Short Sale CASE STUDY: 021

Cash Is King

I hinted in the last post that the “cash” buyer we had lined up didn’t need an appraisal or loan docs in order to close. That is what we were led to believe in the beginning, but as this file was coming to a close the buyer wanted to use a hard money loan to purchase the property thinking it was the same as cash.

No way.

Maybe its “just as good as cash” like Hard Money Lenders will describe their services.  In a lot of ways it is.  But there are a few important distinctions that need to be made.

What is Hard Money?

I’m glad you asked.  Hard Money is essentially a loan based solely on the equity in the property.  It is short-term, high interest rate, easy to access money that investors will use to purchase properties quickly.  But it’s not cash.

It’s a loan.

Yes, cash is given to the seller at the time of closing. But that happens on every closing.  A Hard Money lender will still require a note to be signed. (That’s a promise to repay) And they will record a Trust Deed. (A document that describes how they will repo the house if not repaid).

Those 2 documents don’t exist when the buyer brings in a cashiers check of their own funds at closing.

Why this could hurt the closing…

The buyer represented to the seller that he was paying cash for the house when he made the offer.  He even included Proof of Funds to show the seller that he had the means to purchase the property.

This is what it looks like on the Oregon Real Estate Purchase Agreement:

The buyer can’t just change his mind.  He has to change the agreement.

Changing the agreement means we have to add an addendum that changes the terms. It’s not a huge deal.  Just a small little blurb on an addendum that says “buyer to purchase with proceeds from a loan”.

That one piece of paper has the potential of screwing up the whole deal because we have all signed an Affidavit that says we have notified the lender of all the terms of the transaction.  If we change the terms, we need to submit the addendum to the sellers bank.  Most approval letters also speak about modifying the terms of the agreement after the approval being grounds for the whole file needing to be re-submitted for approval.

Generally, this type of wording is intended to prevent buyers from assigning the contract to a different buyer.  But I didn’t want to cross that bridge.

Not a Huge Deal

In the end, this wasn’t a huge deal. the buyer decided not to rock the boat and will be wiring his own funds tomorrow so that we can close the following day.  He will then take out a loan after he owns it to replenish his personal funds.  No addendum, no re-disclosure, no problem.

I’ll write a summary of the closing and highlight the key elements of this short sale in the next post.  It will be good to go back and point out the mistakes, the successes, and analyze the total time it took for each milestone as we moved along.


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