio is the risk in mine.