Transactional funding underwriting

[Jacek Nowakowski]

Hello,

I'm a private lender and I've been approached recently about providing transactional funding for a wholesale deal. I've never done one of these transactions before but have researched them online. I was wondering if I needed any documents (i.e. a contract) between the "B" party and myself or is it all done between the escrow company and myself? What are the crucial escrow instructions to look for? Any tips on how to conduct this type of transaction safely would be greatly appreciated.

Jacek

[Shari Peterson]

In any transactional funding deal you basically want to decide, "Do I want to own this house and resell it for a profit? If that happens, will I recoup my principal in a timely manner and make some money for my trouble?"

In addition to the things mentioned in the thread posted above, here are some of the basics you want to look for:

- a copy of the A-B and B-C contracts.
- a copy of the short sale approval letter, if applicable.
- If it is a back to back closing, Closing Instructions to the escrow agent stating that they won't release the funds on the A-B until the B-C is funded and ready to close. This is the most basic of the provisions that should be in the instructions, but it usually is much more robust than just that.
- a closing protection letter from the escrow agent.
- a Promissory Note between you and the Borrower stating the amount of the loan, the amount of interest you would earn, the amount of points you would earn, the time period within which the note must be repaid, and the remedy for not repaying the note on time.
- you may want to have the Borrower pre-sign a Deed in Lieu of Foreclosure in the event the note isn't re-paid as agreed to in the Promissory Note so you can avoid the foreclosure process.

If you are loaning for longer than one day at the same title company:
- a decent spread - maybe 80% - in the value of the loan you are giving and the current value of the home (NOT the ARV).
- homeowners insurance on the property naming you as additionally insured
- an appraisal that shows the value of the home, completed by a licensed appraiser
- an inspection that shows all the flaws in the home not necessarily revealed by an appraisal
- a statement from the county assessor's office showing the most recent assessed value of the home
- a copy of the HUD1 settlement statement
- a copy of the title work run

The last two items you won't get until closer to closing, but the previous items can help you evaluate if you want to do a deal in the first place.