Obtaining a Proof of Funds Letter??? HELP!!

[capgiant]

Okay so to some people this posting might sound dumb but I have to ask because I have spent hours reading postings, emailing users, asking friends, and I just cannot seem to find or get a straight answer.

How does a person who is wholeselling REO's with a double closing, go about getting a Proof of Funds letter? When I try and submit an offer, they are asking for a Proof of Funds letter.

If I do not even know who my end buyer is, how can I possibly have a POF letter? Even if I did know who my end buyer was, wouldn't the bank ask me why the POF letter has their name on it and not mine??

I DO NOT have my own cash reserves to use to get a POF letter. I cannot qualify for any kind of loan to get a POF letter.

I have heard that you can get a POF letter from a HML. Even if someone could obtain one of these, would the bank that you submit the offer to require that whoever provided the POF letter be the end buyer? What I mean is, could I just get the POF letter from a HML just to pacify the bank, and then just wholesell to whomever I please?? Or would I be required to sell to the HML because they were the provider of the POF???

I hope that last paragraph doesn't sound dumb, I am just very confused and am to a point where I am chasing my tail around in circles and getting nowhere...

Someone please help!! All of my ducks are in a row, I am ready to go, I just have this last wrinkle to iron out, so to speak. 

[kdhastedt]

You will have a contract to buy the property and then, I'm assuming that you intend to either assign it or do a double close...If it all falls apart, how are YOU going to buy the property?  You'll be on the hook.  Frankly, if I sold you property and then you refused to close because your scheme fell apart we'd be talking about 'specific performance'...but that's just me.

If the numbers work, a HML might give you a proof of funds letter.

Keith

[DenverWholesale]

Obviously the best way to do this is to just have your own cash, BUT, if you did, I'm sure you'd probably be doing some other aspect of RE investing with that cash!

Since you won't be buying the property if your end user investor doesn't end up closing, you really have 2 options. In either option you just have to get enough earnest money from your end user investor to cover any loss you might have if the deal falls apart.

Option 1: Since you're dealing with banks, cash doesn't mean anything to them (especially big banks). They just want to know that you'll close when you say you will. So, if you're able to get qualified by a lender (any lender on any non-owner occupied loan), than that works the same way the POF letter works. You just make sure to write in you contract that the loan approval deadline is the same as the end of your inspection deadline, and write the rest of the offer with no contingencies so that it acts like a cash offer. Just required that the end user investor purchase with cash.(that may not be an option in your state, but it is here in CO)

Option 2:
Find someone that you know (with enough money to cover the purchase price) to be a private money lender. Use their money as a way to prove funds. Note - this person doesn't actually have to lend you the money, they just need to have a way to prove that they have the money needed in some form (most banks will accept other forms than cash such as retirement funds and home equity lines of credit, etc.).

The bank will most likely require a POF letter from the PML if they see them as a legitimate source of funds. In order for them to accept them as a legitimate funding source, and still consider this a cash transaction, you have to create an official letter as if it were drafted by the PML. This letter needs to state a few particular things:
1. the PML is using their personal money to finance investor RE projects in order to make a profit from the interest.
2. the PML "has reviewed your portfolio and investment strategy for this particular property" and will be lending the money with NO LENDING CONDITIONS.
3. your name as the RE investor
4. the property address
5. an expiration date for this "Authorization Form" (from the PML)
6. have a place for an authorized signature for the PML to sign.

There are several other things I use in my letters, too. I use the actual name of the PML, but I don't say that they do this for a living... I just make it look so official that it looks like they lend money like this all the time.
Also, you should tell the listing agent that you are using a PML, and that you can get a POF letter if the bank requires it. Sometimes the bank will never ask for it, and you don't have to prove that anybody has any money.
In the header of the letter that I created, I put (in bold letters) "Offer Authorization" to make it look as if I had been given permission to make an offer on this property with this PML's cash.
Lastly, if the person that agrees to do this as the PML says that they will absolutely never give you money, that would probably be considered loan fraud (since they are suppose to be your lender). You should just say that IF you ever need to actually borrow the money, you would give them a VERY favorable interest rate. Keep in mind, that you will never have to borrow their money, though... if you're doing it right!

whew....that was long enough huh?

Hope that helps.

[capgiant]

You will have a contract to buy the property and then, I'm assuming that you intend to either assign it or do a double close...If it all falls apart, how are YOU going to buy the property?  You'll be on the hook.  Frankly, if I sold you property and then you refused to close because your scheme fell apart we'd be talking about 'specific performance'...but that's just me.

If the numbers work, a HML might give you a proof of funds letter.

Keith

Hi Keith, I require a non-refundable deposit from my buyer that is substantial enough to guarantee they are not going anywhere. If somehow they still fell through, I would use the HML to purchase the property myself and then I would just sell it after.

Why do you use the word "Scheme"? Are you using that word literally or figuratively?

I am not doing any assignments, only double closing.

[capgiant]

Thanks DenverWholesale....good information. 

[capgiant]

Off topic question here:

I have been a member of this forum for years and have posted hundred of times...why does my profile say I just signed up on 06/13/08? And that I only have 2 posts?

Is there a technical area of this site, where you can ask questions like that??

[amesda]

So, what I hear you all saying that if you want to wholesale REO's, you can; however, you better have an exit strategy ready in case your buyer can't close, right?

We were thinking that REO's were off limits. There are many REO's here that are good neighborhoods that might be good wholesale/rehab deals, but we felt like we weren't allowed to touch them because banks do not allow assigning. So, now I am finding out that HML could be used for Proof of Funds. Although, I did just read an article on this sight about HML tightening up their students due to the market. So its going to be hard again for people like me who have terrible credit because HML are basing funds not just on the deal but the borrower now. What do we say about this? If I am having trouble coming up with credit or funds before a HML, how will a HML help me now?

[kdhastedt]

You will have a contract to buy the property and then, I'm assuming that you intend to either assign it or do a double close...If it all falls apart, how are YOU going to buy the property?  You'll be on the hook.  Frankly, if I sold you property and then you refused to close because your scheme fell apart we'd be talking about 'specific performance'...but that's just me.

If the numbers work, a HML might give you a proof of funds letter.

Keith

Hi Keith, I require a non-refundable deposit from my buyer that is substantial enough to guarantee they are not going anywhere. If somehow they still fell through, I would use the HML to purchase the property myself and then I would just sell it after.

Why do you use the word "Scheme"? Are you using that word literally or figuratively?

I am not doing any assignments, only double closing.

I use scheme because its a functional, descriptive word in the English language.  Certainly you have a scheme in mind when you put an offer on a property (in this case a double close).

scheme     /skim/ Pronunciation Key - Show Spelled Pronunciation[skeem] Pronunciation Key - Show IPA Pronunciation noun, verb, schemed, schem·ing.
–noun 1. a plan, design, or program of action to be followed; project. 

or, 5.  any system of correlated things, parts, etc., or the manner of its arrangement.

Keith

[ericmedem]

Keith, I can really appreciate that answer....That was good.

Anyway, this is not something that I would recommend everyone go out and do, but I offer it as an alternative to those who have no other choice. 

If you have family members with enough money in the bank or at least lines of credit have them print off a statement and cross their names off the statement along with account numbers.  I have done this for my clients before using my account statements and have never had any trouble. 

From my experience Banks typically don't verify the info on the statement, though i'm sure a couple do.

[capgiant]

EMESDA:

Most banks trying to rid themselves of REO's are not assignment friendly. You should use a double closing.

A HML will give you a POF letter or you can get a Pre-Qual letter from a lender. The bank will accept either of these.

I am going through the process with a HML right now to get a POF letter. I talked with them and they insisted that nothing will be based on my credit...So if they pull through, I will let you know so that you can try them out. And I too, have horrible credit so I know exactly what you mean.

KEITH:

LOL...the only reason I asked that was because it kind of scared me when you said "Scheme"...I thought I might be doing something wrong...I am still kind of a newbie so I wasn't sure how you meant it...