Discussion Forum

Full Disclosure on Double Closings

Posted by: Herbster  investor
Posted on : 3/9/2010 7:19:10 PM

Hi, I've been in contact with all my area title/closing companys. It seems as though only a few will double close but they demand full disclosure to seller and my end buyer. So:
1- If I close at one T/C co. can I then close at another to get around this.
2- Would using a LLC help? They don't like trusts. Would LLC help to do the double at the same co.?
3- I would be using a transactional funder. Can someone fill in the blanks as I'm finally able to make some offers.
Thanks, Herb

Double or simultaneous?

Posted by: Clarity  Software Engineer, part-time investor
Posted on : 3/9/2010 10:28:32 PM

I would say that you should not have to worry about disclosures whether it is a double closing (two escrows - you or your lender provides funds on A-B) or a simultaneous closing (single escrow - your C buyer funds the A-B transaction as well as the B-C costs) as long as you are not artificially trying to inflate your pricing above market values on the resale.

Transactional funders should be encouraging disclosures from you as well, so I would suggest you only become concerned if someone starts coaching you that you should try to avoid or sidestep these disclosures.

Keep in mind full disclosure doesn't necessarily entail informing the C buyer what your purchase price from A is.  It just means that the title company wants to verify that buyer C (and buyer C's lender) is happy with the price they are paying, that buyer A is happy with the price they are getting paid, and that they are both aware that you are making a profit in the transaction.  You should be purchasing and selling in ranges where you should be able to openly and honestly explain that this is how your business operates without any concern at all about that fact.

I've heard some investors express concern over doing this because they think it's going to blow their deals or something.  Personally, I don't understand this objection.  If you are not doing something shady, not committing mortgage fraud, or trying to skirt around some regulation or lender policy, these disclosures can only help build your credibility with each party in the transaction pipeline.

The purchasing entity, I believe, doesn't change whether disclosures need to happen for these transactions.

Hope this helps,
James

short sale wholesale problems?

Posted by: jacohn  
Posted on : 3/9/2010 11:31:37 PM

I was just told at my local REIA mtg, from a reputable Title agent, that most Short Sale packages restrict investors from performing simultaneous (A->B and B->C) closings.  I was told they usually want the buyer to hold the property for at least 30 days (sometimes less, sometime more...depends on the lender).  If the title company has knowledge of this (in other words they know the same day you'll be closing to another buyer), they must disclose this to the lender and in most cases (I am told) this kills the deal.

Initially I thought the solution was to use 2 separate title companies.  This way the A->B title co doesn't know about the B->C transaction, and B->C title co doesn't know about the A->B transaction.  However, there's still the language in the Short Sale packages that state this specifically, so I'm not sure how to resolve this.

what happened to private transactions?

Posted by: jacohn  
Posted on : 3/9/2010 11:55:43 PM

Also, what happened to the concept that Real Estate deals are private transactions between a buyer and a seller?  Why should this be disclosed to the Lender that your selling at a later time?  I don't get it.  And it sounds as if the Banks/Lenders are just frustrated they are losing money, so they put these clauses in. 

I suppose as long as you don't sign any documents stating this, then your in the clear.  But then this kills your Short Sale wholesales. 

Any thoughts?  Or suggestions?

Re:short sale wholesale problems?

Posted by: matt-il  
Posted on : 3/9/2010 11:56:48 PM

Depending on what you are using when you are submitting your offer to the bank, an option contract or a purchase and sale agreement it needs to be spelled out in there what your intentions are.

You are then disclosing to the lender that you intend on immediately re-listing the property for sale and will enter into a contract with a third party to immediately sell the property too.  If this is your exit strategy.

We make it crystal clear with the short sale lender what our intentions are.  It is in numerous places in BOLD print.  They ask us, we tell them.  There is nothing to hide.

We also have it on our Notice of Option we record with the county.  This way the whole world knows what are intentions are.

Then when the title companies ask us if we've disclosed to the short sale lender what we are doing they see the Notice of Option when title is pulled and they see our option or p&s we submitted to the lender.

Hope this helps.

Matt

Seasoning

Posted by: Clarity  Software Engineer, part-time investor
Posted on : 3/10/2010 12:02:54 AM

It is true that you need to be conscious of your C-buyer's lending source.  FHA-backed loans, even with the recent changes in their seasoning rules, will still end up requiring you to hold on to the property for 90 days after you take title for the FHA underwriting process to complete, so these buyers will not work with double or simultaneous closings.  There may be other lenders who have seasoning requirements, even though they are not FHA loans, and this financing arrangement will also not work with quick turns.

You do not need to sell to buyers who have this financing arrangement.  I would use your REIA club to locate mortgage bankers or local banks offering loan products with no seasoning requirements, and explicitly state in your marketing for the property that in order to purchase the property buyers will need to be paying cash or using conventional financing with no seasoning requirements - no FHA or VA buyers.

If you get a list of lender contacts who offer these loan products in advance, you can include those references in your marketing and ensure that your buyer gets pre-qualified with them in order to proceed.

There isn't anything specific about short sales, to my knowledge, where the lender taking the discount (A's lender) requires you to hold title on the property for some period of time in order to approve the sale.  However, if it does take C's lender some time to complete their underwriting process, you will need to negotiate with the lender taking the discount in advance to extend the closing date long enough to permit the sale to occur.

My guess is that the escrow officer who is giving you this information is very well educated on the kinds of closings that their agency does, but that agency just has not invested in the training and liability coverage to ensure that their escrow officers can correctly execute simultaneous or double closings.  They also may well have done deals where the investors in the deal had difficulty getting the lender to extend the closing date.

Just don't settle after getting feedback like this from one person.  Seek out multiple perspectives, interview lots of title companies, and look for the companies that other investors are working with, or who are showing up trying to build more investor business.  You should at least be able to find title companies willing to do double closings, even if you can't find one in your area that does simultaneous closings.

Disclosures

Posted by: Clarity  Software Engineer, part-time investor
Posted on : 3/10/2010 12:29:12 AM

Matt's points above are what is key about making these transactions work - disclosure.  Everything you intend to do is disclosed to everybody in the pipeline.

If you fail to do this, there is a much higher likelihood that somebody will be surprised (and pissed) at the closing table.  More than likely the escrow officer at your REIA group has either experienced or heard of nightmare stories where that happened, and lack of disclosure is very likely a probable cause.

But, that's not a reason not to do simultaneous or double closings, it's a reason to disclose.

If you are trying to run a legal, moral, and honest investing business, disclosure to all parties will always be your ally and build your credibility.

Re:Seasoning

Posted by: jacohn  
Posted on : 3/10/2010 12:29:34 AM

The Title Agent did say they support Double Closings for Investors, but they've seen these troubles with Short Sales.

Thanks in the info. 

Re:short sale wholesale problems?

Posted by: jacohn  
Posted on : 3/10/2010 12:36:30 AM

Ah, Yes!  Good stuff.  Now is the time for me to go back and actually read those documents from Shaun's email.  :)  (...just didn't get a chance to read through those)

Have you actually closed on Short Sale Wholesale deals with these docs yet (specifically with the Options Contract)?

Do you mind sharing which lenders you've had successful deals when using these docs? 

Also, have you had a situation where the Short Sale Lender stated they didn't want you to sell the property (immediately) after the purchase?  Even if it conflicted with your Options Contract and Notice of Options doc.  If so, can you explain how you handled it?

I appreciate the info.

Re:short sale wholesale problems?

Posted by: matt-il  
Posted on : 3/10/2010 12:59:23 AM

Yes we close on short sale deals all the time using these documents, including the option.  Off the top of my head the lenders we've closed with, Wells Fargo, Aurora, C-wide(before they where taken over), BOA, Chase and more.

Wells Fargo and BOA had been putting in there pay off letter title cannot transfer for 30 days.  The way around this is you buy it using private money or get a mortgage and on the 31st day you sell it to your end buyer.

No real way around it, you will not find a title company that will not follow the pay off letter.

If the bank doesn't like the option contract, we then send them our purchase and sale agreement, which again fully discloses our intentions.

Matt

Re:short sale wholesale problems?

Posted by: jacohn  
Posted on : 3/10/2010 2:38:42 AM

So in some instances your finding lenders are indeed requiring holding title for 30 days. 

This was my concern, as I'm just starting out and don't have much money to hold properties.  I suppose I'll worry about getting the private money once I get a deal under contract.  From my understanding if the deal is good, then there should be no problem getting funding. 

Thanks a lot for the info.  You've been very helpful.

Re:short sale wholesale problems?

Posted by: lukeNC  
Posted on : 3/10/2010 1:27:23 PM

I know that if you have the escrow agent / attorney call up the short selling lender and saying that title can't be insured with that stipulation, they have been caving in on that demand. Might want to try that.

Re:short sale wholesale problems?

Posted by: jacohn  
Posted on : 3/10/2010 7:50:11 PM

Matt, I just read the Options Contract from Shaun's email.  I didn't notice any specific language about the intention to sell. 

Based on what you said, I just realized you might be adding that directly into the contract yourself.  Do you mind sharing the specific text that you've had successfully with?

It's in there

Posted by: Clarity  Software Engineer, part-time investor
Posted on : 3/11/2010 12:29:27 AM

jacohn,

Look at section 6, statement F in the option contract, and statement H in the option notice.

Shouldn't need to add any language to these forms...

James