Chicago’s Fortuna Finance wants to help home sellers. Here’s how

It’s the real estate version of the chicken-or-egg dilemma: Which comes first — buying a new house or selling the old one? Unfortunately, there is no right answer. Most people would prefer to do both simultaneously: perhaps close on the old house in the morning, then settle into the new home in the afternoon. But even if that scenario is possible, it opens you to a lot of possibilities, most of them bad.

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For example, if there is a problem with the sale and you can’t close, you won’t be able to settle the next deal if you need the sale proceeds to do so. Meanwhile, your stuff will be locked away in a moving van, leaving you and your family with nowhere to go.

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I’ve done several back-to-back closings over the years, and things don’t always go smoothly. That’s why some folks prefer to close on their new home first, then finalize selling the old one a few days or weeks later. That tactic gives you some extra time to load up and move out, but it also opens you up to the very real possibility of carrying two mortgages. If it takes a while to sell the old house, you’ll be on the hook for double payments that whole time.

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Some people facing that possibility opt for a bridge loan, which helps bridge the gap between your current mortgage and the new one. The loan pays off your current mortgage, then covers your new one until the old house is sold. At that point, you use the proceeds to pay off the bridge loan. Easy-peasy. Except that it’s not always easy — not a lot of lenders offer bridge financing — and it’s not exactly cheap. “They’re out there,” Keith Gumbinger of HSH Associates, a mortgage information and reporting company, says about bridge loan providers. But it takes some work to find them.

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“I don’t think your biggest-of-the-big banks or mortgage lenders can much be bothered” with bridge loans, Gumbinger told me. After “mucking around” for 15 minutes or so, he could find only a mix of smaller banks, some credit unions, mortgage bankers and brokers that offered them. As far as cost is concerned, he says you can expect to pay the prime rate plus a margin of 2% to 4% for what is basically a short-term loan of three to 12 months.

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But a new player believes it has a better answer to the buy-sell riddle. Enter Fortuna Finance, a Chicago-based company that promises to buy your home and then hand you back 90% of the proceeds when it finally sells.

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Many real estate companies or agents will offer to buy your place if it doesn’t sell quickly. But most often, they want to buy it at a deep discount. They might spend a few dollars to fix it up, paint it, whatever it needs, then sell it and pocket the difference.

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Fortuna’s model is somewhat different. Under its Home Sale Assurance program, it guarantees it will buy the house in advance, then gives the agent 90 days to sell it at your asking price. If it sells within that period, the deal ends there. If not, Fortuna buys it at a discount.

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The promise to buy your place serves as a backup contract that tells your lender the trailing house is sold. Consequently, your lender can disregard your current mortgage when qualifying you for financing.

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“It feels like you’re working with someone who doesn’t even have a house to sell,” says Maryland agent Josh Plevy, who is working with a family who just closed on a new house but still has to sell the old one. Fortuna’s program “has reduced the financial burden and allowed them to move on.”

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There’s a cost, of course: $1,000 upfront to go under contract and another $2,500 to end the contract when the sale closes. As for the discount Fortuna gets on your house, if it comes to that: According to company president Eric Meadow, the cut is between 20% and 30% of your asking price, depending on a number of variables. Those include local and national market conditions and what you owe on your current mortgage.

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The discount is somewhat larger than iBuyers are offering these days. (An iBuyer is a company that buys houses quickly, often sight unseen and completely online.) But you’ll know the price reduction going in; it will be stated in the backup contract. In Plevy’s case, his client agreed to a 37% discount, but he is convinced it won’t come to that. The backup offer “is just a placeholder,” he told me, “a bridge that allows (homeowners) to move forward seamlessly.”

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Once Fortuna takes over, it relists with your agent at a discounted price. And if the property sells within a second 90-day window, Fortuna rebates 90% of the net proceeds from the sale back to you. iBuyers, on the other hand, pass nothing back to their customers.

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“We’re not trying to compete with iBuyers,” Meadow said in an interview. “Our goal is to provide a solution to the buy-side problem, not as a means of stacking up inventory.”

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In beta testing before its official launch, Fortuna says it helped 15 sellers solve the buy-sell conundrum. That’s the company’s modus operandi. “Our mission,” Meadow told me, “is to help homeowners transition from one house to another. We’re here to give people peace of mind that in the worst-case scenario, they are assured their houses are sold and, more importantly, let them know they can move on to their new homes.”

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Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at [email protected].