Transactional Funding | Real Estate Investors



What Are the Requirements of Transactional Funders?


The requirements of transactional funding lenders vary but only slightly. In transactional funding transactions, the money loaned to the investor covers the initial purchase of the subject property. This is the so-called first leg of the transaction of the A – B leg. In this designation, the “A” entity is the original property seller and the “B” entity is the investor.


The second leg of the transaction is the so-called “B – C” leg. The designated “C” buyer is the end-buyer who will actually take possession to the property when the closing is done. In reality the property can be resold or flipped many times before the “C” buyer is the final owner. In these cases, each of the investor buyers is designated by another letter – “C, D, E, F and so on. This second leg of the transaction has little or nothing to do with the transactional funding except for the money that must be wired from the actual end-buyer (“C”) to close the deal.


The transactional funder usually wants to see the HUD-1 Closing Statements for both legs of the transaction, information about who the investor is and who the closing agent is for the transaction as well as having the investor and closing agent sign a Letter of Understanding.


This Letter of Understanding is a legal document that states the terms that the investor and the closing agent have to fulfill before and after the closing. These requirements usually include that the lender’s funds not be used for the A – B leg until all documents have been signed by all the parties involved in the transaction and the funds from the end-buyer (C”) are cleared funds in the closing agent’s escrow account.


In summary, the transactional funder has minimal requirements that should be easily satisfied by all parties to the transaction. If any party to the transaction is not willing to wire their funds, sign an agreement about disbursing the transactional funds and the time periods involved when the closing agent can hold the funds, the transactional funder may cancel or withdraw his funding.

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