Transactional funding underwriting


I’m a private lender and I’ve been approached recently about providing transactional funding for a wholesale deal. I’ve never done one of these transactions before but have researched them online. I was wondering if I needed any documents (i.e. a contract) between the “B” party and myself or is it all done between the escrow company and myself? What are the crucial escrow instructions to look for? Any tips on how to conduct this type of transaction safely would be greatly appreciated.


Assuming you are talking about the 1 day variety, essentially the whole transaction is done with the title company.
You can do a couple diff things.
You can tell the B that you will only fund after the C has sent his funds to the title company. This only works with cash C buyers.

What I do is simply instruct the closing agent not to disburse funds for the A-B if the B-C doesn’t close the same day. So if the B-C falls apart, they simply unwind the A-B.

Just make sure the B gets Title Insurance. That is the only thing that can come back to bite you.

Also, seems simple but also make sure the Title Company is real. This is a way to get you, arrange the back to back through a phony title company. Your money is gone. It is amazing how easily we trust a simple fax saying wire money to ABC title company.


Thank you very much for your insights. So essentially you rely on escrow to unwind A-B if B-C fails. Have you ever taken extra precautions for a possibility of A-B closing without B-C? More specifically, how would your rights to the property be secured if A-B closes and B-C doesn’t?


Well again, the precaution is your instructions to the closing agent. If the closing agent fails to follow your instructions and disburses the A-B funds without closing the B-C, then you certainly have an issue with the title company. This has never happened to me and I wouldn’t think that it would. If it did, I don’t really know the exact remedy. I guess you complain to them and in the end, sue them.

However, as far as the A-B, even though it is intended to be a 1 hours loan, you still go through all the motions like it is a regular mortgage loan. Meaning you draw up a note and mortgage for the A-B funds and you get title insurance.
So if the A-B were to close without the B-C, then you have a lien on the property the same as any mortgage. You have loaned 100% LTV on it so it is not great but hopefully the price is low enough that it would be ok.

I hesitate to say this cannot happen because anything is possible, but if you give proper instructions to the closing agent, it really will not happen.


The rules around what title/escrow/attorney can and often do vary greatly from state to state. In most areas of California for example, doing a 1 day close is very hard if not impossible in some counties. Most closing agents are unfamiliar with closing these types of transactions so I would caution you to make sure they are 100% clear on how you are lending the money and why. It would also be prudent to document this in a set of closing instructions you have have signed by the investor and even the closing agent.

Good luck!