A time when sellers list their homes.
A time when buyers start looking for a house and bidding on a house and scrapping for a house--no small feat in our current low inventory market.
A time when not just buyers, but investors too, are interested in buying a property.
A little too interested.
Ever heard of "assigning a contract"?
While this practice is prohibited in many states, it's legal in Indiana. It works like this: a "buyer" offers a to buy a house, usually for cash. To prove they can perform on the contract, they offer up a Proof of Funds (POF) letter, stating that they have the money to buy the house outright. Then, while the house is under contract, they shop it around to other investors, usually for a marked-up price. At closing, the new buyer appears, along with the original buyer, and they sell the house--only the difference in price goes to the first buyer.
Example: Buyer A gets a house under contract for $50,000. He shops it around and finds Buyer B and offers the contract for $100,000. At closing, both Buyer A and Buyer B show up; Buyer B "buys" the house for the $100,000 and Buyer A pockets the $50,000.
Here's the rub: if they can't find a buyer, then they simply don't come to closing.
Meaning...they just don't show.
Zip. Zilch. Ghosted. Gone.
Sellers have little recourse, since Buyer A never had any money in the first place.
Turns out, that proof of funds letter was a fake.
Faux, not real, pretend, made-up.
Don't let this happen to you.
If you get a POF letter--especially from an investor--review it very carefully.
Don't be afraid to do a deep dive into the information provided therein.
Trust, but verify, and look for the following:
- Typos. No legitimate lending institution/hard money lender will make typos.
- Language that is vague and generalized.
- Electronic signatures with no time, date or verification stamps.
- Most importantly: NO real contact information. No phone number and a generic email address. Any legitimate company will have a phone number and company email address.
Look at one such letter I received last week.
Does this look legitimate to you?
Gotta be honest...this does not scream "legitimate proof of funds to me".
But you know who IS screaming?
Me. It's ME, hon. @#$% proof of funds letter!
How 'bout you?
What do you think?
With trust-but-verify gratitude,
Real Estate Broker
United Real Estate Indianapolis
1425 East 82nd Street, Suite 200
Indianapolis, IN 46240
text/mobile: (317) 220-5397