Upper Marlboro, MD · Member since 2011 · 26 posts · 4 votes
I just had a deal fall apart because hud requested the hard money lender show a bank statement or letter from their bank showing they have enough funds to close the deal, when I told the lender about this they were dumbfounded, they told me that the funds was available but it would not be in the lenders account, since they pulling these fund from a pool of investors, and I spoke to more than one hard money lender and they told me the same thing(they were both willing to issue a strong letter of intent, hud said this was a new policy) I am wondering if anybody else has had this experience
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
This part doesn't makes sense. If the lender is pooling funds, then they should already have the funds available and in their (the lender's) bank account. I can see the lender being reluctant to hand over a bank statement. But if they're going to actually make the loan, and are pooling funds, they will have had to do a bunch of work, including actually collecting the money, long before this point.
OTOH, if the loan is actually coming from some other entity or person, then they should, at this point, know who that person is. And they should be able to provide a bank statement.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
You know, I've always wandered when this would happen....and why banks or even listing agents were accepting a loan committment from a non-regulated lender.
Sorry to hear your deal fell apart.
That will really put the funding brokers holding themselves out as lenders in a bind until they figure out how to restructure and when they do, they better keep in mind SEC regs.
Upper Marlboro, MD · Member since 2011 · 26 posts · 4 votes
13y
The offer was made as been financed and a preapproval letter was sent with the offer, according to the employee I spoke to at hud this was a new regulation they just put into effect, that was why they gave me back my emd, once they know it is a hard money lender they will be requiring the xyz hard money lender to provide a bank statement showing that there is enough fund to close the said deal or a letter on the banks letter head stating that xyz hard money lender has enough fund to close the said deal, so before any body makes an offer on a hud property be sure to be able to provide these docs.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
13y
Sorry Ade O., but I have to side with HUD here. I don't know their specific policy but it appears they've been burned enough by lenders who can't perform that they are asking to see the cash in hand. If I were you, I would do the same.
A promise from an HML that they have investors who also promise to fund a loan is a pretty thin assurance that the money will be there at closing. Either they have the money to fund, and they can show it, or they don't. Have you used these guys before? It's easy for me to say, but I suggest you find some lenders with greater liquidity.
Be glad that this didn't happen further into the process where you could have lost your earnest money.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
It makes sense to me. As Bill Gulley said, as a listing agent I don't accept these "loan preapproval" letters that guys get off the interent from some supposed internet "private money lender". Besides, if even the "lender" has the money, the "preapproval" is probaly dependent on LTV of 65%, borrower having a great credit score (which hasn't been checked yet) income to be verified, cash that buyer doesn't have, alignment of all the stars in the Big Dipper, closing to be on Easter as long it's a Thursday in September,......
Upper Marlboro, MD · Member since 2011 · 26 posts · 4 votes
13y
I do understand what you mean Wayne, but with this deal the pre approval stated that they had reviewed my credit( part of huds reqirement) and I sent hud my bank statements showing that there was more that enough funds to close the deal which hud also requested, so everything was there except the bank statements that hud requested, I tend to agree with what bill said earlier on, when i spoke to the lender they stated to me that they are a "lender" and do not provide bank statements, but is that statement accurate? are they a lender as defined by the goverment? and to answer jeffs question these guys have done loans before so their ability to perform is good. Also the property was an uninsured hud property.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Well Ade, don't know why they didn't just ask if you wanted to make a cash offer if you had sufficient funds....did you suggest it and think to refi after closing?
I'll side with HUD, banks and listing agents as well, proof of funds from non-regulated, non-bonded "lenders".
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
This part doesn't makes sense. If the lender is pooling funds, then they should already have the funds available and in their (the lender's) bank account. I can see the lender being reluctant to hand over a bank statement. But if they're going to actually make the loan, and are pooling funds, they will have had to do a bunch of work, including actually collecting the money, long before this point.
OTOH, if the loan is actually coming from some other entity or person, then they should, at this point, know who that person is. And they should be able to provide a bank statement.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Originally posted by Ade O.:
I do understand what you mean Wayne, but with this deal the pre approval stated that they had reviewed my credit( part of huds reqirement) and I sent hud my bank statements showing that there was more that enough funds to close the deal which hud also requested, so everything was there except the bank statements that hud requested, I tend to agree with what bill said earlier on, when i spoke to the lender they stated to me that they are a "lender" and do not provide bank statements, but is that statement accurate? are they a lender as defined by the goverment? and to answer jeffs question these guys have done loans before so their ability to perform is good. Also the property was an uninsured hud property.
Ade: you say you submitted POF that showed enough funds to close the deal? Do you mean just your down? Or did your bank statement reflect enough cash to close the deal as a cash purchase? If so, why did the deal fall apart? Why not just eliminate the lender from the offer?
I've worked with lots of hard money lenders who "pool" funds. They would have proof of funds if asked for it. I'm guessing your hard money lender is flying by the seat of their pants or is only brokering if they don't have any proof of funds.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Jon Holdman
Originally posted by Jon Holdman:
Jon, many act as a broker, they don't hold the funds because they would need to paay interest to those investors, so they may farm out applications/deals, get investors to sign on, then give a loan commitment. It may take a couple hours for investors to wire funds or take certified funds to a closing agent. Funds may only become sufficient to close prior to closing in the closing agen't account.
When the deal funds, the HML breaks down the deed of trust with a collateral assignment, often in violation of state/ SEC regs, as that is an unregistered security, but usually only known between the investor and the broker.
There are other ways, but this seems to be common, the new verification requirement will probably change this, hopefully for the better. :)
Upper Marlboro, MD · Member since 2011 · 26 posts · 4 votes
13y
K.marie@ No, I do not have enough funds to buy the house, I had almost 40% of the purchase price, I asked the hud employee if this was a common issue, she told me that some hard money lenders did not have a problem getting hud the information, actually what they were asking for was not unreasonable they will take a letter on a bank letter head stating that there was enough funds to close the deal, it does not have to be a bank statement.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
13y
Can you try getting a pre-approval letter from another lender?
Thats typically the easiest way around that.
Keep in mind that the financing doesn't have to come from the same bank that you got the pre-approval letter from.
So if you go get yourself a pre-approval letter from BofA, you can avoid the headache and hassle. When you go to close, you'll be using hard money lender and HUD won't care. Even they know there's no way they can lock you in to a lender when you're putting in the offer.
There's no way to guarantee whether any lender will stick with any commitment that far out - not these days. :-)
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Initially, a pre-approval will help, but it's not a commitment on the deal, for that it will need to be appraised and accepted prelim title, some lenders charge for a commitment credited to the loan origination, some don't credit back but may have a fee, so not taking the loan and going to a HML can be expensive. Can be a good tactic, but better know the details playing between two lenders....and, you burn a loan officer and you might not be dealing with them in the future.....
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Bill Gulley I've done this both ways. When I first started, the broker would set up the deal. The DOT was between me (my IRA, actually) and the borrower. The checks and payoff came back to the IRA. The broker took their fees up front, then they were out of the picture.
More recently, this has shifted to a pool model. The broker has become more of a fund manager. Yes, a proper Reg D private placement with all the attendant paperwork. Loans get made from the pool. Payments and payoff come back into the pool. The investors, including me, get a fixed monthly interest rate. That's less than the rate borrowers get charged. Then, twice a year, the manager makes an additional payment, based on the profits in excess of the fixed rate. The actual rate of return is less than in the first model. However, it has several advantages. One is that I get paid on the full amount invested. With the direct model, I always ended up with leftover funds that weren't invested at all. Second is there is no downtime. With the direct approach, one deal would pay off and then it took a few weeks or a month to get the money into the next deal. Finally, I've written about our one default situation. Myself and my business partner bore the entire cost of that default. With this model, the costs of the default are distributed.
Yes, the broker is licensed as both a mortgage broker and the additional license CO requires to raise private funds.
So, with the first model, my IRA would have had to provide the statement. With the second model, it would have been the pool that would have provided the statement. I'm questioning these brokers who seem to be skating a line between the two.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
And that is what I was addressing, the skatters, those acting in a brokerage capacity and passing themselves off a an established HML.
That's how many of them do it, with no cash, big hat and no cattle.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
13y
It can certainly be done legally. In your case, Jon, your fund manager should be able to supply whatever proof is necessary to satisfy a seller that they actually have the funds to close. Of course, nothing says this document is outdated two hours after they provide it, but that's an issue with all POF and commitment letters.
It’s unfortunate that may lenders “fly by the seat of their pants,” as K. Marie Poe said above, by committing to deals before they have the money. Then they go out and query those who expressed an interest in participating with them, “hoping” they can perform. This is not limited to the “small guys” either. If anyone could do a better job giving a black eye to the business, and earn the well deserved ridicule in threads like this, I don’t know who that would be.