I got an email from my real estate agent saying that any foreclosure properties I want to submit offers on are going to need a proof of funds letter. I've read that you can use a Coastal Funding letter to get around this issue, but I need to figure out how to proceed while being up front with my agent. I never mentioned that I would be assigning the deal, but I said I would be bringing in a partner who is a cash buyer to close the deal. Even if I got a proof of funds letter from a local investor, I can't guarantee he or she will be the person who buys the deal from me...
Please let me know your thoughts and opinions on how to solve this proof of funds issue. Thanks.
I was planning on double closing to get around the no assignement. I've never done it, but that seems to be a recommended way to go about it.
I was seeking advice on - I feel funny submitting a proof of funds (say Coastal Funding's letter) to my agent as if it came from my cash buyer. But, if I tell her I'm wholesaling the deal and that I don't have one particular buyer lined up yet, I think that it could get messy. So, I was wondering how others have dealt with it.
- work with a realtor to buy bank owned homes
- get a POF letter so you can show you can buy the homes cash
- put a property under contract
- try to sell it to another buyer BEFORE you have to close on it?
If that is correct banks will not let you assign deals - you would have to close on it so you do a double closing - you buy first using flash funding then your buyer buys from you.
The issue you will be what kind of financing your buyer is using - FHA requires 90 days seasoning - conventional lenders frown on this (not impossible but not easy) and cash buyers are the best.
You can get around the assign deal with a private seller but will run into the same issue with the end buyers finance source.....
LOTS of threads on double closings here that have gone into great detail - look a few of those up.
Scott, I guess I meant a simultaneous closing. As I understood it, that wouldn't require transactional funding?
When I met my agent, I said that I'm looking to find cheap properties that can be fixed and flipped. I said that I know some cash buyers and I'm looking to locate a deal for them.
Here is what my agent asked me in an email and what I'm trying to get answers to:
Hi Brian,
Wanted to also see if you have any proof of funds from whomever it will be signing the contract when you find something? In case a house comes on and we have to move quickly the banks/agents will need that if it will be a cash deal. And if someone else is doing this with you are they going to look at it as well?
Take care,
Real Estate Agent
Many banks will reject your offer if the proof of funds dosnt have YOUR name on it, just FYI. The coastal funding letter seems the best way, put in additional provisions you have the right to change your cash source at any time as long as it dosnt effect the net proceeds to seller. That way, when you change from Coastal to transactional funding, it wont raise any red flags.
Well two separate issues here - what you're saying and what your realtor is saying.
You're saying you want to do a simultaneous close. A double close is hard enough these days so you want to really overcome a challenge so you up the game! Love the style but unless you have a cash buyer I really do not think you will be successful with a simultaneous close in today's market - well cash or a private/hard money source - I am not even sure a small local bank / credit union would do this.
I am sure others will chime in and maybe I am just out of that loop?
As for your realtor - he doesn't care who signs the PA - you or your buyer - but whomever is signing needs to provide the POF. You might be better off having a contract in place with your buyer - letting them do the deal and they pay you outside of close your fee - or you look to do a double closing where you are actually in title for a few hours / days.
Banks are not keen on paying you to own the property for a few days let alone never.
If I was you I would not start out with REO's. You need to work your butt off and find some private owners that NEED to sell, not "want" to sell.
You also need to work hard to put together a strong buyers list. Most rehabers pay cash because banks don't usually lend on the junker properties you'll be looking for and assigning.
Once you get some deals done with private owners then you can get into REO's. It takes a lot of patience and a ton of hard work so don't quit your day job just yet. Just my opinion.
Brian
Buying and selling REO's is cool once you have it down!
If you want to do that then do it, stick with it, do it well and make your money.
Buying it is no big deal but you absolutely need to have your end buyer in place quickly. This will obviously depend on your buyers list and your contacts. Splitting your profits 50/50 with a wholesaler who has more buyers than you is normal and should be perfectly OK with you. You need to Get It Gone!
I'll assume you have that part covered.
Trust me on this (I'm speaking on our own FL situation) There ARE title companies out there who will do a double closing WITHOUT you having to bring your money (or transaction funding) to the table. Most investors here use the same company, they are awesome, they know their stuff, they have their own attorney's in office etc. and they perform double closings all day long, every day. It is perfectly legal when done correctly.
As for your initial purchase: Why are you using an agent?
When we buy an REO, we buy it from the agent who has it listed.
Ask that agent to write the offer for you, they will be happy to do it because you just gave them both sides of the commission!
Doing that will also give you a much better shot at getting your offer accepted by the bank.
Your Proof of Funds: You are now dealing with the selling agent on a particular property so that person will ask to see one letter, one time.
POF is easy, use one from Coastal or PM me if you want another way.
Closing the Deal: First off, you probably had to put up $1K for escrow on the deal. We require $2K cash deposits on all residential transactions so if our buyer doesn't close, we still made a grand instead of losing one.
Off you go to the closing company, your buyer is all set with cash or hard money (assumed) You sit back, let the title company do their thing, collect your check and head home to do the next one!
You were going to and did buy the property as was your initial intent with the agent. What you did with the property after the fact is neither here or there!
You are correct and incorrect at the same time. While HUD publishes the "90 Day Seasoning" rule, they don't abide by it if the file can be properly documented. We went through this last year on a short sale flip with an FHA buyer as the end buyer. Here's the insider secret that most investors do not know:
What HUD is concerned about is not a flip. They are concerned about a fraudulent flip with an overinflated appraisal due to collusion among the buyer/seller/appraiser.
The internal regulator at HUD that makes the determination is actually a HUD appraiser.
Where the initial issue rears its ugly head is with the FHA appraisal. The appraiser doing the FHA appraisal is required to document through public record that the property is in the seller's name. Which, in a double close flip, it obviously won't be.
So, when this happened to me, HUD had just eliminated the seasoning requirement on HUD REOs. Though, it can be an exercise in futility, I called and finally got through to an actual FHA underwriter at HUD in Atlanta. The initial answer was what we expected, that there is a 90 day seasoning requirement.
So I said, "Let me get this straight, HUD will waive the 90 seasoning requirement on a HUD REO for an FHA buyer, but they will NOT waive it for an FHA buyer on a short sale that would prevent another HUD REO?".
Put that way, she saw the logic.
She quickly directed me to a HUD appraiser.
After explaining in excruciating detail what we were doing, the HUD appraiser (actually a really nice guy) got it and told me that he would sign off on the deal and instructed me to have the FHA buyer's underwriter/lender call him if they were concerned about the FHA guideline. He was kind enough to provide his direct line, email address and cell phone number.
We then provided this information to the buyer's lender.
Where this can become a dilemma for the buyer's lender is with their concern over not being able to get the loan off their warehouse line. This where overdocumentation of the file with addenda actually from a HUD appraiser can help.
I don't suggest this path because it is akin to the frustration you deal with in negotiating a short sale with the loss mitigation department, but, it is possible despite what the guidelines say.
1st Rule of Real Estate Investing:
"Improvise, Adapt, Overcome" (and never believe what they tell you is a guideline or policy because it often isn't carved in stone)
I have another question on this topic. I've heard that some banks aren't accepting Tranactional Funding P.O.F. letters and I like the idea of putting in additional provisions saying that you have the right to change your cash source at any time as long as it doesn't effect the net proceeds to the seller. My question is...is it acceptable to get a P.O.F. letter from a private money source and submit that to the bank? I am a new investor and any thoughts or insights are appreciated.
Yes it is!
Listen up..........
We have submitted hundreds of POF letters and I think TWO agents (not the banks) called on them!
And when they did, they called the number on the letter and said "do you have $xx funds available for Mr. X to buy real estate"
The name on the letter replied with "YES" and that was the end of the call.
It doesn't matter! Let's say it's just a family member, your boss or whoever (if you get my point) the only thing they can ask is, "are these funds available to this person" and of course the answer is always yes.... end of call, end of story.
Oh, and the simultaneous close is the easiest thing in the world too, you just need to be using the same title company as all your other local wholesalers are using! No reinventing wheels here, it happens a thousand times a day.
Easy Peasy!
PS. The 90 day thing above has gone now too so you're all set.
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Jun 25 '09, 01:36 AM
