In transactional funding, is using the C buyer's wire for the A leg a real substitute for separate money, or a different risk entirely

Before the argument starts, can someone say plainly what "the money never leaves escrow" means? I picture the C buyer wiring 121k in, the closer paying the A seller 96k out of that same pot, and you walking with the difference. Is that the whole picture or am I missing a step where something actually gets lent?

@nataliehsu that's the picture. One pot, two settlement statements, the second deal's money paying for the first.

My underwriter in my state won't insure it. I asked twice, got the same answer both times, and the closer told me she'd lose her agency agreement if she tried. So for me the question bramble is asking doesn't exist. I wire funder money for the A leg or I don't close. Fee has run about 1,250 flat on the deals I've done in that range, and I stopped resenting it around deal three.

Geography changes this more than anything. In a small county where one attorney handles most of the closings, it is common to find that office has closed out of one pot for years and does not blink at it. One underwriter relationship, everybody knows everybody. That does not make it right. It does mean bramble's answer will look completely different depending on whether the closing happens in a county with four closing offices or forty.

Dumb question I'd rather ask here. In the one pot version, at the moment the A seller gets paid, who owns the house? Because it sounds like B owns it for about ninety seconds and never paid for it with anything of their own.

@jessreyes12 B owns it for the length of the recording gap, whatever that is where you are, and that's exactly the thing people fight about.

On the money, my last four funded deals ran 1% with a 1,500 minimum. On a 96k A leg that's 1,500 against a spread that's often 8 to 12k. It's real but it isn't the thing that kills deals. What kills deals is the end buyer's lender needing something the timeline can't produce.

What is the funder actually protecting the wholesaler from, in one sentence? If their money is out for six hours and the C funds are already sitting in escrow, it's hard to tell whether that fee buys insurance or buys a receipt.

Curious from the service side, does the closer charge more when there's separate funder money coming in? Extra wire, extra instructions, extra file. I'd assume yes and I'd assume nobody quotes it up front.

Worth naming what the one pot version is: the end buyer funding the wholesaler's purchase without being told. Usury is the wrong frame, since no interest is charged. The exposure is disclosure, and a closer who does it without written consent from every side owns the risk.

@priya_n21 I've had end buyers get uncomfortable for exactly that reason even when it was all above board. One walked at the table when he worked out that his wire was paying the seller he'd never met. He didn't have a legal theory. He just didn't like it. That's a cost bramble should put on the scale too.

@ehernandez74 from the lending side, the flat fee is priced for a window measured in hours where the repayment source is already committed in escrow. That is the whole reason the fee is flat instead of an interest rate. What separate money buys is a first closing that stands on its own funds, so if the second leg fails there is a lender with a lien and a conversation about an extension, rather than a title company holding a disbursement it cannot justify. The failure case is where the two versions separate. Confirm with the funder in writing what happens on the day the C buyer does not fund, because some term sheets convert to a short bridge at a stated rate and some simply make the whole fee due plus costs.

Run it as expected value rather than as a principle and it gets easier to argue about. Call the fee 1,500 on a 96k first leg. Call the probability the C leg dies after A to B records something like 2%, which is generous if the end buyer is cash and terrible if they are getting a loan. Call the cost of being stuck holding the house for 60 days while reselling it 6 to 9k in carry, funder extension and price concession. At 2% that is roughly 150 of expected cost against a 1,500 fee, so on pure expectation the one pot version wins if the closer will do it. The assumption doing all the work there is the 2%. If the end buyers are financed, or if the underwriter can later refuse to insure the chain, the tail grows past 6 to 9k into the whole spread plus a title claim that cannot be cleared. Operators who pay the fee every time are usually paying because they do not trust their own estimate of that tail, and that is a defensible reason.

Pull the actual funder documents before anyone votes. Transactional funder agreements typically carry a disbursement condition saying their funds close the A to B transaction and that no portion of the B to C proceeds may be applied to it. That clause exists because the underwriter wants a clean source of funds line on the first settlement statement. Which means bramble's two options are not really available at the same time on the same file. You pick one and the paperwork follows. And @priya_n21, nobody is lending anybody anything in the one pot version. There is no note, so there is no interest and no term either. It is a disbursement timing question inside one escrow account, and whether it is allowed comes down to state law and the title underwriter's rules, which differ.

Yes, @derekj19. When a closer prices coordination work, the extra wire and the second set of instructions show up as a higher closing fee on the B side, usually a few hundred. Nobody volunteers it.

Does the A seller get told either way? I'd want to know what my own closing statement was showing if I were them.

So does the funder record a mortgage for the six hours or not? A lien that exists and gets released inside the same afternoon is a hard thing to picture, and the answer tells you how the funder is actually secured.

@raj_mehta14 some do, some don't, and it varies by state and by funder. I called three underwriters last year for exactly this and got three different answers about whether they'd insure the one pot structure, which told me more about the question than any of the answers did.

The part people underrate is the recording gap. In some states the two deeds go on record minutes apart and in others there's a real window, and during that window your name is on title with no lender of record and no funds of your own in the deal. Ask your closer what the actual gap looks like in that county before you decide anything.

The document test to apply is simple. Look at the first settlement statement and read the line that says where the buyer's funds came from. If that line names a lender, you have a fundable first leg. If it names nothing, or it names the second transaction, you have a first leg that only exists because the second one did. @paulgrant17 the A seller sees their own statement, which shows what they are being paid. It does not usually show the resale price. Disclosure requirements about the resale differ by state and a few states require more than others, so that is one to confirm with a closing attorney where you are operating.

I have money and no deals, so the funder side looks like the better seat to me. Flat fee, hours of exposure, repayment already sitting in the account. What am I not seeing, other than that the whole thing lives or dies on wholesaling volume in states that keep squeezing assignments?

@sonia_alvarez that helped. The question underneath was what happens on the bad day, and the answer is that the two structures hand you different counterparties on the bad day. One gives you a lender to renegotiate with and the other gives you a title company with a hole in its file. What does the extension actually cost when it happens? Is it another flat fee or does it turn into daily interest?

@ehernandez74 every sheet I've read handles it differently. Two converted to a rate in the mid teens with a minimum thirty days, one charged a second full flat fee, one just said the loan matures at 5pm and left the consequences to the default section. Get it in writing before you need it, because you won't be negotiating well at 4:40.

The construction version of the one pot approach is paying the framer out of money the homeowner has not released yet. It works right up until the draw does not come, and then everyone finds out whose problem it was all along.

This standoff comes up constantly. The closer offers the one pot version on a Thursday while the funder's instructions forbid it, and the wholesaler has to tell one of them no by the next morning. Separate money wins that spot, because the funder's clause is the one with teeth.

1,500 to not have to think about this again seems cheap for something you'll do more than once.

@dpatel_re your expected value framing is right on the arithmetic and it undercounts one item. The tail isn't only the carry cost of holding the house. If the underwriter later takes the position it shouldn't have insured that first deed, the exposure follows the property into the next sale and shows up as a claim, and how that gets resolved depends on state law and the policy terms. That can't be priced with a 2% and a carry number. @stephen_ok9 the thing worth seeing is what the funder does when the wire doesn't arrive. Their capital is fine on the average day. Their operations have to be good at the exception, and that's a staffing problem, not a math problem.

Decide deal by deal is going to win this poll, and it is the weakest of the answers on offer. Per deal decisions get made under time pressure by the version of an operator who wants the deal to close. Set the rule while calm, which is what bramble is doing, and the only judgment call left is which closer you use.

Writing down what I'm taking out of this since I'm still deals-zero. Ask the underwriter, not the closer, whether the one pot structure gets insured in that county. Ask the funder what their disbursement clause says about the second leg's proceeds. Ask what the recording gap looks like where I'd be closing.

@renee_dubois's point landed. I'm voting for separate money every time even though @dpatel_re's math says the fee is expensive relative to the expected loss, because I don't have enough deals under me to have a real opinion about the tail.