Wholesaler wants to me to close first?

Buying & Selling Real Estate
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Wholesaler wants to me to close first?

Chris Sullens
Oklahoma City, OK · Member since 2017 · 47 posts · 21 votes

I'm in the final stages of buying my first investment property here in Oklahoma City, where I live. I'm buying from a wholesaler, who has been very unreliable. I thought the deal was going to fall through several times. We are scheduled to close next week, and all along she led us to believe that she would close on the same day as us at the title company of her choice, and then we would close later that same day at our title company (turns out its the same company, just a different office). Now she says she needs us to close first so that she has the money she needs to close the other deal. This seems a little backwards to me, but okay, fine. Should I insist that she close at my same title office at the same time as me though? I feel like I might be a sucker if I give her all that money and let her walk away without any real guarantee that she is going to close her end of the deal. I suspect my bank my have a problem with that too. Am I being paranoid? 

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Jeff Filali
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y

@Chris Sullens you cannot CLOSE FIRST & give her money its impossible to do that. She must be very new to this.  She doesn't own it.  She's probably worried about you or the sellers finding out how much she's making, and probably doesn't have the funds to close, which is technically illegal in Oklahoma.  But if its a good deal for you, you can make the deal work.

Its a simple wholesale deal really.  You will need a title co that knows what they're doing though.  You need to do a "simultaneous close" with A-B, B-C, and C's funds are funding the entire transaction. A: Owner, B: Wholesaler, C: YOU (Buyer).  The wholesaler only ever owns it on paper for a matter of minutes.

You will all close with the same title and escrow agent.  All three parties will sign, there will be two sets of closing docs. 

Set 1: From SELLER (A) to WHOESALER (B)

Set 2: From WHOLESALER (B) to BUYER (C)

You'll pay your money to the Title/Escrow company.

The wholesaler will sign both sets 1st one transferring from A-B and 2nd one transferring from B-C.  Example: First set is for $50,000 plus closing cost, second set is for $55,000 plus closing cost.  You'll pay $55K + Closing Costs (minus any prorated taxes), Seller will receive $50K - any prorated taxes; Wholesaler will receive the $5K difference.

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  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 905 votes
    9y
    Chris Sullens as others mention this is referred to as double close and typically needs the wholesaler to fund the first part with transactional funding which costs them about 2% If you want to push back on them you can use this as your bargaining chip. Not sure how the bank or state laws will view this. You could always agree to some fee with the wholesaler, but as a consultant post the purchase and pay them that way. Check with your attorney first.
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  • Saad Khan
    Wholesaler · Corona, CA · Member since 2017 · 37 posts · 28 votes
    9y
    Chris Sullens Yes if you can get the wholesaler to do a vesting change or assign it to you it may work. Most banks have controls/indicators that throw up red flags. This will trigger a red flag for them. Keep me posted on the deal I would love to hear how you resolve this. Protect your downside and move forward. This is all a non stop, on going, never ending learning experience. That is why I love real estate. Good luck and I look forward to hearing from you on how it plays out!
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  • Erica Bird
    Title Representative · Norman, OK · Member since 2016 · 35 posts · 24 votes
    9y

    The bank may not have an issue with wholesaler not being in title since you are going through a title company issuing them insurance and likely a CPL (Closing Protection Letter) so they are on the hook for making sure the bank's mortgage is filed as a condition of funding the loan proceeds.  You can't file a mortgage until the deed is filed because only a property owner has the right to mortgage a property.  As long as your title company holds the funds until the deed is delivered, it should not matter if it's at the same office or same time, it could be a few hours later, but really needs to be the same day for purposes of filing your lender's mortgage the same day the lender's money is given out (and your money for that matter).  Just make sure you feel comfortable with your title agent's ability to handle this, call and talk to them and talk with them directly.  If the wholesaler has a different escrow agent from the one you're working with ask to talk to that person too.

    You can ask for an additional document called an "Escrow Agreement" that would be signed by yourself, the wholesaler, and the title agent saying funds will be held in escrow and will not be disbursed until deed is executed and delivered for recording and if for any reason the deed is not signed and delivered on ___ date, then your funds, the lender's funds, and all of your executed closing documents are to be returned immediately.  Definitely don't give a check directly to the wholesaler without a deed and be suspicious of any title agent saying this is ok to do.  PM me if you need any other help in how to approach the closing/escrow/title side of this.

    Be very suspicious if the wholesaler is now doing their part of the closing with the seller outside of the title company.  There should not be any justifiable reason for this which could not be overcome.

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  • Chris Sullens
    OP
    Oklahoma City, OK · Member since 2017 · 47 posts · 21 votes
    9y

    I know some of you were interested to know how this turned out. I am a little surprised, but we were able to close today without a problem. We did a simultaneous closing and voila, I'm the proud new owner of my first real estate investment. Now I just have to navigate through the process of quickly getting it rehabbed in time for students starting in the fall. 

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