Seller wants proof of funds before they'll accept offer

20 Replies

I am a new investor and I made my first offer just last Friday. I anxiously awaited for a response over the weekend and I indeed got some promising news. It was a probate lead which was turned over to the lawyer who became the executor of the estate. I dropped the offer off at his office Friday and his realtor (who he wishes he hadn't hired since he found me himself) called and emailed me. In the email she requests that I send over a proof of funds letter from my bank. I assume this is a good sign meaning they'll accept pending that move. However I have no intention of purchasing myself, but I do have a buyer in mind. My question is... how do I proceed? I don't have the funds myself to proof... so what should I do or how should I respond to her request? I don't want to flat out say I'm assigning the contract as she'll probably back out. Any advice would be greatly appreciated! Thanks in advance. 

@Dan Sieg , welcome to BP. The lawyer is being prudent and protecting the seller. If you do not provide the POF you will have no contract to assign. Have you already identified your buyer? If so, they may be willing to provide a POF letter to secure the deal. If not, do you know any private individuals who have the funds needed? They may be able to act as a private lender and provide the POF. (You may need to offer some compensation to convince them to release their bank records.) Another possibility could be a hard money lender. Again, they may want some compensation to provide the letter. Best wishes.

This is why you should not listen to guru-types who tell you to pretend you are actually buying, and should instead be up-front about your intention to assign the contract.

In general I would say that a sale that involves both a lawyer and a Realtor is one where it is going to be difficult for a wholesaler to pull off their ...umm... magic.

Proof of funds means that you have to provide proof that you have the funds required to close. If you don't have the funds, the options are what Jeff details above. You should also prepare yourself for the fact that you will very likely have to put up a real EMD, and that they will look dis favorably on contingencies that allow you to back out.

@DanSieg

Hi Dan,

First, I would ask if you have a personal banking relationship? If you do good, if not this is very important part of your finances and you need to have a seasoned checking account open. You also need to have your credit files good(the bank may not pull your credit just to get a letter, but will after you actually apply for a loan). If you have derogative credit you need to work on clearing this. Make 2015 the year to get your credit good. Never charge your CC beyond 30-50% of the credit limit. 

So, assuming you do have this good already.

Give the banks mortgage department a call, introduce yourself. Let them know you are a investor in the area seeking investor loans.. and ask them what they will need from you before you visit the loan department. 

Then go to your bank and talk to the loan manager and let them get to know you and build some rapport( talk about the real estate markets and try not to engage in general unrelated small talk). They will want a PFS so have your assets and liabilities on paper before hand.  Reiterate you are seeking an investor loan pre-qualification and wish to establish a lender relationship. It very well could be they will type you a letter while you wait. Have your paper work with you and forms you use. Let them see you with your folders and paper work(property inspections, comps,etc.)  Don't go in there and try to answer the questions pulling this info off of the top of your head. You will look unprepared.

  Don't tell the loan officer you are wholesaling. Answer any questions directly and short.  Lastly, do not lie. Hopefully you get a letter to present to the seller.

Think like an investor always.

The chances are extremely small that a bank will move quickly enough to be useful when an offer has already been submitted. Banks often take 30 days or more to deny an application.

If you are the buyer, show them the money.

If you are trying to act as an unlicensed intermediary, find someone who can perform and take a referral fee.

Realtor has a commission on the line and this is not their first rodeo, I guess.

I've heard of companies that will provide you with proof of funds for a small fee. Just for situations like this. If anything, tell the lawyer that you're a investor and have her receive your purchase agreement. If I can think of that company, I'll let you know.

Have you talked with your potential buyer about the property? Since you do not have proof of funds yourself you will probably need a private lender or hard money banker. Going through a traditional lending institution is not a good choice since it will take atleast 30 days to get an approval. The lawyer and realtor are just making sure your serious about the deal. They should already be aware of the fact that you could assign the contract. That should be a clause in your purchase offer. If that clause isn't in the purchase contract then you will have a hard time assigning the property.

Originally posted by @Chaz Reid :

I've heard of companies that will provide you with proof of funds for a small fee. Just for situations like this. If anything, tell the lawyer that you're a investor and have her receive your purchase agreement. If I can think of that company, I'll let you know.

Such companies do in fact exist. And any experienced seller, to say nothing of a Realtor, recognizes such POF letters for the garbage they are.

Really, this is about the simplest concept in real estate.  The very name describes what is required.  Proof of funds.  Proof you have the funds to close.  Period, full-stop.  It really is that simple.

Hey guys, Thank you for all the feedback! Very helpful. Before I submitted the offer the lawyer asked me if I was looking to purchase it to live in or to become a rental. To which I replied that I was an investor and have no personal interest in living in it. I would either purchase myself and use as a renter or "depending what was on my plate in a couple weeks" I may or may not assign it to someone off "the buyers list I've been putting together these past few months." I said this to sort of feel him out since I know he knows his stuff. He seemed perfectly ok with it. From the get go I wanted to be upfront so that there were no surprises for anyone. I'm actually about to call the realtor back and explain to her the same. I actually found a website that provides letters that you mentioned @Chaz Reid   so I very well might go that route as well. Send something over to show that I am capable of purchasing even though I have no intention to. @Account Closed   I have a potential buyer who is indeed interested, problem with him is he is a busy professor here at the local college so his email replies are few and far between until the evenings.  

For now I'm going to tread along and feel out the realtor. The lawyer seems out of it now for the most part anyway. I'll let you guys know what happens!

True for a loan application. In this case its simply a letter of pre-approval. I walked into my bank and had a letter for 90% LPP in my hands in 20 minutes with the bank manager telling me he looks forward to more business and creating a relationship. This was only a letter and not an application for a mortgage. I deal with a small independent bank.

@DanSieg,@RonnieWilson

 Also, in my talking to the Bank manager I learned he is an investor himself with 8 rentals.

I let him know he can partner with me on future deals. Last week I threw him a bone on a nice property for $30k that had been on the market for $137k. I call this "How to get in bed with your banker". It's about building the right relationships with the proper individuals.

This equals a team. The professional team and credibility package needed to be aggressive.

Originally posted by @Dan Sieg :

Hey guys, Thank you for all the feedback! Very helpful. Before I submitted the offer the lawyer asked me if I was looking to purchase it to live in or to become a rental. To which I replied that I was an investor and have no personal interest in living in it. I would either purchase myself and use as a renter or "depending what was on my plate in a couple weeks" I may or may not assign it to someone off "the buyers list I've been putting together these past few months." I said this to sort of feel him out since I know he knows his stuff. He seemed perfectly ok with it. From the get go I wanted to be upfront so that there were no surprises for anyone. I'm actually about to call the realtor back and explain to her the same. I actually found a website that provides letters that you mentioned @Chaz Reid   so I very well might go that route as well. Send something over to show that I am capable of purchasing even though I have no intention to. @Account Closed   I have a potential buyer who is indeed interested, problem with him is he is a busy professor here at the local college so his email replies are few and far between until the evenings.  

For now I'm going to tread along and feel out the realtor. The lawyer seems out of it now for the most part anyway. I'll let you guys know what happens!

 Not to quibble too much, but...

You were not being up front.  That part about the "I may purchase myself and use as a rental" gives the seller the misleading impression that you are purchasing the home whether or not you find someone to assign to.  Based on what you told the seller, he would think one of two things would happen.  Either you will buy it, or you will assign it.

The reality, by your own admission, is that either you will find someone to assign it to, or you will walk, because you do not in fact have the ability to purchase it yourself to use as a rental.

The fact that you said this to him, and that he knows his stuff, is why you were asked for POF. And why spurious POF from an online source are unlikely to get you far. And why they will reject any contingencies. And why you will have to put up a real EMD.

@Dan Sieg Here's the bottom line. You could potentially loose credibility for future deals with the agent or other agents in the area if you provide a bogus POF. If you have a buyer lined up they should provide you w/ a POF. If your buyer can't provide a POF then you really don't have a buyer.

@Dan Sieg  undefined

As a RE Agent, I would not take an offer to my seller without proof of funds. Seller needs to make sure you have more than just intention to buy the property.

Show me the money, first. Then we will consider your offer.

Find a preapproval letter from a bank, or a bank statement if cash. 

Unless you are buying from an uninformed FSBO, you will need to prove you have the means to pay for this property.

@Dan Sieg  

 Not to be to Harsh but its this type of activity that really gives the industry a black eye.. you have someone ( you) with no means to close running around trying to tie up properties with the hope of finding a buyer.. you insinuate   one thing but can't back it up.  You get caught because you did not know any better and were running on what others here tell you to do ...

Lets put the shoe on the other foot what if it was your property would you want to be lied to.  and you put the agent in a bad spot.. because the seller will blame the agent for wasting time with a unqualified buyer.

@Richard C.  

  I am in Richards camp on this one if you have no money and still want to pursue this line of work.. then be up front with your offers.. the only reason people use the BS white lies is because the reality is in hot markets or properties that are not worth anything you won't get many offers accepted if you can't close... why let you do it when that is what they hired the agent to do.

Get your ducks in a row find a money partner, be strong in your offers put those who have no funds in their place when they try to compete against you... that's how you make money in RE.. not with smoke and mirrors if you do not get a ligit  money partner your probably will be out of the bizz in a very short time.

Very first thing I would do if I was wholesaling is I would have a hand out... entitled

BEWARE the PERSON trying to buy your property that has no money... I can prove my ability you only want to deal with real people not those who try to take advantage of you.

I would have that as cover letter to all my deals along with my POF of a actual verifiable checking account with the cash in it. So get a partner that can do this for you.. cut them in.. this is what I do in my work a day world for all my gals across the country seperates the wanna bes from the real players... When we make offers we close no BS about it.

The simplest solution to the OP's dilemma is transactional funding. 

And to stop looking for deals from Realtors.

I agree with @Mark Rios A Transactional Funder can provide you with the proof of funds plus a bank statement that you need to secure the deal. However it would be unethical for you to tie up a property if you have no real buyer lined up. Any legitimate Transactional Funder will be honest with any Seller verifying your Proof of Funds. If asked if the funding is conditional on anything, they'll explain that it is conditional on you having a qualified end buyer to whom you will sell the property shortly after closing. After explaining that I am neither an attorney, nor a realtor, and can't advise in legal matters relating to real estate, I have told sellers that I have seen others use a win-win solution to protect the seller, the realtor, as well as help out you as the buyer: They add to the contract that the the buyer must provide proof that indeed they have a qualified buyer to whom they will sell the property. Require that they provide that proof by having the title company verify that indeed there is a qualified and buyer under contract who has put funds in escrow to close on the transaction. Set a time limit that the seller and realtor are comfortable with. Maybe 10 days. That way if indeed you can produce a buyer to whom you will sell it, everybody wins. You don't necessarily tie up a property for a long time. Your seller gets his house sold. The realtor gets his commission. You profit by reselling it to a third-party. The key to all of this is transparency and disclosure.

this post is definitely an eye opener for me, I don't mean to hijack this thread but are yall saying as long as the third party buyer has proof of funds, the op can forward it to the sellers attorny and the deal is still a go? In the ops situation he should have just been upfront that the deal would be assigned? Or is he still on the hook with finding a way to provide proof he can close?

I agree with everyone above. Just thinking outside the box a bit- I came up with two scenerios that are mostly covered above, but for simplicity, here they are:

1. Transactional funding. Great idea. But you better be certain your buyer is real and has the funds. How do do this? Hopefully, this attorney can do double closings. If so- if your buyer is real - have him/her wire funds to the attorney escrow account ahead of time. Just explain that this deal has a real estate agent - that can kill this deal if he doesn't do this. Of course- no house deal, he gets his money refunded immediately. If the funds are there- get the transactional funding in place, the POF letter - and close the deal.

2. No transactional funding:  If your buyer wants the property, either: 

Separate agreement with him that he must pay your commission/fee outside of the closing ( strange I know- only if you trust him/her). Then he closes directly on the deal. If he doesn't pay - you might be out the funds- unless take to small claims court- not exactly optimal. 

Or...double close as above. The attorney receives your buyer's funds first. Closes on his funds to purchase from you (the house). Next, attorney closes on your purchase from the seller, so the funds are there. Two distinct closes, two closing fees generated from the attorney. But - you may still need the POF letter. Or...if the attorney received your buyer's funds already- he can possibly satisfy the seller's request that the funds are already there. If your buyer had to borrow the funds - you may have to offer to pay his interest on the funds while they sit in the attorney's escrow waiting to close. But...some profit is better than no profit I guess.

Good luck. This deal will be a learning experience for you- but one that you can learn from. Look at it this way...it can only help you on your next deal what to do...or not!