There are two major risks involved with transactional funding.
- The first risk is when the transactional funder loans the funds for the double closing.
- The second risk is for the investor if anything goes wrong, and he can’t get the funds timely or at all.
- The transactional funder faces five specific types of investor fraud of which the investor may or may not be a part.
- The transactional funder’s primary risk is having to foreclose and get his funds back if the original seller is paid out at closing and the end-buyer doesn’t close.
- While all these possibilities are covered in the instructions to the closing agent, bad things can happen.
- If the lender has to foreclose, he can only hope to get most of his money back despite what some people believe to be an opportunity to make money.
- The other four ways transactional funders are defrauded can cause the entire loss of their funds.
- I’ve never spoken to an investor who doesn’t believe that transactional funding is riskless, that’s because it’s not their money and they don’t fully understand what can go wrong.
- From the investor standpoint the risks are:
- Late payment from another closing agent and not being able to get the funds in time to close,
- End-buyer’s lender not allowing transactional funding to be used for the double closing,
- The transactional lender can’t timely get his funds to the closing so the deal is lost,
- The transactional funder deciding not to come to closing.
- Where I see the transactional funders not coming to closing is usually associated with an amateur funder, a private funder who is unfamiliar with the process, and the double closing being suddenly turned into extended funding because the end-buyer couldn’t close timely.
- If you’re going to use friends or family members for the funds, make sure they understand the process and talk to the closing agent to better understand their risks.
- If you deal with a professional transactional funder, make sure he has adequate funds for your closing, has plenty of five-star Google ratings, and is receptive and responsive to the closing agent.
Keywords – transitional lending risks, transactional funding risks, downside to transactional funding, trnasactional funding warnings
If you have any additional questions, contact me directly at DaveDinkelQuestions@gmail.com.
If you need hard money instead of transactional funding, contact me for referrals to private hard money lenders.
Be sure to check out BestTransactionalFunding.com for all your same-day double closing needs, including a list of Investor-Friendly Closing Agents in various states.
We have more five-star Google ratings than all the other transactional funders combined.