How do you save a deal under contract when your funding backs out?

[Victor Oden]

Hello everyone,

I have a home under contract in Portland, Oregon. It is a major fixer, but the property is on a double lot, attractive for a developer or fix and hold investor. My goal was to fix and flip, but my gap lender and then my lender backed out. How can I save the deal or at least, get my earnest back after my 10 day inspection period? I've been looking for a new gap lender, but everyone is saying their money is already in use.

[William Sing]

Hey Victor, this is a tight situation to be in! If this is an off-market deal I'd check if there are any contingencies in the contract. If you have a financing contingency you might be able to save the earnest money. If not, I'd talk to the seller about getting additional time to secure a lender. 

[Steve Milford]

Hey Victor, the details are in the contract and the contingencies, "if <>, then <>". If you have a Realtor / attorney they can help interpret paperwork. If don't have those, then clarify with Seller, or find new funding, which of course as you are finding might be hard to come by. All hard money lenders I talk with want skin in the game on the part of the investor, so no gap finding. I'd say really look at the deal because if primary lending bailed, then it might not be such a "good deal". But you might have convinced yourself it is. Losing earnest money sucks, but would it be worse to spend more and not be able to flip it? I don't accept anyone's opinion of rehab costs for ARV, as the market just isn't there like that right now with houses sitting 2x as long and labor rates through the roof. I suspect you will never make this mistake again. Give me a call if you need some help.

[Caroline Gerardo]

The reason lenders pulled out is your cost estimates to rehab are off or he comparables do not exist to value when complete? If these two reasons cancel and fight to get the EMD back FAST.

If the reasons they pulled out are:

Lender failing/closing like so many others. Perhaps you can find another lender but rate and fees may increase, will it still pencil out? If so find them this morning ASAP.

Something about you changed in the process- ie: you lost your w-2 job go get replacement and ask for extension.

[Obed Calixte]

if this is a solid deal and you have the assets, you should have no trouble finding a hard money lender. 

the contract you are using will let you know what contingencies you have (if any) and timelines. if none, you will need to negotiate with the seller asap to keep the deal alive or look to wholesale it if you have an assignment clause. 

[Wale Lawal]

@Victor Oden

Did you review your contract to see if it includes any contingencies that would allow you to back out of the deal and get your earnest money back?

Some contracts have financing contingencies that may protect you in this situation.

Although traditional lenders backed out, you can try reaching out to hard money lenders.

They may be more willing to finance the deal, but be prepared for higher interest rates and fees.

Goodluck and keep us posted.