Texas - Deed of Trust and RE Lien Note - How is this handled?

Question

I hope this is the correct forum.

I am trying to get the paperwork in order so that when i find a deal that i elect not to use (or cant use) conventional financing and an agent on, i can use the cash from an associate of mine to fully fund the purchase of a SFR.  They would loan me the cash and i would pay them back.  i spoke with my attorney briefly about this and he said we are talking about a RE Lien Note secured with a deed of trust.  i would front all rehab costs (or maybe work up a separate note for that depending on my situation at the time).  Later i plan to rent, refi out and pay off the note, rinse repeat.

I have an agent and work with him on MLS things, but my plan is to ramp up my lead pipeline and potentially make several offers a month, which i don't think is a reasonable request for my agent since most of them likely would not be accepted.

Questions:

• hopefully not a dumb question, but would this arrangement still be considered as "paying in cash" in the eyes of the seller/title company?  This would definitely lead to a faster closing also.
• how do you actually get this set up?  do i have my attorney draft up some standard forms that i fill out on each deal or is this something the title company does?
• related to #2, aside from the signed contract and EMD, what do i need to take to title company to get the process going?

Thanks,

MS

Miles Stanley · Answer

@Don Konipol

thanks for the explanation.  I ran this by my agent as well and he says it might be best to start an entity with our cash partner (didn't mention what kind) and open a bank account so we can furnish a statement or something as proof of funds.  Sounds like i might need to lean on my attorney more fore this.

BUT, my exit strategy for these purchases is to refinance out, pay back the cash loan and repeat the process.  I have learned that most banks will not refinance if the property is owned by an entity (unless there is some loophole/workaround).  By "property", my main focus at this time is SFR and small MF, so the options for commercial loans are out (right?).

his answers generated more questions, ha!

Don Konipol · Answer

A "cash offer" has two somewhat contradictory meanings.  It can mean an offer to purchase a property that delivers cash to the seller at closing, i.e. no seller carry back, regardless of how that cash is obtained.  Or it can mean an offer that the buyer is using his own cash to purchase with no other financing.

One can make an offer dependent on financing appear to be an all cash offer by having no mention of financing, i.e. not making the offer contingent on obtaining financing.  The buyer may utilize a long option period, or make the offer contingent on some factor other than financing instead.  Or the buyer may make an offer with no financing contingency and the only penalty for failure to perform being loss o earnest money.

These bypass of financing contingency made to look like "all cash" became popular in hot markets where sellers were able to generate multiple offers resulting in bidding wars.  As a result sellers (or their brokers) began asking for proof of funds for buyers who claim no financing necessary.  Obviously if buyer can't show where the money for the purchase will come from, then offer will in all probability not result in a closed transaction.

Sushil Sureka · Answer

Title company handled it all for us. While closing, you can ask the title company to prepare the note/deed of trust along with closing docs for purchasing. (I have worked with 4 title companies in last 6 months and all of them provide this service)

Miles Stanley · Answer

@Ronald Rohde,

That's good news, but do you have any input on the other points?  namely, do i need to have these forms, etc drafted up by my attorney or does title company handle all this?  Especially on the note itself and the DoT.

This is one of the major issues i always see is the actual How-To about getting these creative aspects actually implemented.

Sounds like on the contract i just write it up as a cash offer (easy), but as far as getting all the paperwork done in the background...?

Thanks!

Ronald Rohde · Answer

I think what you're describing is tantamount to a hard money lender, so yes, your offer would be considered a "cash offer" No financing contingency.