Gap Transactional Funding: Cash to Close on Seller-Finance and Stack Deals

Seller financing can make a deal work on paper and still leave a hole at the closing table. Gap transactional funding fills that hole.

What is gap transactional funding?

It goes by four names: gap transactional, cash-to-close transactional, the Morby method and the stack method. All describe a seller-financed acquisition where somebody still has to bring the rest of the money to the table. That is how Axelrad's transactional funding page describes it, and it sits alongside our standard double-close product.

The difference from a standard double close:

For current pricing on either, see the transactional and gap funding pages.

Why is there a gap in a seller-finance deal?

Seller finance means the seller acts as the bank for part of the price and you pay them over time. In a stacked deal, you combine sources. A common version, which Pace Morby's REI Pocket Dictionary calls the Morby method, pairs a loan for the purchase with a seller-financed down payment, closed in two transactions through a title company.

Even with a first-position loan and a seller carry note on paper, real cash still has to hit the table: down payment pieces, closing costs, payoffs or timing gaps between the two transactions. If that cash is not there on the day, the deal does not close.

What does Axelrad publish about it?

From our transactional, creative financing and gap funding pages:

• Axelrad fronts the cash to close so the purchase funds on time.
• Stacked deals, hold-backs and foreclosure payoffs are routine.
• Delayed and extended options exist when the second leg needs longer than a day.

How is it repaid? Gap funding can be repaid several different ways, but it is typically repaid after closing through the seller carry. Confirm the approved structure, all costs and the repayment source in writing before you schedule closings.

How does a gap transactional deal come together?

1. You negotiate the purchase: price, seller carry terms and any first-position financing.
2. You line up the first-position lender, if there is one, and confirm it allows the seller's note behind it.
3. You add up what is still due at closing after every other source.
4. You send the contracts, the financing details and the cash-to-close figure to the gap funder.
5. The funder reviews the structure and the repayment source with title.
6. Title closes the transactions in order. The gap funding is repaid as agreed, typically after closing through the seller carry.

What should you check before using it?

• The first-position lender's rules. Some lenders restrict or prohibit secondary financing like a seller carry note. Get their answer in writing early.
• The repayment source. Know exactly what money repays the gap funding and when it arrives.
• Every cost in dollars. A starting percentage is not a quote. Ask for the full figure.
• State rules on seller financing. Rules on seller-financed sales vary by state and property type. This is general information, not legal advice. Have a real estate attorney review the structure.
• The seller's understanding. A seller who does not fully understand carrying a note is a deal that can unravel at the table.

Where does gap funding fit with other short-term money?

It is one of several short instruments creative-finance buyers use. EMD funding covers the deposit when you sign, on houses, land and commercial contracts of any size, for an upfront fee (flat or a percentage of the deal, typically a percentage, $500 minimum); if the deal cancels inside its contingencies, nothing more is owed. Standard transactional funding covers the purchase on a same-day resale. Gap transactional covers the cash still missing at closing. Many deals need more than one, and each needs its own review. Our post on Morby method, subject-to and gator funding differences separates the purchase structure from the cash need.

Key takeaways

• Gap transactional funding covers the cash to close on seller-financed and stacked deals, not the whole purchase.
• Axelrad also calls it cash-to-close transactional, the Morby method or the stack method.
• Gap funding is typically repaid after closing through the seller carry; confirm the first-position lender allows the seller note.
• Ask for every cost in dollars and the exact repayment source before you schedule closings.
• Seller-finance rules vary by state. Have a real estate attorney review the structure.

Talk to Axelrad

Working a seller-finance or stacked deal with a cash-to-close gap? Send it through Axelrad's application and see the gap funding page for current terms.