Have you ever wanted to make an offer on a home and have the seller or their agent tell you that they need a proof of funds? Probably, and when that happened did you question who it is really for? Aren’t agents obligated to submit every offer, without additional requirements?
Proof of Funds Requirements When Purchasing A Foreclosure
Purchasing bank or corporate owned properties requires making available, with your offer documentation, that the purchaser either has the funds or is approved for bank financing. When a buyer submits this information with their offer, and their offer is accepted, it eliminates the financing contingency of the purchase agreement. Why? Because the point of the requirement is to prove to the seller that the proposed purchaser does not face any problems on completing the purchase-they either have funds or a mortgage pre-approval in place.
It’s true that many of the major servicers/owners of defaulted mortgages and foreclosed properties are now utilizing on-line offer systems that allow the seller to have a complete snapshot of all bids for a property. Corporate-owned sellers will require a proof of funds document be uploaded prior to reviewing the offer.
Cash versus Financing Proof of Funds
For a buyer using borrowed funds the pre-approval should include the amount for which the buyer is qualified, type of loan, contact information for the lender, and a current date or no more than 30 days old.
Pre-approvals and the purchase contract should specify the type of loan and the LTV (loan-to-value) the borrower is seeking. The seller may choose to accept an offer that provides a better proof of funds if you submit a pre-approval and it has a lot of contingencies, or it appears to be sketchy.
Cash offers should have a proof of funds letter or a copy of a statement showing funds available in excess of the purchase price. Current bank statements or recent letters (less than 7 days old) from a bank representative are acceptable documents.
When the proof of funds is provided as cash, then the method for purchasing the property needs to be cash. Avoid coming back after the offer is accepted and state a buyer now wants to use financing. If you are the buyer, or the agent representing that buyer, the seller may choose to cancel the purchase agreement and retain the earnest money due to non-performance under the terms of the accepted contract.
Electronic Bidding Requirements
While the electronic bidding systems are now a large part of the foreclosed property landscape, ultimately there still is a contract package that must be submitted. With that contract package, there are certain supplementary documents. Jennifer Wilmoth, one of the largest volume REO brokers in America, stated “We must have a proof of funds statement when submitting final contracts for a seller to execute in all cases for the clients we work for. Why would we want to submit a bid for an agent or buyer unless we know that a satisfactory proof exists? With the time lines these offers must follow, and the competition for many homes, if one does not exist when submitting a bid it likely will not be available when completing the contract package.”
HUD Homes and Proof of Funds Requirements
Lets look at HUD homes for an example. A buyers agent can submit a bid electronically for a HUD home and in that process they acknowledge that the buyer has funds to perform on the proposal. Their bid could be accepted the next morning and then there is only two business days for a HUD contract package (including the Proof of Funds) to be in an office in another part of the country. The entire contract package needs to be completed when submitting the electronic bid! Same goes for Fannie Mae bidding at HomePath.com. Much the same for other servicers also.
Bottom line is that proof of a buyers ability to perform on an offer is still very much a part of the corporate seller’s requirements, even when using an electronic bidding platform.