Double-Closing Technicalities (i.e. my atty says my way is illegal!)

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Double-Closing Technicalities (i.e. my atty says my way is illegal!)

Karin Crompton
Rehabber · Niantic, CT · Member since 2012 · 443 posts · 150 votes

Hey all,

I'm having a bit of trouble sorting out how to complete a double closing here in CT. To attempt to summarize, my attorney tells me we can't fund the A-B with the B-C money. We are using a hard-money lender (HML) in this situation. I should add that the contract cannot be assigned, so the A-B does need to take place and can't be A-C.

I believe my attorney's primary issue is that we can't do B to C funding as a first step b/c we don't actually own anything at that point. Also, that that money can't be used for the A to B transaction b/c our lender has not agreed to loan to the wholesaler, only to loan to us.

We've done this a couple of times in the past in cash transactions where we brought the cash. It was clunky. Our attorney drafted a note saying we were making an unsecured loan to the wholesaler; we did A to B that way, and then the funds were immediately paid back when we did the B to C closing 10 minutes later.

This time we've got the hard-money lender. I haven't yet contacted them, but I imagine they've been in this situation before and am hopeful they will have an easy solution (probably at a price). After all, we have an agreement w/the wholesaler and the HML has agreed to fund us. All we need to do is smooth over the first part - the wholesaler buying from the seller - that has my attorney hung up.

I understand the laws vary by state, but is there something I'm missing? I swear I've heard other investors in CT talk about doing double closings all the time, though I've never gotten the nitty-gritty details. Maybe it's always this clunky.

Any suggestions?

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y

Your best bet for some transactional type of funding should be your HML. His money will already be there anyway. The wholesaler should have figured this out. Another point with transactional funding...make sure that "B" has no judgment outstanding. If he does, they attach to that property during the 10 minutes he owns it.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    @Karin Crompton - this is pretty common.  You need to look into transactional funding and close on AB with it then sell it BC as a separate closing 

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    12y

    @Karin Crompton If you are in need of an attorney that understands and can execute double closings here is CT let me know. I know one that can be an asset for you.

    1Reply
  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    12y

    Transactional funding does accomplish what your attorney is looking for, which is separate funds to close each transaction. Make sure your attorney understands that transactional funders will require the hard money lenders funds to be in possession of the closing attorney along with their loan documents executed by you and them before authorizing release of funds on the A-B initial leg purchase. That B-C leg does not legally close until your purchase is recorded, but for transactional funders the HML funds and documents do need to be in escrow ready to close right behind your purchase.

    1Reply
  • Karin Crompton
    OP
    Rehabber · Niantic, CT · Member since 2012 · 443 posts · 150 votes
    12y

    Thanks, all. I figured I'd be scrambling for the transactional funding, w/the hopes that the HML might add it into the mix.

    Thank you also, @Michael Noto - I will message you. It might be too late for this transaction, but I know this situation will come up again.

    @Ted Akers what kind of lead time would a transactional lender need?

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    Your best bet for some transactional type of funding should be your HML. His money will already be there anyway. The wholesaler should have figured this out. Another point with transactional funding...make sure that "B" has no judgment outstanding. If he does, they attach to that property during the 10 minutes he owns it.

    2Reply
  • Karin Crompton
    OP
    Rehabber · Niantic, CT · Member since 2012 · 443 posts · 150 votes
    12y

    Thanks, @Wayne Brooks - I was hoping my hunch was correct re: the HML, that "his money will already be there anyway." And I'll double check, but I don't believe there are any judgments outstanding on the wholesaler (and long story short, he's not a professional wholesaler so he wouldn't have figured it out; I use the term 'wholesaler' loosely, as he's basically a guy who had an in to some great deals and we've been the ones to do all of the maneuvering here).

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    12y

    Hi @Karin Crompton

    The time frame is fairly short for same-day deals, 2-4 days is usually workable depending on availability of the closing attorney for us to interact with him. Regarding the HML, I think using his funds for the initial purchase is the scenario your attorney is not comfortable with.

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  • Mary Krumbein
    Hard Money Lender · Richmond, VA · Member since 2014 · 2 posts · 0 votes
    12y

    If your private hard money lender is comfortable with this- a deed of assumption can be done. Not all lenders allow for this & I'm not sure how it works in CT. I have seen it done in VA.

    A deed of assumption says that you assume the deed, note and deed for trust from the original buyer. The closing from A to B is done with the hard money loan and then the you (C) assume the deed, note, and deed of trust from B. You will be responsible for all debt on the property after the deed of assumption is executed.

    Double close is a legally grey area- it depends on the lender, closing agent, & if there is an assignment fee. Hefty assignment fees and mark-ups are often forbidden by the seller if it is a foreclosure/ REO. Small assignment fees can be ok- but it varies deal by deal.

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    Use transactional funding and forget about all the Guru talk about using the end buyer's money to close the A to B transaction.


    Joe Gore

    1Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    @Karin Crompton Are you the buyer on this deal? And your seller can't use your funds to close with his seller (per your closing attorney)? If you have both contracts in escrow and ready to close, your seller should have no trouble obtaining transactional funding, possibly from your HML. The HML can fund escrow A, thereby cashing out the seller. And then you can close Escrow B, where your wholesaler gets paid and your HML executes his loan to you.

    If title is clean and both escrows are ready to go, it's a great deal for your HML.

    1Reply
  • Karin Crompton
    OP
    Rehabber · Niantic, CT · Member since 2012 · 443 posts · 150 votes
    12y

    @Account Closed - yes, that about sums it up. We are the buyer, but the seller needs to close his part before selling to us, and our attorney says we can't use our HML funds to close his transaction w/his seller. (I imagine we could if the HML agreed to it, we just haven't gotten to that step yet.)

    We have almost everything in place - Purchase and Sale agreements for each of us (AB and then BC) and our HML has approved us. Just this slight snag with the AB portion. And as I mentioned, this guy isn't a "professional" wholesaler, just someone who had an in to a great deal. We're paying the standard closing costs, etc; I imagine we'd pay the transactional funding fees as well, just hoping the lender doesn't whack us for 10 minutes of their time!

    My business partner is calling our lender today and I passed along your comment to her. It seems pretty doable to me, hope everyone else involved agrees. Thanks!

    0Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    12y

    Your A buyer definitely needs transactional funding but the question is whether your lender is on board. Most traditional lenders will not be C lenders on a transactional deal, but a hard money lender might. He might be comfortable depending on the LTV.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Karin Crompton:

    @Account Closed  - yes, that about sums it up. We are the buyer, but the seller needs to close his part before selling to us, and our attorney says we can't use our HML funds to close his transaction w/his seller. (I imagine we could if the HML agreed to it, we just haven't gotten to that step yet.)

    We have almost everything in place - Purchase and Sale agreements for each of us (AB and then BC) and our HML has approved us. Just this slight snag with the AB portion. And as I mentioned, this guy isn't a "professional" wholesaler, just someone who had an in to a great deal. We're paying the standard closing costs, etc; I imagine we'd pay the transactional funding fees as well, just hoping the lender doesn't whack us for 10 minutes of their time!

    My business partner is calling our lender today and I passed along your comment to her. It seems pretty doable to me, hope everyone else involved agrees. Thanks!

    Unless I'm missing something (and I might be!) this is an opportunity for your HML to charge double fees and earn points for showing up with funds. Negotiate the best deal you can with the lender on the A closing. He really will have to bring both escrow amounts to closing. I know it's only ten minutes (and pretty risk free), but you and your wholesaler are going to pay points because no one appears capitalized. Do you have any friends or family that could forward the funds for a "day use" fee? :) Seriously. Anyone in your circle that has funds they can access just for a day and make a few points? If not, get the HML to do it and negotiate an equitable agreement with the wholesaler. Remember, technically he is the one with the funding problem, not you. He should be prepared to pay for it. But of course you want the deal, so work something out where the HML transactional fees are absorbed by both of you. Keep us posted!

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  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    @Account Closed is right. Talk to your HML about the possibility of making money twice (but the wholesaler pays for the transactional funding fees of it- obviously).

    Here's another way to do it (now, I am not an attorney and I have not done a deal in CT yet so consult your attorney):

    1) Can you add your name as a buyer together with the wholesaler? So instead of A - B then B to C...it becomes A -BC.

    2) If #1 is feasible (meaning you can add your name to the purchase contract of B), then do a quit claim deed from B to C.

    2Reply
  • Account Closed
    South Bend, IN · Member since 2014 · 318 posts · 156 votes
    12y

    @Wendell De Guzman You sound like the mad creative genius real estate scientist with the A-BC deal! I love it. Have you pulled off any deals with that structure anywhere?

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Wendell De Guzman:

    @Account Closed is right. Talk to your HML about the possibility of making money twice (but the wholesaler pays for the transactional funding fees of it- obviously).

    Here's another way to do it (now, I am not an attorney and I have not done a deal in CT yet so consult your attorney):

    1) Can you add your name as a buyer together with the wholesaler? So instead of A - B then B to C...it becomes A -BC.

    2) If #1 is feasible (meaning you can add your name to the purchase contract of B), then do a quit claim deed from B to C.

    I've not done this but know people here in CA who have done it often. But usually with cash buyers. Karin's hml lender might not be willing to fund the loan if there is someone on the deed who isn't the borrower. However, since it's an HML they might be open to it. At least there is a possibility they would understand what was being proposed and why.

    We haven't asked @Karin Crompton but what about an assignment?  Can your buyer assign the contract and you give them $5K cash?

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    Karin stated in her original post, the contract can't be assigned, hence the double close dance. I assume this would also preclude the "adding of a partner" to the contract, as with most REO's.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Wayne Brooks:

    Karin stated in her original post, the contract can't be assigned, hence the double close dance. I assume this would also preclude the "adding of a partner" to the contract, as with most REO's.

    I missed the part about it being an REO. So the deal probably needs two closings with two sets of funds.

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    I can;t help but I'm just glad I am not in CT. In Tennessee this is not an issue :-)

    0Reply
  • Karin Crompton
    OP
    Rehabber · Niantic, CT · Member since 2012 · 443 posts · 150 votes
    12y

    Thanks again, everyone. We are pretty much stuck with the AB then BC arrangement; the contract can't be assigned and we can't add a name to it. But I appreciate all of the creative thinking here!

    We put in a request with our HML to do the transactional funding and hope to hear what they have to say today, and are pursuing other avenues as well. It still seems to me that it's a pretty standard move, with contracts in place ... but we'll see what all of the other moving parts say!

    0Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    Why don't you pay the transactional funding out of your pocket and closed the deal?


    Joe Gore

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  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    @Account Closed and others are correct - the only solution now is TRANSACTIONAL funding.

    1Reply
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