Gator Lending Contract: What the Paperwork Should Cover

A gator loan, also called gator funding or EMD funding, is short-term money for someone else's deal, usually the earnest money deposit (EMD). Because the money moves before closing and is not secured by the property yet, the paperwork does most of the protecting. This is a checklist of what it should cover. It is general information, not legal advice.

Why does the paperwork matter so much?

An earnest money deposit sits in escrow before the purchase closes. Neither the investor nor the funder owns the property yet. If the deal dies, what happens to that deposit, and who owes what to whom, comes down to two documents: the purchase contract and the funding agreement.

Run the deposit through title or escrow rather than sending money person to person, and have an attorney draft or review the documents.

What should a gator lending contract include?

1. The parties. Full legal names of the funder and the borrower, and the entity if one is used.
2. The property and the purchase contract. Address, contract date and a reference to the executed purchase contract.
3. The amount and purpose. The exact deposit amount and that it is for the earnest money on that contract.
4. Where the money goes. Wired directly to the named title or escrow company, using wire instructions verified with title.
5. The fee. Whether it is a flat amount or a percentage of the deal, and when it is due: up front, at closing, at refund, or a combination.
6. Repayment. What triggers repayment, where repayment comes from (closing proceeds or the refunded deposit) and the deadline.
7. Refundability and deadlines. Whether the deposit is refundable, the inspection or due-diligence period, and other contingency dates.
8. What happens if the deal dies. Who directs the refund, how the funding is repaid if the deposit comes back, and whether anything beyond the refunded deposit is owed (for example, a failure or non-performance fee).
9. What happens if the deposit goes hard. The borrower's obligation if a deadline passes and the seller keeps the deposit.
10. Assignment. Whether the funded deposit can stay on the contract if it is assigned, and what the new parties must sign.
11. Extensions and amendments. How changes to the purchase contract are handled and whether the funder must be told.
12. Notices and signatures. How each side gives notice, and signatures from everyone obligated.

What happens if the buyer walks?

This is the clause people skip and later regret. It depends on timing:

• Inside the contingency period: if the contract allows cancellation and notice is given on time, the deposit is typically refunded from escrow and repays the funding.
• After a contingency expires: the deposit can go hard, meaning the seller may be entitled to keep it. The funder's money is now at risk, and the agreement should say what the borrower owes.

Axelrad funds fully refundable deposits only for this reason. If the deal cancels inside your contingencies, nothing more is owed: the refunded deposit comes back to Axelrad, the fee was paid up front, and we do not charge a failure or non-performance fee. Our EMD page puts the risk plainly: the exposure is after a contingency expires, when a deposit can go hard, so tell us the moment a deal starts to wobble. Our post on whether earnest money is refundable covers contingencies, notice deadlines and deposit release in more detail.

What if you plan to assign?

A funded EMD can sit on a deal you plan to assign, but the new parties must also sign for the EMD so it remains assignable. Put that in the agreement, tell your funder at the start, and give title written instructions so the funded deposit is repaid out of the assignee's closing.

What should the purchase contract say?

The funding agreement can only be as good as the purchase contract under it. Before anyone funds a deposit, read:

• The deposit amount and the deadline to deliver it. See when earnest money is due.
• Who holds the deposit and under what instructions.
• Every contingency and its deadline, and how notice must be given.
• What the contract says about release of the deposit if it terminates.
• Whether the contract can be assigned.

What does Axelrad need to fund an EMD?

An executed purchase contract, a fully refundable deposit and the title company's wire instructions. No credit pull and no background check. We also ask for the deposit amount and due date, refundability and contingency deadlines, the title or escrow contact and your planned closing or exit, including whether you plan to assign. You see the fee for your deal before you sign anything. It can be flat or a percentage of the deal, is typically a percentage, and is paid up front, with a $500 minimum. Axelrad has flexibility on fees, because we want investors to be able to get their first deals done. See EMD funding for details.

Red flags in gator paperwork

• No written agreement, or a text-message handshake.
• A request to wire money to a personal account instead of escrow.
• A deposit that is non-refundable from day one.
• A fee or repayment trigger that is vague about timing.
• Terms that say nothing about what happens if the deal dies, or that add a failure fee on a cancellation inside contingencies.

State rules on private lending, fees and deposits vary, and title companies have their own procedures. Have a real estate attorney in the property's state review both the funding agreement and the purchase contract. For more on vetting the person behind an offer, see is gator lending legit?.

Key takeaways

• The funding agreement and the purchase contract together decide who owes what if the deal dies.
• Wire deposits to title or escrow, never to a person, and verify wire instructions with title.
• Spell out the fee, the repayment trigger, any assignment terms and what happens if the deposit goes hard.
• Axelrad funds fully refundable deposits only, shows you the fee before you sign, and charges nothing more if the deal cancels inside contingencies.
• Have a real estate attorney review the paperwork. State rules vary.

Talk to Axelrad

Want a deposit funded with clear paperwork? Send your contract through Axelrad's application and see the EMD funding page for current terms.