REO Financing Deal involving IRA

[Chris Miracle]

Hi everyone, I'm new here and am looking for some advice to keep myself out of trouble. Maybe some of you have been through the same scenario...

I've been dealing on a foreclosure for 8 weeks now. I'll spare you the details but it's come down to the fact that bank doesn't want to deal with financing and wants a cash deal. I can get a loan all day long, but they don't want it. I've thrown them $400K cash. The last buyer paid $700K before he totally neglected it for 7 years.

I'd plan to fund the transaction and then open up a cash-out refi on the back end to have access to some percentage (probably 70 or 80%) of the $400K.

One of the ways I could do it would be by taking money out of my traditional IRA for 60 days. It's a rollover loophole where basically you get a check and get 60 days to roll it into another IRA. What you do with it during that 60-day period is completely up to you. I know that part is legit. I know it can be done and that is not in question.

Once I try to get a loan against the property after the closing, the bank is going to want to 'source' the funds to see where I came up with the $ to buy it. They're not stupid and will look at that transaction.

So here's the question: Will they care? and will it be a showstopper in terms or getting a Cash-Out Refi or even a HELOC?

Anybody tried this? Thanks for any input!

[Dmitriy Fomichenko]

@Chris Miracle

I would not use the 60-day rollover loophole to fund this deal. While technically you might be able to do it, realistically I don't think it would be possible for you. It is unlikely that you will be able to close on this deal and then refinance within 60 days. You are risking paying taxes and penalties on $400,000 early distribution. The result of that could be 40 to 50% in taxes and penalties (depending on your personal tax situation). There is high chance you that your plan will not go as planned and you will receive a bill from the IRS for $200K.

I am not an accountant and can't provide you with a tax advise, but highly recommend you talk with experienced CPA before you consider this strategy any further.