Getting a "cash only" purchase approved by short sale lender, but being denied the usage of hard money???

Question

If I offered "all cash" on a short sale and got it approved... will the short sale lender have an issue with me using hard money as part of my funds? Why would they? I've closed short sales before and haven't had this issue... but never with BofA.

So basically the short sale is approved... and I tell the escrow officer that my hard money lender wants an estimated HUD. She says "lender?" and then that leads her to explain to me that the short sale lender is going to have to "approve any changes."

Does this make sense? The short sale lender needs to eventually approve the final HUD... that's the one that matters. So why can't we proceed to fund with hard money, wire the funds to the short sale lender... and see if they approve the final HUD? What are they going to do... return the wire because we decided to use hard money, even though it doesn't change their net? What are the chances that they do that?

Is this a case of a brainwashed escrow agent? Or does she have a valid point?

I understand that technically a "cash offer" shouldn't involve a loan... but hard money is generally considered the same as cash in the sense that there aren't contingencies involved...

Does anyone think that if we proceed to fund the loan and wire the net funds that the short sale lender is expecting... they'll reject the funds/HUD because we decided to use hard money?

Joel Owens · Answer

"I understand that technically a "cash offer" shouldn't involve a loan... but hard money is generally considered the same as cash in the sense that there aren't contingencies involved... "

That's NOT TRUE.

When you apply for a loan with an HML they have certain requirements to loan the funds to you.They will charge so many points,they will want to see your credit to know if you get stuck with the property you can refi and pay them off,they also want to have an appraisal so they know the property is at a certain LTV going in.

All of these things and more is why a HML is a loan and not a cash offer with no contingencies.

A cash offer with no strings is YOUR MONEY sitting in a bank account valid within the last 30 days buying as-is with no contingencies.

Account Closed · Answer

Andy  Chu  I don't get it.  Why don't you pay for the title policy and close the deal? Since when is the cost of a title policy a deal breaker?  I almost always pay for title when I'm the buyer on a distressed property.

Account Closed · Answer

In my world a cash offer is supposed to be money in the bank, but as a seller I might not verify, you know, because I trust that cash mean cash.  Once the contract is in escrow, a cash deal means your cash is ready to deposit into escrow. If you call my escrow officer and give her loan info when your contract said cash and I then get a call that delays the closing or changes anything, you can be sure you'll be hearing from me. :)

Hard money loans fall apart all the time for all kinds of reasons, just like any other loan.  That's why I now require a larger earnest money deposits.  That way your cash is tied up until your HML performs.  And hopefully you've put effort into making sure that your HML understands and approves your deal before you put your EM into escrow.

Herm M. · Answer

^ Thanks J Scott. Nobody is requiring an addendum at this time. I'm just trying to have a backup plan in case plan A fails.

J Scott · Answer

First, I agree that I've never seen a lender have an issue with a short sale because the buyer decided to go to financing.  That said, I see no indication here that the lender is going to have an issue.  From what you said, it's the escrow company that's requiring an amendment to the contract, not the lender.

I can certainly understand why the escrow company would say this.  If it's an attorney-closing state, it's very possible they are representing the seller and/or lender, in which case it's their job to ensure that everything is done "by the book."  Even if they're not representing the seller/lender, there's nothing wrong with them determining that the contract isn't being fulfilled the way it was legally arranged, and therefore they want to protect *themselves* by ensuring that the contract reflects what's happening in real life.

Also, the escrow company will now have more work (the loan package prep, signing and filing), and they may need to increase their fees, which *would* need to be approved by the lender.

What I'm saying is, you're getting unnecessarily concerned at this point -- it's not unreasonable that the escrow company is asking for this and there's no reason to believe the lender will have an issue with it.

I've put that in every offer I've made for the past 4 years.  Only used it once or twice (and have had a couple sellers tell me I had to remove it from my offer), but it's always there when I bid on a property.

Herm M. · Answer

^ I always ask the seller to pay for title, escrow, transfer, etc. on short sales, and the lender has always paid it on the deals I've closed...

But back to the topic... My hard money guy is solid. When I make these cash offers, I don't worry about credit score, appraisal, etc. I know what he's going to lend me... and I make an all cash offer knowing that there are no contingencies on my side. I've never heard of a short sale lender rejecting a closing because we used lending until now. I mean seriously... if the deal closes on time and they get their net, why the hell would they turn around and reject it?

I'm going to start stating "buyer reserves the right to purchase this property using non-contingent financing instead of cash" in all of my "cash only" offers from now on.

Regarding this property..we're just going to send in a final HUD for approval and see how the bank responds. If they decline, what else can we do? Can we sign an addendum with the seller stating "buyer to use non-contingent financing for this sale" ? I know that once the seller signs the addendum, they send it to the servicer (BofA). Once BofA agrees, they send it to the investor for an updated short sale approval. Realistically, would any of those parties (BofA, investor) decide that they don't agree to the addendum? If so, wouldn't the seller be able to file a case vs. the lender for not cooperating with a short sale because of such a stupid reason?

Herm M. · Answer

I guess I'll see what happens.

J Scott · Answer

Andy -

You don't need title insurance to convey clear title.  Sure, title insurance is nice to have (I'd never buy a property without it!), but if a title search indicates no cloud on title, that should legally qualify as "clear title" I would think.

I know state customs are going to vary (in my state, it's very atypical for the seller to pay any title or closing costs unless specifically stated in the contract), but even if it's customary in your state for the seller to pay title search/insurance costs, short sales generally have their own rules.  And those rules rarely involve the lender paying any closing costs (or requiring the seller to either).

Just my experience...I could be wrong...

Justin S. · Answer

Yes it makes sense.  Your contract states you are paying cash and now you are paying through a HML.  Does your HML want them to process their DOT, Note, Personal Guaranty, Lender Title Insurance, Property Insurance, etc?

The title company will either reject the money or have you and the lender sign a form called Third Party Deposit Instructions.  They will likely not touch any of the docs I listed above.  You would need to complete these outside of escrow.

They will not accept funds from an unknown third party unless you a have paper trail from the items I noted above.

Wayne Brooks · Answer

Hard money is not the same as cash.   that being said, cash/wired to the closing is the same.  You should have the  HUD anyway.  Unless you have points, or other fees being paid to your HML on the HUD, the seller's lender won't even know.

Getting a "cash only" purchase approved by short sale lender, but being denied the usage of hard money???

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