Title Company Rules Change Procedures for Short Sale and REO Investors
The difference between wet funding and dry funding a double close can mean the difference between success and failure for your wholesale flip profits to be earned. Dry funding risks the deal, wet funding is safer and more readily accepted by title companies.
- Wet Funding means that the investor arranges for a short-term loan to fund “Side A” purchase of a property.
- Dry Funding is when the investor arranges to use another buyer’s money to fund the purchase.
- In either case the contracts are held in escrow at a single title company.
- The investor does not need any funds or credit in either case.
Title Companies Prohibit Dry Funding
Before wide spread rule changes in response to our current mortgage crisis, it was common for investors to arrange to use the purchase money from the end buyer to pass through to his or her purchase and keep a profit margin in the middle. This was known as dry funding because the investor did not fund the purchase. Increased legal scrutiny means most title companies will not accept dry funding closings anymore. Smart real estate investors are adapting to these new rules by using Transactional Funding.
Wet Funding Allowed by Title Companies
Today, investors using short-term loans to bridge the gap and close the Side A to B purchase. The term for these short term loans is Transactional Funding, Flash Cash, or Short Bridge loans. The title officer distributes the loan funds to the (previous) owner and then delivers the deed to the investor. Next, the title company closed the B to C Side of the transaction, delivers deed to end buyer from investor, and repays the bridge loan. This is called a Back to Back Closing. Lastly (but most importantly!) the investor receives the profit proceeds from the title company and a complete set of closing documents from each transaction.