Transactional Funding Short Sales-Reo’s

How is Transactional Funding Used in Short Sale and REO Purchases?

 

Transactional Funding Short Sales-Reo’s is used when an investor has contracted a property for purchase and needs money to close.  The transactional funding part comes in when the investor has an end-buyer who will buy his property – if he buys and closes on it.  The transactional funding allows the investor with no money of his own to close on the property and resell it immediately to his end-buyer.

 

The investor is designated as the “B” member of the two-part closing where the original seller is designated by the letter “A”.  The end-buyer is the next stage of the transaction and is designated as the “C” buyer.  The transaction is referred to as the A – B leg and the B – C leg.  If the investor has no money to buy the property from the “A” seller, he must use transactional funding to close this leg and resell the property to his buyer (“C”).  The transaction is referred to as a “double closing” or A – B and B – C.

 

Short sales are where a property owner is upside down on his mortgage – he owes more than the property is worth.  Instead of allowing his lender to take his property to the foreclosure sale, he gets the lender to look at doing a short sale.  ‘

 

In this situation, the lender understands that if they can get a certain amount of money for the property it is better than going through a costly foreclosure process.  The lender takes a “haircut” or reduction of the principal amount of the loan to be able to sell the property at or close to the current market value.

 

When an investor requests the lender to do a short sale and he gets approval on a workable price, he starts to resell it for a profit.  The property owner’s lender will receive the proceeds from the sale that the investor must close on the A – B leg.  The transactional funder supplies the money for the A – B leg because the investor has the property already sold to another end-buyer (“C”).  Sometimes the A – B leg is closed with a different closing agent than the B – C leg which is workable if the investor “controls” the B – C closing agent.

 

The process for closing an A – B and B – C transaction for REO (bank-owned) properties is the same as for short sales.  The transactional funder funds the A – B leg and the end-buyer buys the property from the investor in the B – C leg.

 

One issue with both of these types of purchases and sales is when the seller (bank or property owner) has a deed restriction imposed by the lender.  This restriction is a contractual agreement not to sell or transfer the title to the property for a specified time.  Usually this restriction is 30, 60, 90 or 120 days.  Transactional funding is not applicable in these deed-restricted transactions but there are numerous legal ways to avoid having to hold the property for the restricted period.

 

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About Dave Dinkel 27 Articles
Dave Dinkel graduated from the University of Florida in 1968 with a BS in Chemical Engineering. He initially worked for a petrochemical research and development company in Illinois. Later he entered the financial arena as a stock and commodity broker with Merrill Lynch.While a stock broker he became a Certified Financial Planner and later started his own brokerage firms and stayed in the financial services industry for 22 years before retiring to pursue his love of real estate investing. After retirement, and because of his interest in business start-ups, he worked with a small company for a few years while driving their sales from under $12,000,000 to over $150,000,000 annually before going back to full-time real estate investing.Dave Dinkel has been a national platform speaker, contributor to local real estate clubs, mentor and consultant to numerous real estate investors and all the while running his own real estate business. Mr. Dinkel received the following degrees or designations: BSChE, FINOP, CFP, MSRP, RSP, RR, ROP, SROP, MGA, GA, Certified Estate Planner, Licensed Mortgage Broker, and Licensed Insurance Agent. He is often referred to as the “Teacher of Teachers” and his Mentoring continues to produce Students who go on to be national real estate "Gurus". .He has been a real estate investor since 1975 and recently received the first-ever Lifetime Achievement Award for Contribution to the Real Estate Investing Community. While being active in real estate investing for over 40 years, he and his wife Nancy have been married for over 52 years. He is most well known for the development of his Mentoring Program that has been called, "The Best Mentoring Program in the Country" which he continues today.In addition to his Mentoring Program, he started a full-service transactional funding Program so that new investors had the ability to do deals with no money of their own. He challenged the funding industry by making borrowing money very simple with his "One Point Funding Program" which has revolutionized the transactional funding industry and made millions of dollars available to investors who otherwise could not have afforded it. Currently his transactional funding is only available in Florida.Get more information about his real estate investing mentor program at http://www.DaveDinkel.com