Real Estate Investor · San Clemente, CA · Member since 2011 · 209 posts · 47 votes
A restaurant owner is looking to buy one of our flips, bank appraised at $200,000, we are asking $230,000 and buyer is happy to pay $230,000. The extra cash the buyer wants to bring to the table is from the restaurant, and the bank is dubious about the means used to extract the money from the business.
I'm not getting into the ethics of this, because I don't know whether the funds are dubious or not. But is there a way for the buyer to pay above the appraised amount if the bank isn't cooperative.
Does the bank legitimately have a position to question the source of funds?
Should we simply sell at $200,000 and create a 2nd for the $30,000 payable immediately? Or will the bank balk at this? This seems like a simple problem to have, suggestions?
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
13y
On a recent purchase, our lender questioned source of funds that paid off a loan 2 years before! So, yes, they seem to be very picky about source of funds. I did not even have an account at that bank anymore. Luckily, I had the old paper statements and wire transfer receipts. The bank may have reasons like feeling it would be detrimental to the business to withdraw that amount from operational funds for the business or it might ruin the reserve requirements. It could be as simple as the buyer didn't disclose those available funds when applying so the bank just needs documentation that it's from a legitimate source before they approve it. I do know creating a 2nd will create its own issues as the bank will most likely not accept those terms, at least not without re-qualifying the buyer using both payments toward the debt-to-income ratios, even if it is to be paid off.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Bringing extra cash to pay above appraisal usually isn't a problem. Is the bank concerened the extra money might be a loan from the restaurant entity? Seems the tranfer could be documented somehow with a CPA's assistance, to satisfy the lender. The bank probably won't agree to an additional mortgage.
Real Estate Investor · San Clemente, CA · Member since 2011 · 209 posts · 47 votes
13y
The bank is apparently worried the buyer has laundered the money out of his restaurant. I don't know how deep into his finances they dug.
I'm not sure how he would be able to launder $30,000 without someone noticing, then again I have never been tempted to, so I wouldn't know how easy or difficult it is.
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
13y
On a recent purchase, our lender questioned source of funds that paid off a loan 2 years before! So, yes, they seem to be very picky about source of funds. I did not even have an account at that bank anymore. Luckily, I had the old paper statements and wire transfer receipts. The bank may have reasons like feeling it would be detrimental to the business to withdraw that amount from operational funds for the business or it might ruin the reserve requirements. It could be as simple as the buyer didn't disclose those available funds when applying so the bank just needs documentation that it's from a legitimate source before they approve it. I do know creating a 2nd will create its own issues as the bank will most likely not accept those terms, at least not without re-qualifying the buyer using both payments toward the debt-to-income ratios, even if it is to be paid off.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
This can be a problem as the lender looks to cash reserves for operations and, if cash is taken out before the buyer has title, it's a seller concession. That plays on the loan to value.
What was the buyer putting down? What is the loan amount?
I suggest you carry back the 30K at a decent low rate, match the bank rate or 1% over, amortize long enough so that the lender can approve the deal, go hat in had to the lender to let you know what can/will be approved. The terms can vary and have other collateral outside or unrelated to the subject property. The bank needs to qualify the buyer with additional debt.
In these deals, it customary for the owner to provide some management assistance after the sale, this is an area that can be used to set a fee and earn additional compensation that can be applied to that second.
Are you providing mgt after the sale or could you? Does the buyer have other assets?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
LOL, Okay, okay, okay, no more mentions please....
The issues still appears to be reserves for operations.
Forget the management side...okay....
Use a second, you might address other assets and the down payment. Your second needs to be blessed by the bank, sounds like a 3 or 5 yr balloon could be approved.
The idea is still similar using other assets in addition to the property sold. Then you can modify your note later under different terms for the consideration of releasing the additional collateral, like getting a short balloon payment. Your buyer can certainly decide later that he doesn't want all his assets collateralized and wants to just get rid of the other obligation. Borrower's remorse ;)
So long as you can show good reason for decissions made after any clsoing, it's not an issue to that transaction. Like tax planning in a way, just make sure you don't have other agreements made at closing that are floating around that are not disclosed!!!!
Real Estate Investor · San Clemente, CA · Member since 2011 · 209 posts · 47 votes
13y
Residential, ultimately we don't want to do seller financing. This was just a possible avenue for getting an agreed upon amount over the appraised value. Open to ideas, it seems there should be a straight forward way for the buyer to supplement the appraised value with cash. I wouldn't think that would bother the bank, their LTV isn't compromised, and if it doesn't affect the borrowers ability to service the loan I don't see their problem...?
I think we need to reopen a line of communication to properly create a solution.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Yes, this being residential, sounds like the bank may be running interference for the buyer too, there have been several times that if I felt like the borrower was getting a bad deal, I'd assist from the lending side for a more equitable solution. If my borrower becomes dissatisfied later, upside down, that becomes an issue to my collateral if things go slightly south. That usually would not be a consideration unless it exceeded 10% of the sale price and it appears you are at 15% of the sale price.
I will say too that lenders will tend to protect a customer, they will usually see themselves as having more RE knowledge than a borrower, depending on who they are.
I suggest you get with the bank and justify your price, that may be the issue and not just the ability of the buyer, but they can certainly use the ability of the buyer to turn the deal down.
If lenders just funded deals where a seller could get someone on Tuesday to agree to a price, there would be more foreclosures.
Good communication is the key, ask them how they view the appraisal to the agreed price, most likely the real issue.