Letter of Credit

I am negotiationg on an REO for a wholesale flip, the home has a considerable amount of equity, I have several buyers interested in they property, and I CAN assign the contract…here’s the problem:

The bank is requesting a letter of credit in order to finalize the contract.

Any suggestions are appreciated! Thanks!

Did you make sure that the REO owner (is it a bank, or mortgage company?) allows assigning a contract first? Most won’t, so just be sure this is one of the exceptions.

Many hard money lenders will offer a pre-qual letter/proof of funds letter if you just ask them. Since they use the ARV potential of the property to determine the amount of the loan, you should be able to get a letter from them that should cover the purchase amount. This is especially true if you negotiated a price that was at or below 70% of the ARV.

For instance, if a home will be worth $100k after your end buyer fixes it up, then the HML should be able to give you a pre-qual letter for up to $70k (70% of After Repaird Value). If you purchased the property for $60k, then you’re good to go.

As far as I know, this type of letter should suffice when bidding on REOs. If anyone has a different experience with this, please chime in - I don’t want to give just my opinion, as each REO owner has different criteria.

First let me thank you for taking the time to respond… I know a prequal letter from a lender wont be a problem,however the end buyer is paying cash so the contract was written for cash, thus the issue with obtaining a letter of credit from a bank. Im not sure what the best way to approach this.

How did you get this presented without LOC/POF at the time of offer? It is extremely out of the ordinary for a bank to allow assigning of contracts. Most of these companies have this clause in their addendums. Are you positive this can actually be closed as expected? If so, please explain who? This would be excellent info.

Honestly, the pre-qual or proof of funds is normally extremely generic. They are really a joke. Must the letter of credit be in your name?

The contract did have a paragraph that stated the contract could not be assigned without the banks expressed consent. First when negotiaitng I made the listing agent aware of my intent to assign the contract, then when writing the contract I added an addendum with the usual escape clauses (title, inspection, etc.,) but then also added one to supercede the assignment paragraph…knock on wood - so far so good. As long as I can satisfy that letter of credit issue.

good going!

If they are willing to allow you to assign the contract, will they accept a LOC on your buyer? Or do you have the buyer already?

Since you say you are negotiating, do you have a signed contract or is the LOC a condition on them signing the contract?

And please, what company?

The company is HSBC, and they havent specifically said the LOC was required to finalize the contract, or that it had to be in my name - as a matter of fact I told them they may see the name on the contract change to a company.

Who is representing you?