Is Gator Lending Legit? Bringing Clarity to an Important Debate

As CRE investors grow more frustrated with traditional financing, they have increasingly gravitated towards various creative financing strategies of which gator lending is a crucial part. But is gator lending legit?

First off, does it skirt legality on the altar of creativity, thus putting users at the risk of  legal liability? Or, worse, is it a scam designed to dupe people of their money?

Gator lending was introduced by Pace Morby, a popular real estate investor and online personality. Initially, the lending method was all about quickly getting cash for real estate investors to pay earnest money deposits required by sellers.

However, since then, gator lending has taken on many forms. So, in considering its legitimacy, we have to look at the legitimacy of all its various expressions.

In this article, we will briefly explain the various ways gator lending has been used, consider the legitimacy of each usage, and how you can benefit from them as a CRE investor. We’ll cover:

  1. A brief introduction to gator lending
  2. Is gator lending legit in the US?
  3. How CRE investors can best use gator lending

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1. A brief introduction to gator lending

There are three ways that participants in the CRE industry use the term gator lending:

  • Earnest money deposit financing: For some, it is nothing but providing earnest money financing to CRE investors who currently have cash flow challenges and can’t come up with the cash to pay.

As the real estate industry has become more competitive, buyers who can get quick access to earnest money deposits can gain a competitive advantage over others.

Thus, having a steady source of earnest money funding has become important to real estate investors. This is what gator lending seeks to provide.

  • Transactional funding:  Also known as same-day or flash funding, this is a form of short-term real estate investing where a real estate investor borrows money through non-traditional means (individuals and non-bank institutions) to acquire a property that will be sold immediately or in just a few days.

Investors who engage in flipping houses or CRE in a matter of days without using their own money are called wholesalers. These investor types tend to have ready buyers who have agreed to purchase the property for a certain amount which makes it easy for them to repay the loan immediately or in just a few days.

Those who supply this same-day or flash funding are also called gator lenders in many circles and the entire process of accessing such funds is called gator lending

  • The gator method:  Pace Morby, the mastermind of gator lending, uses gator lending in a more extensive way. For him, it is also about community building (his own community is called Subto), mentorship for beginners (until they get their first deal), relationship building, and education (reading books and participating in webinars).

“The Gator Method emphasizes the importance of networking and building strong relationships within the industry,” said Morby. “This approach recognizes that collaboration and partnerships can lead to mutually beneficial opportunities, opening doors to new ventures and expanding investment portfolios.”

is gator lending legit

Because of this emphasis on trust, relationships, and community, the kind of financing that goes under the term “gator lending” can include long-term loans in exchange for equity in the purchased property and pulling funds together in a partnership to purchase an expensive property, among others.

2. Is gator lending legit in the US?

Our consideration of legitimacy will focus on two things: whether gator lending is legal and whether it is a scam.

The legitimacy of earnest money deposit and financing

Legality of earnest money deposit and financing

Though earnest money deposit is not legally required for a real estate deal to be completed, it has become a norm for sellers to require them.

Sellers do this to separate serious buyers from time wasters so they can quickly close deals. Thus, without an earnest money deposit, they won’t proceed with inspection and negotiation.

There is also no law guiding the amount that can be demanded as an earnest money deposit. Earnest money required in the US can vary between 0.5% and 10% of the purchase price, depending on the state.

Since earnest money has become a national norm, the court cases around it has been limited to whether the buyer can get a refund in certain cases. Normally, if the buyer opts out of the deal due to contingencies agreed in the purchase contract, earnest money is refundable. Situations outside of these contingencies have caused disagreements between buyers and sellers.

In essence, while earnest money is not legally required, it is also not illegal.

Since requesting earnest money is not illegal, paying it is also not illegal. Thus, gator lending in the form of earnest money deposit financing is not illegal.

The only issue is whether the financial institution providing the earnest money financing is duly registered with the government as a non-bank financial institution. As long as they are, there is no issue seeking earnest money deposit financing from them.

For example, Duckfund, an earnest money financing company, is a member of Alchemist accelerator, Galvanizer, Cardinal Ventures and Launchpad accelerator at Stanford. Also, it has been featured by Ted-ed and MSN and it is duly registered with the authorities.

Is earnest money financing a scam?

No. The way earnest money contracts are structured makes it difficult for borrowers to get scammed.

Earnest money is held by a third-party escrow partner who keeps the money until the deal is finalized or suspended. When the deal goes through, the money is used to finance part of the closing costs. If the deal fails due to agreed-upon contingencies, the money is returned to the buyer.

earnest money real estate

Source: WallStreet Mojo

Earnest money financing companies like Duckfund will create an LLC that will sign the purchase agreement and also transfer the earnest money deposit to escrow.

If the deal succeeds, the borrower (buyer) will repay the earnest money for a 100% stake in the LLC (financing fee is paid upfront). And if the deal does not succeed due to agreed-upon contingencies, the earnest money is returned to Duckfund and the purchase agreement terminated.

Duckfund has successfully used this structure to provide earnest money funding for many CRE investors in the US.

Therefore, as long as you seek earnest money deposits from registered companies who have built in a structure that protects borrowers, you don’t have anything to worry about.

The legitimacy of transactional funding

Legality of transactional funding

“Although transactional funding programs are a legally recognized financing strategy, some title companies might not be willing to work with this form of funding due to the simultaneous closings involved,” according to Real Estate Skills. “Some buyers or their closing agents might also not be familiar with the process, which either slows it down or prevents closing altogether as they might decide to walk away.”

“So yes, transactional funding is completely legal and above board, though of course as always it helps to use a title company or closing attorney who is comfortable with this type of real estate deal, knows how to facilitate a smooth transaction on both ends and is familiar with how different lenders require things to be done,” according to Best Transaction Funding, a transactional funding company.

In essence, while transactional funding might be difficult to facilitate, it is not illegal in the United States. Similarly, wholesaling, the type of real estate investing that requires transactional funding, is also legal.

What is “now illegal in many jurisdictions,” according to Real Estate Worldwide, a real estate blog, is double closing real estate deals using end buyer’s funds. That is, the wholesaler will wait to collect cash from the end buyer and then use the funds to purchase the property from the seller.

In fact, transactional funding can be seen as the legal alternative to this dry or simultaneous closing (the term used by Best Transaction Funding).


Is transactional funding a scam?

Transactional funding itself is not a scam. There are genuine gator lenders (hard money lenders and private money lenders) willing to lend money to wholesalers just as there are many genuine wholesalers willing to borrow the money and repay in a day or in few days.

It behoves the participants in these transactions to use real estate attorneys and title companies who are familiar with these types of deals and can draw up legally binding agreements that will satisfy both parties.  

Though many consider transactional funding illegitimate because of high interest rates, Ramp, a spending management company, puts the average interest rate on such deals between 2% and 12%.

The legitimacy of the gator method

Talking about the legality of gator lending

The right to association means there can’t be anything inherently illegal about forming real estate communities and networks.

Consequently, the real question is whether what is done in the communities are themselves legal. As we have seen, EMD lending and transactional funding are not illegal in themselves.

Similarly, the type of long-term lending and partnerships that are common in communities practising the gator method are not illegal as long as both parties agree to the terms of the contract.

In fact, none of the 15 points highlighted by Pace Morby as defining what the gator method is all about are illegal.

Is Pace Morby’s gator method a scam?

This is where things can get more fuzzy.

In any large community, especially one built on social media and consisting of people who do not know each other previously, there will always be people with alternative motives.

Therefore, the possibility of a scam cannot be ruled out and you will find many Pace Morby reviews and testimonials that are negative – just as you will find those that are positive.

The only way to avoid this is to do due diligence on the community member you want to transact with and to involve verified real estate attorneys and title companies.

While trust is the glue to a community, the nature of communities built on Pace Morby’s gator method makes it difficult to trust anyone without doing your due diligence.

3. How CRE investors can best use gator lending

EMD financing

Irrespective of investment strategy (investment or rental property), CRE investors need EMD before they can inspect properties and continue negotiation with sellers. Traditional financing like traditional banks are often inaccessible (rigid requirements and lengthy process) while online lenders are expensive.

Gator lending in the form of EMD financing is more accessible (no credit report, funds can be accessed in 48 hours as with Duckfund) and cost-effective.

If you are a CRE investor and you need quick and cost-effective access to EMD as a way to gain competitive advantage, then gator lending with companies like Duckfund is a legit way to access the funds you need.

Transactional funding

Real estate wholesalers (a special class of real estate flippers) have found transactional funding to be a legit alternative to dry closing or mere contract assignment.

If you choose to get funds from a hard money lender or a private money lender, ensure you work with reputable ones. In addition, carry your attorney along and work with a title company that will put your mind at rest.

Gator method

Though belonging to a community is a legitimate way to access or provide creative funding, the nature of these communities demand that you be careful with who you deal with.

Working with established companies like Duckfund (for earnest money financing) is safer. And for other lending purposes, it might be better to look for other registered and trustworthy creative financing companies who provide such financing.

All in all, ensure you don’t enter into any agreement without your attorney and a title company (if the nature of the deal requires it).  

Creative financing in the real estate market is still in its infancy and it remains to be seen what creative financing companies will have for us in the future. Your task as an investor is to keep asking the hard questions about legitimacy and choosing only those solutions that put your mind at ease.

[Do you want to gain a competitive advantage by having a consistent source of earnest money deposits for all your deals? Sign up for Duckfund for low-cost, quick, and accessible earnest money financing in the US.]


  • As traditional financing becomes more inaccessible and tardy, creative financing is helping real estate investors access the funds they need.
  • The term “gator lending” is used to describe a variety of concepts including earnest money deposit financing, transactional funding, and Pace Morby’s gator method.
  • All three types of gator lending are legal in the US and they are not scams in and of themselves.
  • CRE investors who decide to use any of these gator lending types must be careful to work with trustworthy companies and individuals and to involve their attorney in drafting any contract.  
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