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Old 05-14-2013, 09:46 AM
 
1,098 posts, read 2,141,145 times
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Perhaps I can put this in some perspective in talking about a similar document: the coveted mortgage "pre-approval" letter that so many sellers seek because they think it ensures they are getting a financially solid buyer.

We received such a "pre-approval" from our buyers and a fair offer that said they would put more than 25% down on our home. We were assured by all parties, including our lawyer at the time, that the mortgage process would be a piece of cake and would move rapidly. We breathed a sigh of relief and signed the contract. Of course, the sellers had neglected to tell us that they already had a big mortgage on the storm-affected home that they were not selling. They also forgot to mention that they were taking out a home equity loan on that property from the same bank to cover a substantial portion of the down payment. Then, at one point, the bank was requiring them to sell their property to get the mortgage on our home (a condition later removed). They supposedly had a very strong business relationship with the bank and yet they were made to jump through hoops and finally got a mortgage commitment more than a month after the date they agreed to in the contract.

Because of their long delay (caused in part by the undisclosed items mentioned above), we were unable to sign a contract to purchase our next home at a time when inventory was low and the places we wanted were going fast. We fully expected that the buyers' delay would force us to rent something at a far greater annual cost than a purchase. So, there we were, with the precious "pre-approval" letter and yet the situation almost cost us a sale and/or the home we desired. Of course, if the commitment had not been approved, we would not have been able to recoup our legal fees or any other costs.

In short, the "pre-approval" is worth nothing . . . as is the "proof of funds" letter. One can easily show proof of funds from a bank and then lose those assets between contract signing and closing without having to inform the seller. Or, one can simply not disclose to the bank or the seller that there may be outstanding loans or other financial liabilities that far outweigh the assets reported by the bank.

Only the contract gives you any protection from buyers who purport to have the money at closing, but may not, and even then it is not full protection. And the contract gives you no protection from buyers who purport to be able to get a mortgage commitment because there is typically a contingency clause to protect them from losing the earnest money if the bank turns them down.

I repeat: at the end of the day, a "proof of funds" letter is worth nothing.
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Old 05-14-2013, 10:00 AM
 
4,621 posts, read 7,175,253 times
Reputation: 4735
Quote:
Originally Posted by longislander2 View Post
Perhaps I can put this in some perspective in talking about a similar document: the coveted mortgage "pre-approval" letter that so many sellers seek because they think it ensures they are getting a financially solid buyer.

We received such a "pre-approval" from our buyers and a fair offer that said they would put more than 25% down on our home. We were assured by all parties, including our lawyer at the time, that the mortgage process would be a piece of cake and would move rapidly. We breathed a sigh of relief and signed the contract. Of course, the sellers had neglected to tell us that they already had a big mortgage on the storm-affected home that they were not selling. They also forgot to mention that they were taking out a home equity loan on that property from the same bank to cover a substantial portion of the down payment. Then, at one point, the bank was requiring them to sell their property to get the mortgage on our home (a condition later removed). They supposedly had a very strong business relationship with the bank and yet they were made to jump through hoops and finally got a mortgage commitment more than a month after the date they agreed to in the contract.

Because of their long delay (caused in part by the undisclosed items mentioned above), we were unable to sign a contract to purchase our next home at a time when inventory was low and the places we wanted were going fast. We fully expected that the buyers' delay would force us to rent something at a far greater annual cost than a purchase. So, there we were, with the precious "pre-approval" letter and yet the situation almost cost us a sale and/or the home we desired. Of course, if the commitment had not been approved, we would not have been able to recoup our legal fees or any other costs.

In short, the "pre-approval" is worth nothing . . . as is the "proof of funds" letter. One can easily show proof of funds from a bank and then lose those assets between contract signing and closing without having to inform the seller. Or, one can simply not disclose to the bank or the seller that there may be outstanding loans or other financial liabilities that far outweigh the assets reported by the bank.

Only the contract gives you any protection from buyers who purport to have the money at closing, but may not, and even then it is not full protection. And the contract gives you no protection from buyers who purport to be able to get a mortgage commitment because there is typically a contingency clause to protect them from losing the earnest money if the bank turns them down.

I repeat: at the end of the day, a "proof of funds" letter is worth nothing.
POF is based on "Demand Deposit" accounts held at one's financial institution. Not CD's 401K's, brokerage accounts, etc. Cold hard cash sitting in the bank.

When I was working as a realtor I only had one cash deal go bad.... the buyer died unexpectedly 3 days before closing.

Cash buyers also put more money upfront. The last property I bought for cash.....there was 50% of the selling price in escrow at time of contract. 25% at offer, 25% at signed contract.

Cash buyers don't screw around.
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Old 05-14-2013, 04:15 PM
 
1,098 posts, read 2,141,145 times
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Quote:
Originally Posted by ocngypz View Post
POF is based on "Demand Deposit" accounts held at one's financial institution. Not CD's 401K's, brokerage accounts, etc. Cold hard cash sitting in the bank.

When I was working as a realtor I only had one cash deal go bad.... the buyer died unexpectedly 3 days before closing.

Cash buyers also put more money upfront. The last property I bought for cash.....there was 50% of the selling price in escrow at time of contract. 25% at offer, 25% at signed contract.

Cash buyers don't screw around.
What keeps a buyer from taking the cold hard cash and blowing most of it in Vegas the day after the letter is issued? And when your buyer died unexpectedly, how grateful were the sellers to have the letter?

I'm a cash buyer. I don't screw around. I would never put down more than 10% at contract. And I have never been asked for a POF letter after making bids on several homes, including the one we are buying.
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Old 05-14-2013, 04:28 PM
 
Location: Martinsville, NJ
6,151 posts, read 10,877,778 times
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Quote:
Originally Posted by longislander2 View Post
What keeps a buyer from taking the cold hard cash and blowing most of it in Vegas the day after the letter is issued? And when your buyer died unexpectedly, how grateful were the sellers to have the letter?

I'm a cash buyer. I don't screw around. I would never put down more than 10% at contract. And I have never been asked for a POF letter after making bids on several homes, including the one we are buying.
If that's the norm in your market, fine. But I have to tell you, in my market, there's just about no way most sellers are going to accept the word of a buyer that they have the cash. The seller wants to see proof that the funds are there, either in cash or in the form of an asset that is easily liquidated, like a money market fund.

Another indication of that old saw, "Real Estate is Local."

What prevents the buyer from (legally) spending all that cold hard cash, by the way, is that it has been designated as the funds for the purchase. I haven't had to ever pursue it, and I'm not a lawyer, but my guess is that a case for fraud can be made if one spends the money one pledged in a contract, and as a result cannot complete the contract.
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Old 05-14-2013, 05:15 PM
 
Location: Ocala, FL
3,117 posts, read 5,731,498 times
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Quote:
Originally Posted by Bill Keegan View Post
..... in my market, there's just about no way most sellers are going to accept the word of a buyer that they have the cash. The seller wants to see proof that the funds are there, either in cash or in the form of an asset that is easily liquidated, like a money market fund.
Works the same in my market.

I always thought it was standard, nationwide. My mother bought a small condo for about $21,000 and had to provide proof of funds.
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Old 05-14-2013, 05:40 PM
 
Location: NJ
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So apparently only in LI would it be an insult to the buyer to ask for proof of funds. They must be a sensitive bunch.
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Old 05-14-2013, 06:00 PM
 
4,621 posts, read 7,175,253 times
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Originally Posted by manderly6 View Post
So apparently only in LI would it be an insult to the buyer to ask for proof of funds. They must be a sensitive bunch.
Nope............I've made cash offers on LI.. complete with POF and 25% + 25% Buying a co-op? It's worse. You need to show a full financial statement.

Cash buyers are just that... cash...........no selling current house contingencies.....none of that. Depending on the property for which I'm making my offer...I would only have an inspection and survey contingency for my primary residence with flexible close. Investment properties I've had none.

It's like going store shopping...though instead of cash in the wallet.. I use my banking app to transfer the money where it needs to go.
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Old 05-15-2013, 08:21 AM
 
2,721 posts, read 3,678,997 times
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Maybe I missed something, but I would NOT want the seller to see my bank statement and then decide that not to negotiate from their asking price just because I can afford their asking price. My money is sitting in a Money Market right now just for this purpose and could easily write a check for a sizeable amount. I feel it is none of the seller's business how much I have. My earnest money should prove that I am not a flake. JMHO.
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Old 05-15-2013, 08:50 AM
 
Location: Martinsville, NJ
6,151 posts, read 10,877,778 times
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Quote:
Originally Posted by Rogarven View Post
Maybe I missed something, but I would NOT want the seller to see my bank statement and then decide that not to negotiate from their asking price just because I can afford their asking price. My money is sitting in a Money Market right now just for this purpose and could easily write a check for a sizeable amount. I feel it is none of the seller's business how much I have. My earnest money should prove that I am not a flake. JMHO.
But it is the sellers business to know that you can actually perform on the contract. So it's quite reasonable, (and as has been stated on this thread, very common and acceptable) for the seller to demand that proof. You don't have to show a bank statement, and you don't need to show a penny more than the amount promised in the contract. Have a banker, or a lawyer, or an accountant, or some professional who stands to lose something by lying, sign a document verifying the funds. It's not about giving the seller private information. It's about showing the seller that what you said is the truth.
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Old 05-15-2013, 08:54 AM
 
Location: Lexington, SC
4,281 posts, read 10,267,076 times
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In my last two new home cash purchases we simply need a letter from a bank saying we had enough cash on deposit to cover the sale price. They did not know how much cash we had and yes we could have taken it out the day before and spent it.
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