A proof of funds letter can be referred to by many names in addition to the traditional meaning of a letter that states you have funds available to close a transaction. A proof of funds letter is often used in real estate short sale and REO purchases to provide proof that an investor or buyer has the ability to purchase the property they are making an offer on.
Understandably, the currently overworked loss mitigation or short sale negotiators want to be sure that they are working with a buyer that can perform. They want to know the buyer has the assets if an agreement can be negotiated on the real estate property.
A “leased proof of funds letter” refers to monies being deposited into a clients personal or business bank account by an investor for an agreed upon fee. The bank “blocks” the money so that it is not permitted to be withdrawn by the client; however the money is in the account to show proof of funds. Additional terms used for this type of transaction are “standby letter of credit” and “blocked funds letter”.
The Wall Street Journal reported that the U.S. Attorney’s office said “persons who were looking to temporarily lease funds in order to enhance their creditworthiness when applying for loans were instead provided with false proof-of-funds letters on bank stationary showing the funds had been deposited in their accounts.”
Needless to say, it is very important to understand the difference in the type of proof of funds letter acquired. If you have access to personal funds, HELOC loans or funds that can be borrowed from friends or family, then providing bank statements would provide the necessary “proof of funds letter” documentation.
If interested in legitimate “transaction funding” or “acquisition funding” for short sales or REO flips, a traditional “proof of funds letter” can be acquired. Look for a lender or investor that is providing the transaction funds for the total amount of the purchase regardless of your cash or credit situation. Typically a transaction funding fee is between 2-5% of the total of funds used to flip the property at a “double” or “simultaneous” close. This fee is taken from profits at the closing.