If you’re a wholesaler and have been considering jumping into the REO arena, you’ve probably already figured out that you’re not going to be able to assign your purchase contract to your end buyer like you would on a regular wholesale deal. Ninety-nine percent of the banks will include a “No-Assignment” clause in their contract which will prevent you from doing so.
REO Wholesales are Still Possible!
Because of the bank’s restriction on assigning contracts, many wholesalers are under the impression that there is no way to wholesale these deals at all. This is far from the truth, and while there may be a few more hoops to jump through when wholesaling REO properties, there are still several ways to get these deals to the closing table.
Over the next five weeks, I will be covering five different strategies that you can use to wholesale your REO deals and get around the bank’s “No- Assignment” clause.
Conducting a Simultaneous Closing
Today I will be talking about using a simultaneous closing, which is the way I have been closing my REO wholesale deals for the last two years.
When a simultaneous closing occurs, there are two separate transactions taking place, often referred to as the A-B transaction, and the B-C transaction. The A-B sale refers to the transaction between the wholesaler and the bank, and the B-C sale refers to the transaction between the wholesaler and their end buyer. When doing a simultaneous closing, the end buyer’s funds are used to fund both the A-B sale as well as the B-C sale, so as a wholesaler, you are not required to bring any cash to the closing table.
Because the banks will stipulate in their addendum that the title work for the A-B sale be done at their title company, you will need to coordinate that closing with your title company, who will handle the title work for the B-C sale.
Once the bank’s title company has all of the closing documents prepared for the A-B sale, you can request that they be sent to your title company where you will be signing all of the documents for both transactions.
The closing for both deals will be held at your title company, and once all of the documents are signed and both deals are funded, your title company will wire the funds for the A-B sale to the bank’s title company and Fed Ex them the signed closing documents.
In order to close your REO wholesale deals in this manner, your end buyer will need to be paying cash, or using a hard money lender who will have no problem with the fact that the property is being flipped on the same day it is purchased from the bank. You will also need an investor-friendly title company on your side who is familiar with simultaneous closings.
If you are unable to find a title company in your area who will perform a simultaneous closing, don’t worry- there are four other methods you can use to get your REO wholesale deals to the closing table. I will be going over each one of those methods in the coming weeks, so stay tuned..
Article Author:
Stephani DavisStephani has written 15 articles for us.
Visit Stephani's Website: http://www.flipthiswholesaler.net/
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{ 6 comments… read them below or add one }
I love this strategy and it works very well. You need to be carefull because state laws can vary. For example, in Utah you need to bring separate funds for each close. Legitimate title companies will not do what you describe. Solution: overnight funds from a hard money lender.
David Safeer´s last blog ..The Hidden Profits in Real Estate
Hi David,
There are many title companies in my area who will not do them either, but not because they violate any laws..
The one I use is owned and operated by two well respected attorneys. There are several others in my area who will do simul closes also, all of which are reputable title companies.
Everything is done above board, and there is complete disclosure to the buyer that their funds are being used for both transactions. The underwriter requires that they sign a document saying that they know what is going on.
Steph
Steph´s last blog ..Home Sweet Home
Steph:
Great strategy to use a second title company to handle the 2nd closing, but let them close first! They have to wait until the first title company records, though, correct?
Am I correct that this probably won’t work if the end buyer brings in a new loan (except maybe hard money)?
Cheers,
Thomas
Thomas Bartke´s last blog ..Short Sale Commission Squeeze
Hi Thomas,
Yes, they can’t record the second deed until the first title company records theirs. This causes problems somtimes because the banks title companies SUCK and sometimes take forever to record their deed..
Yes, you are correct, this will only work with cash or hard money deals..
Steph
Stephani Davis´s last blog ..Simultaneous Closings and REOs- Saturday Night Reader Mail
I thought you tell the listing agent to have the closing docs emailed to you and have your title company do a courtesy closing for them and close your deal. So wouldnt your title company be doing the 1st and second deed?
I found a company that ONLY closes on shortsales and REO’s with investors and end buyers. The guy said you have to let the lender know whats going on otherwise it becomes fruad. Now i think that may just be with shortsales. He sent me a document from Freddie Mac or Fannie Mae about it. I thought it would make it harder to do the deal but he says no. any ideas? He’s out of state from me but they close nation wide
The title company handling the courtesy close is only getting the docs signed for the A-B sale. Once those are executed, they FedEx them back to the bank’s title co, and the bank’s title co is responsible for recording the deed for the A-B.
My title co won’t do a simul for a short sale, just for REO deals. My attorney’s explanation is that when doing a simul close for an REO, the bank is being represented by their own title co, therefore, my title co has no fiduciary responsibility to the bank and is not required to disclose the details of the transaction.
If you can’t find a title co who will do a simul close, you can always do a double instead and use transactional funding. Just make sure to account for the added fees when you make your offers.
Easy, Peasey, Japanesey.
Steph
Stephani Davis´s last blog ..Deals and Offers and Stuff