New Funding Options: EMD Funding & Transactional Funding


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Program #1

Here is a rundown on the different things we think you should know about how EMD funding works for our clients.

  1. Risk free as we can make it. We do not charge any upfront fees for processing, etc. If the escrow falls through, you owe us nothing. (We just get our EMD funds back and hope to make money together on a future deal.) Our markups usually amount to a very small percentage of the EMD requester’s overall profit; you keep the vast majority of your hard-earned profits in your pocket.
  1. We are (second line) co-buyers on all EMD deals; that means we get a full flow of all paperwork during escrow, control contingencies right along with you, etc. We have no desire to own the property or create an undue burden; we just want our EMD monies protected during escrow and being a co-buyer (temporary financial partner) provides us that protection without harming the buyer or the seller. Once escrow closes, we are no longer involved with the property.
  1. Our earnest money deposit (EMD) funds can never be allowed to go hard (nonrefundable) during escrow; the funds must stay soft the entire time. After all, the “D” in EMD stands for DEPOSIT; those funds are not a down payment. However, some sellers, realtors and investors mix up the two. The job of the EMD fund requester (the buyer) is to bring in exit strategy monies (i.e. full purchase price) either with proof of cash or is approved for a loan (provable with a Letter of Commitment or LOC from the lender) by close of escrow, thereby removing any monetary incentive for the seller to want to try to keep/hold onto the EMD monies. In the case of a wholesale contract flip, the key element is that you must have a Qualified End Buyer under contract by the time the contingency period has expired. (and who has proof of cash or is approved for a loan).

Here is why it is so important that EMD funds stay soft until escrow closes: Should escrow fall through for any reason (buyer’s fault, seller’s fault, nobody’s fault), and the EMD has already gone hard, some sellers  are tempted to try to keep the earnest money deposit monies as their own. We could lose the EMD funds we put up for you; that is a not a risk we are willing to take. Thus it is vitally important that all offers made to sellers must include this fact. Doing so during the offering stage just makes it a normal part of the buying process, thus hopefully preventing it from becoming a problem later.

  1. To prevent either #2 or #3 above from becoming a problem, please
  1. Ensure that the verbiage in your offer—Letter of Intent (LOI) or PSA (Purchase & Sale Agreement) or Residential Purchase Agreement (RPA)—hopefully has been scrubbed of any and all verbiage that might cause the EMD funds to go hard (nonrefundable) before the close of escrow.
  1. The offer must include certain specific and mandatory verbiage (see in italics below). The italicized text needs to be inserted into the offer prior to putting the offer in front of the seller; the intent is to effectively override the standard boilerplate verbiage that appears in virtually all offer forms that gives the seller the (false) impression that somehow they can keep EMD the monies should escrow fall through. Of course the following can be introduced later during the counter offer or escrow stages, of the transaction as an addendum, but by then the seller is probably pretty much locked in mentally to the original boilerplate text and he may take umbrage at having such a “surprise” thrust at him so late in the game. THAT can and does blow up deals. It is much better to insert this into your offer from the get go.

The following supersedes any other deposit-related clauses or contingencies to the contrary, found herein: Should the escrow fail to close for any reason whatsoever—regardless of which party cancels the escrow, or of the status of any contingency, or of the results of any inspection, or of the time elapsed between date of acceptance and the scheduled closing date or date of cancellation—the earnest money deposit shall be refunded in full to the Buyer, by issuance of a check from the escrow company (or equivalent entity, i.e. title company or lawyer) to the account from which the deposit was received. Further, the buyer may at their discretion do the following:

*   bring in one or more partners during escrow as co-buyers,

*   designate one or more payees, whether co-buyers or third parties, to be paid out of buyer’s funds,

*   submit instructions (from either buyer or co-buyer) to escrow regarding any such disbursements before escrow has prepared final settlement sheets, 

*   require both co-buyers to receive all documents intended for Buyer from escrow, listing agent, transaction coordinators, or others corresponding with Buyer in the course of this transaction, and the signatures of both co-buyers are required for any document which Buyer must sign,

*   in the event that borrowed funds will be utilized by Buyer in this transaction, The Trust as co-buyer will not be a co-borrower, and in any event, The Trust reserves the right to withdraw as a co-buyer at close of escrow.

  1. 1% EMD is the norm (say $5,000 on a $500,000 purchase price). Yet some sellers demand 2%, 5%, 10% or more. NOTE: Anything above 1% may mean you have to pay higher markups.

Analysis: Whether EMD money goes hard or stays soft, and/or whether the EMD percentage is 1% or 10%, the seller receives exactly the same amount of money at close of escrow. That is why soft vs. hard and EMDs higher than 1% should be and usually are non-issues to most sellers once the reality of the situation has been properly explained to them. Besides that, without realizing it, sellers who put up these types of artificially high barriers often cost themselves valuable bidders for their property.

More Analysis: Most of the wholesale contract flippers and rehabbers we work with try to buy Off-Market (OM) properties (not retail MLS-listed); they are seeking property owners who are Distressed, Motivated, and Flexible (DMF) and NEED to sell their property right away. What you will usually find when dealing with most DMF/OMs is that the vast majority simply do not have the luxury of time to dwell on whether the $3000 EMD (on the $300,000 property they are trying to get rid of) stays soft or not. They should be and usually are focused on the getting the $300k in their pocket and moving on, ASAP. In fact, it has been our experience over the years that sellers who concentrate almost solely on finding ways to keep the EMD money may not actually be Distressed, Motivated, and Flexible sellers after all—and maybe you need to find another seller to work with.

  1. EMD money is available for up to a 30 day escrow; that can be extended, but only on a case by case basis and may result in higher markups, thereby increasing your costs.
  1. Make sure the seller is OK with the above; none of it is designed to be harmful to either the seller—or the buyer for that matter. The provisions in the C&P form are simply there to protect our EMD investment capital.
  1. What comes next: Please completely fill out all of the Processing App.
  1. Once we receive the Processing App and offer, we try to provide a tentative green light (if it is justified) within 24 hours—often less.
  1. Any questions, etc. please email them to us. If you have an urgent matter, please feel free to phone. However, email is our preferred method of communication.
  1. BEFORE SENDING ANYTHING IN TO US, PLEASE MAKE SURE For each EMD for which you need funding, please make sure you email us the following, FIRST:
  1. A copy of the seller-accepted offer as an enclosed PDF attachment. Make sure that you have included, in the offer, the “supersedes” verbiage that appears above, and at the very end of the App (below), re: The following supersedes…”. It is strongly advised that you include the “supersedes” text in the initial offer to the seller. If that is not possible, then create an Addendum (signed by the seller) that includes the “supersedes” text and include it with the offer copy you send to us.

Only AFTER you have the seller-signed offer in your hand (that contains the “supersedes” verbiage) should you contact us.

th-1

Program #2

  1. Earnest Money Deposit Funds Available to Real Estate Investors
  2. Short-term Funding Available Quickly for Properties Owned Free and Clear
    Capital is available with the following parameters:

* $50,000 (normal maximum)
* No upfront or hidden fees. Quick funding decisions
* No points, no interest, no monthly payments
* Maximum time for use of our funds is 30 days. More time can be made available, on a-case-by-case basis.

  • Cash-on-cash markups are as follows:

From $0 up to $4999 $2500 minimum markup cost
$5000-$25000, 50% Example: $20000 pays back $30000
$25001+, 35% Example: $45000 pays back $60750

  • Available in all 50 states & DC

* Why EMD Funding?

  • Don’t tie up your precious capital, use ours
  • Allows investors to leverage themselves into more deals
  • Our funding can mean the difference between a deal happening, or not
  • We normally fund in days, not weeks (for qualified deals)
  • We usually do not require an appraisal, credit check or income verification
  • Yes we can help you with your Transactional Funding (double closing) needs!!

Please Call Greg Wilson – 858-386-0949

Greg@FixandFlippers.com

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