What is The 2-Day Rule??

Question

Hi everyone. I went to look at a house today with my realtor and he regularly works with investors. He knows I'm planning on using a hard money loan for the funds (in combination with some of my own). I have a pre-approval letter for the amount I'd need.

But then he told me for any REOs/foreclosures, banks will require proof of the funds in my account within 2 days. He said banks are very strict on that and they will pass me by if I cannot show the funds in my account within 2 days. He said it would be a waste of time going after any of these foreclosures/REOs if I cannot show money there within 2 days.  People use HML specifically to buy foreclosed/distressed properties that are too junky to put a conventional mortgage on them! How is this possible?

No HML will fund in 2 days. That's not even enough time for the lender to look at the property, run comps, and make a decision! Everyone I've ever seen use a HML has been able to obtain financing within 20-30 days or so for their loan to come through. How come I only have 2 days to show funds in my account? Could anyone shed some light on this as I'm wondering if I'm somehow misunderstanding him... Thank you all.

Charlie Fitzgerald · Answer

Shannon,

Get a Letter of Intent to Fund from your lender and present it with your offer.  If the agent gives you hassle, advise that your next call will be to the NY Div Of RE to file a complaint.  The Agent is Required to submit your offer.  It's an industry courtesy to provide LOI/POF letters with offers, not a requirement.  By giving them the LOI with your offer, you remove any roadblock to them stalling your offer.  If they choose to do so anyway (stall the offer) it's a violation.

Wayne Brooks · Answer

"Funds in your account" is a POF when you are making a Cash offer.  When using HML, you are Not making a cash offer, it's a financed offer.

Chris Mason · Answer

I don't know squat about NY RE, but it sounds like these sellers are trying to exclude folks using HML, and look for only a) All cash buyers or b) HELOC buyers.

If you want to play in this arena, and that is what is going down, I'd suggest opening a HELOC on some other property you own with the highest maximum credit line that your equity position will allow but a $0 current balance.

Offer accepted, max out the HELOC, funds arrive next day, show proof to seller.

Then you would use the HML to pay off the HELOC a few weeks later, if you'd prefer that the debt be secured by the subject property. Ensure your HML is cool with this first, of course.

April Sago · Answer

Shannon,

I'm in Texas so I'm not sure if the rules are different.  But I just submitted 3 offers last week on VA foreclosures and the POF letter I received from my HML was acceptable. THAT little information was listed on the MLS.

Jerry Padilla · Answer

@Shannon K.

How we have done this in the past, using hard money, we had a pre-approval letter from our HML and then he gave the listing agent a statement from one of his bank accounts to show as proof of funds. This wasn't for a foreclosure though. It was for a owner that was trying to sell quickly and was desperate to sell........Where we inherited tenants that appeared sweet......but were awful! Actually some of the worst tenants we ever dealt with. Sorry, a little off topic, but see if this would work. If the HML is uncomfortable giving you the bank statement, he could give it to your agent.

As soon as the property is in livable condition you can then rate and term the HML without any seasoning requirements as long as the LTV is supported.

Shannon K. · Answer

Thank you everyone for the replies. I will be reaching out to my realtor to check for clarification. I can't possibly imagine every single REO or foreclosure I might go after will require proof of funds in 2 days when I see so many others around here putting in offers with just pre-approval letters and having 30 days or so for their HML to come in. There has to be some kind of miscommunication here I'm hoping!

Charlie Fitzgerald · Answer

I've never heard of it either, or seen it in practice.  I'd poke at them with your agent and see what the real story is.  I do HML loans for people all over the country and lots of them are buying foreclosures / banked REO's and our LOI is all they use.  Most bank sellers don't ask for that.

Shannon K. · Answer

Hey Charlie,

I'm not necessarily worried about my agent not submitting the offer. He's a really smart guy and one of the top agents around here. Plus I've known him previously from years ago and between him and my brother, I have two skilled guys to help me evaluate houses. Can't find a darn one that looks feasible yet though! And the 1 I liked recently and thought about going after so far, magically I'm not eligible cause of this 2-day thing.

I've just never heard of it before. I thought there must be something I'm not aware of because other people use hard money and they get 20-30 days to have the loan come through. What was discouraging was that from how he phrased it, it sounded like every single foreclosure or bank-owned I might go after will want 2-day proof of funds... which was never discussed or available from the lenders I've spoken with so far. I've never heard of all foreclosures or REOs needing an immediate 2-day proof. That seems like a lot to ask for from a lender I'm just first making contact with...

Wayne Brooks · Answer

Offers on REO's don't Have to be cash, they're just viewed more favorably since the seller Knows you can actually come up with the money to buy, where when it's contingent on financing, you may not can come up with the money.

Shannon K. · Answer

So since I am using a HML and its still a financed offer, there are zero houses I can bid on now? My realtor told me its not worth going after foreclosures or REOs/bank owned properties as all banks will require proof of funds in 2 days. So I can never buy a foreclosed house and flip it. Ever. I'm not understanding that logic here? I thought that's exactly what hard money was for was buying distressed properties/REOs/banks owned. There must be something I'm missing when bidding on these...

What is The 2-Day Rule??

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