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Walter. S, Real Estate Pro in Los Angeles, CA

Making an offer with a buyer who has Home Equity Line of Credit as proof of fund. should i offer as cash offer or financing?

Asked by Walter. S, Los Angeles, CA Wed Oct 10, 2012

Making an offer for a client but i'm little confused since the buyer said the statement of home equity line of credit that he provided is same as money in the bank. when i write up the offer should i write as cash offer or financing with no downpayment? any help will be appreciated!

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The ONLY way this is a CASH offer is if the buyer already agreed to the equity line of credit from his bank and signed papers with them and NOW the bank has already issued him/her an actual credit card and an account and CHECKS on that account where the money is sitting
Then if he already HAS this account and checks for that account issued by his bank/lender...who gave him the equity line of credit...all he has to do is WRITE a check for that CASH...or he could do a WIRE of the funds in that account to escrow via the escrow instructions. the amount in the account enough to PURCHASE the home in full? If he DOES have a true equity line of credit and checks on him and the money is IN the account..then he COULD wire the funds out of the acct and it would be an ALL CASH offer...if he only has the amount in the acct to put a down payment down on the house..then this is NOT an all CASH is just money he is taking out of his account to put into escrow as a downpayment on a house and he still needs financing to BUY the house.
0 votes Thank Flag Link Sat Oct 13, 2012
There is a couple of ways to do this,....
the buyer can take out the loan and put the money in the bank.
When the money is in the bank,... you have a Cash offer.

DISCLOSE what you are doing as a cash offer is only good when you show proof of funds as we all know that.
I would put financing and spell it out.
What you need to do is convey it how it is. anything else could be considered FRAUD.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Sat Oct 13, 2012
I agree with Skip, disclose the source. But this is absolutely NOT a cash offer - it is a financed transaction if the actual check to escrow is made against the LOC. To make it a cash offer, the buyer needs to draw the funds from the LOC prior to making the offer and show that the cash is on deposit in a cash account (checking, savings, investment, etc.).
Some may argue that since the LOC is secured by another property, not the property being purchased, this is a cash transaction. But if so, "show me the money." Until the cash is in the bank, the offer remains contingent upon availability of the LOC up until the time funds are actually drawn against it. If the LOC lender cancels the LOC or descreases the LOC limit during escrow, does the buyer have enough cash in cash accounts to close the deal? If so, then as the buyer's agent I would call it a cash offer and provide proof of those funds - even if the actual funds used to close escrow are drawn from the LOC. If the buyer can't close with cash from other sources, it is definately an offer with a financing contingency.
0 votes Thank Flag Link Thu Oct 11, 2012
I would not necessarily go by what my buyer told me. They should have their bank issue a letter stating that they have sufficient funds on hand for the purchase at which point you're writing up a cash offer with no financing contingency. I would also suggest that in the future you speak with you broker in charge when you've a question like this.

Good Luck and I hope you make your deal.
0 votes Thank Flag Link Thu Oct 11, 2012
Have the bank issue a statement that will tell you the availablity of funds. An equity line is a line of credit with a limit so if the line is untapped the borrower can tap the line up to its limit. If the credit limit is enough to cover the purchase price its as good as cash.
0 votes Thank Flag Link Wed Oct 10, 2012
What does your broker say? We may all have opinions but we are not held liable if we are wrong, your broker could be. I would strongly advise you to discuss their policy on this before you proceed. That is what they are there for. Their policy may be different, more conservative that what may be technically correct and you may unknowingly violate the policy if you don't ask.
0 votes Thank Flag Link Wed Oct 10, 2012
One more thought, if the equity line has been accessed and the funds are already in the buyer's account, you could more easily say this is cash. If there is any chance that the bank offering the line could change their minds, revise the limits or decline the request, it is not a cash offer.
Flag Thu Oct 11, 2012
I would write it up as a cash offer but under additional tems state it is contingent upon drawing the money from an existing line of credit. That way the seller is aware of the situation. Since home prices have declined many lines of credit are no longer good. By disclosing the situation you should be covered in case the money is not available. I would advise the buyer to draw down the money before removing contingencies.
Good luck,
0 votes Thank Flag Link Wed Oct 10, 2012
I would leave the loan contingency in. I've seen situations where banks have frozen equity lines of credit because of decline in value throughout and will order an appraisal to verify that there is still equity in the property.
0 votes Thank Flag Link Wed Oct 10, 2012
Home Equity Line of Credit is not like having your own money in the bank. The bank can cancel it in anytime. Don't write it as "cash" offer; it is not.

I would write it with an initial deposit to escrow and at ADDITIONAL FINANCING TERMS or OTHER TERMS sections: "buyer to obtain remaining of funds from approved home equity line of credit within 'a time frame,' or after X conditions have been met," etc. Attached with offer, if possible or if requested by seller, proof of it.

Good luck.
0 votes Thank Flag Link Wed Oct 10, 2012
Yes he is been approved since the buyer gave me a statement of line of credit that he already took $120k out and still have $200k credit available and the house i am making offer on is about $100k
0 votes Thank Flag Link Wed Oct 10, 2012
Make sure line of credit is not being used and is totally available. It is same as cash because he can simply right a check and the funds are available.
0 votes Thank Flag Link Wed Oct 10, 2012
I would write it as cash if he has already been approved but I would disclose or keep the loan contingency in place just in case. I do not know all the details but a good listing agent will ask for proof of funds and find out.
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0 votes Thank Flag Link Wed Oct 10, 2012
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