What is Proof of Funds?
What Proof of Funds will actually work and which ones won't?
Just about every REO Home, Bank Owned Property, Foreclosed Home, Short Sale, etc. will require some proof of a Buyers ability to perform.
This blog post is as much of a set of questions as answers for your tips and suggestions on how to overcome this potential road block to a deal.
Before we get going. I know what a basic proof of funds letter from a bank or credit union looks like.
But what if you don't have a bank?
- What if you have CASH in a more pure or secretive sense?
- What about a retirement account?
- What about foreign funds?
My Dilema:
I have a buyer we will call him Joe.
He is an older guy and he doesn't really like banks. He works on more of a true cash basis (nothing illegal), Joe just doesn't have a bank account or keep any money in it.
Joe does own several properties, residential rentals and a couple pieces of commercial dirt with a few minor improvements on it.
Joe has lots of friends. Lots of Joe's friends want his dirt. Lots of Joe's friends want to lend him money and secure it with this dirt. He explained to me that he would quit claim the dirt to his friend and not record it and then if he paid his friend would give it back, otherwise his friend would go file it.
I explained that this is kind of like going all in with a pair of 2s in your hand playing Texas Hold-em and that the proper way would be a NOTE and a Deed of Trust.
Joe doesn't want to do that, he want to do it his way. So I said fine, do it your way, just be aware you are risking your entire piece of dirt for potentially pennies on the dollar and based strictly on trust and a hand shake.
Joe put an offer in on a Bank Repossession (REO property in Montrose Colorado) the other day and told me to write the offer up CASH close in 5 days or as soon as he gets proof of clear title. No further inspection, appraisal, etc. No bother countering, final and best offer. (BTW I like this approach, of final and best offer, with people but it doesn't prove too effective with banks in my experiences.)
I told him I would write it up for closing in 10 days because no bank will move fast enough to close in 5. I based every date my date table x days after MEC (Mutual Execution of Contract).
We submitted an offer about 15% below the asking price and said the deal was CASH we would put $15,000 (his number not mine, they were only asking for $1,500) down as earnest money and we would put up the rest of the CASH to the Title companies trust account for proof of funds, prior to close.
The banks computer immediately kicked the offer back and said they need proof of funds within 24 hours or they will cancel the offer.
I called Joe and told him and he went on about how ridiculous it was and I said listen "if you want to play with banks you have to play their way." I also explained the banks have been burned many times before and told someone had cash when they didn't and that is why they ask for it.
I suggested that he should just get the cash and put it into an account that he could have a bank or other financial institution issue a proof of funds letter... The typical means.
He said No. If I pull that money out of my sources, then it will cost me a months interest. Here is what we will do. Joe is buying the home for his son Tom. He said I will write the letter and "be the bank" for my son Tom.
I said that sounds good, but they will likely just come back and ask you for proof of funds and we will be back here again. I said, "But we will try it". We typed up a letter that basically said he was the father of the buyer and going to provide the cash for the purchase and he was going to get this cash from his "private money lenders" and his various assets. But to them and for this purchase it would be cash and we could produce said cash and place in the Title Companies Trust Account for verification within 24 hours of MEC.
Unfortunately we didn't get to see if it worked. The bank (or their computer) countered back a mere $2,500 below the asking price after they just told the listing agent to take and advertise they were taking any reasonable offer.
What has been your experience of acceptable proof of funds?
Have you successfully used "private money" proof of funds letters?
Thanks for any tips or suggestions you might have.
Chris Ormsbee
(970) 209-0252
Montrose Gold Team
C21 Action Realty, 1245 E Main St. Montrose, CO 81401
www.c21actionrealty.com/cormsbee
www.soldcore.com
www.yourcoreadvisor.com/blog
This information came from the Colorado Realtors Information Network. For ALL your Real Estate needs contact Alan Brown 970-209-8436 
