State law enforcement officials are investigating whether 70 retirees and other investors in Northern California were bilked when they put up $6.4 million for construction loans on Malibu land that may be undevelopable.

The episode illustrates the perils of “hard-money” lending, a little known and largely unregulated corner of the real estate market.

The investors have foreclosed on the land, which is worth just a fraction of its appraised value as prime home building property. But they’re still trying to figure out where their money went.

“Nobody knows what happened to it,” according to Fred I. Mann, 77, a retired advertising executive who said he invested more than $500,000 in the transaction and is facing a total loss.

Hard-money loans traditionally go to borrowers who can’t qualify for conventional bank mortgages or construction loans. They are commonly funded by individual investors who buy fractional interests in the transactions, enticed by the promise of double-digit returns safeguarded by underlying property values.

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