I have cash available for a property I want to make an offer on--however, I'd rather not tie up all that money if at all possible, and I also have a private lender willing to finance the purchase & rehab.
Is it possible to make an initial REO offer using cash (i.e. showing a bank statement POF) to make the offer more attractive--but then having private lending in place by closing?
In some cases, yes. In some cases, you might have some hoops to jump through.
Here are a few thoughts:
- Almost all REO contracts will prohibit you switching financing options in the middle of the transaction.
- You can typically choose to use your own closing agent for an REO closing (though the bank will no longer pay for title costs if you do). But, one of the advantages of using your own closing agent is that they can facilitate your change in financing without the bank knowing (if they're willing to do that).
- If the bank catches you and if there is a clause in the addendum that prohibits the change, you may need to close with cash and/or face a stink by the bank.
- If you're going to switch to private money, I'd try to make the paperwork as simple as possible and ensure that there is nothing the bank needs to sign as part of the closing (they'll likely see it if it's part of the entire closing package, though).
I have had REO & HUD threaten to kill deals because someone else showed up w/ cash (i.e. the private lender that wanted to record the mortgage.) In one case the money to close was actually sitting in the Title Companies account. It was kind of mind boggling that they wouldn't close once they discovered it wasn't a "Cash Deal" It was a cash deal, just not my cash. The banks hang up was a mortgage had to be recorded. It did not cost the bank any money or time & the Title company actually was going to make more $ because of the additional lender's title insurance.
Because the private lender wasn't an institutional lender we closed the deal as a cash deal & he filed his mortgage lien independent of the closing. Filed his lien electronically using an on line service.
On the other deal we had our lawyer work w/ the the banks lawyer to make the case that everything was copestic & we would close w/o a hitch. After rangling back and forth they accepted it. But after that we decided that our offers would we would only submit our cash offers on deals where we were either going to use our cash or we had an arrangement w/ a private lender that did not require us to modify the contract to financing. If we weren't sure we're going to use our cash we would submit our offers as Cash or Financing. We'd provide a POF for cash and a POF for financing.
Thanks for your input, guys. @Crystal Smith , submitting offers as "Cash or Financing" is a good idea--I'll consider that next time!
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