How do I protect myself in a duel escrow?

Question

I'm under contract on a pair of 4-plex buildings in Florida with a wholesaler. The wholesaler has the buildings under contract with the current owner, and wants to close using a duel escrow. What do I need to do to project myself in such a closing? What are the risks to me (fraud, etc) that I should look out for? I'm extra concerned here b/c my deal is all cash for a good chunk of money - I don't want to sent out a big wire and then realize I've been defrauded.

Pratik P. · Answer

I've done double closes before. What you're describing seems to be a "wet" double close where the A-B transaction is being funded by the wholesaler and you are funding your own B-C transaction. There isn't really any risk as long as you're using a reputable title company and getting wiring instructions directly from them. What essentially will happen is the first transaction will close and then immediately yours. So the wholesaler will own the property for a very short period of time. If for whatever reason the A-B transaction does not happen, then your transaction will not happen either so your funds won't go anywhere.

Clint Votruba · Answer

Ryan D.

In may opinion, there are lots of risk in your situation based on the information you have given.

I admit I don't know much about "dual escrows" or "double closings" but as a buyer, your main goal is that you deal with a reputable title company who will give you written documentation and information about the entire transaction.

You stated: "The wholesaler has the buildings under contract with the current owner, …"  How do you know that? Do you know that because the wholesale "told" you?  Do you even know the actual name of the current owner?

You stated: "Maybe I'm using the wrong terminology, but the wholesaler plans to purchase the property with their own funds, and then immediately sell it to me."  I doubt it.  I doubt the wholesale will come in with any funds but simply collect the difference between the amount of the property he agreed to pay the seller/owner and the amount he agreed to sell to you.  I'm not saying that is illegal/wrong as long as the title company is aware of it and fully discloses everything to you.

IF you are obtaining title insurance, the title commitment will tell who the name of the person "in title".  If you are calling about wiring instructions and you haven't seen a title commitment yet, you are in TROUBLE.  Get a copy of the title commitment NOW and start to review it.

When you receive the title commitment, make sure that your name is in the section called "proposed insurance"

Assuming "John Smith" holds title to the properties AND assuming the wholesale is "Ted Johnson", you won't want to wire your funds to the title company unless and until the title company receives a deed from John Smith AND YOU are the Grantee.

You stated: "We also spoke with the title/escrow company, got partial wiring instructions via secure email, and then the remaining part of the instructions verbally over a phone call."   Are you familiar with this title company?  Who chose this title company, the original owner or the wholesaler?  Is the title company located near you or out of state? IF IF the title company is out of state and you are not familiar with it, DON'T CLOSE PERIOD.

Personally, I would not close / would not send any wires to a "title company" unless it was Chicago Title, First American Title or a major well known title company with a local office I could visit.

Finally, are you really going to make a huge investment like this and not hire a reputable real estate attorney?  What's does an attorney cost in California $ 500 $ 1,000?   On a huge investment, that's a small price to pay for your piece of mind and good representation.

Good luck.

Shomari Daughtry · Answer

This is great information! I'm investing in my first single fam unit and I am looking to avoid those types of issues as well!!! Thanks for asking!

Ryan D. · Answer

@Wayne Brooks - maybe I'm using the wrong terminology, but the wholesaler plans to purchase the property with their own funds, and then immediately sell it to me.

Yes, we will get title insurance. We also spoke with the title/escrow company, got partial wiring instructions via secure email, and then the remaining part of the instructions verbally over a phone call.

I guess my main concern is protecting myself against any fraudulent deal (i.e the wholesaler never actually had the rights to the property, etc).

Shannon Wright · Answer

Following....Wayne's questions are what I would also ask. :)

Wayne Brooks · Answer

Do you mean a “double closing” or do you mean “blind/split closing statements” , old HUD1)?

Is the wholesaler/title company planning on using your funds for the wholesaler to fund the first closing?

Are you getting title insurance?

As with Any closing, call the title company direct and get Verbal wiring instructions...hacked emails giving you false wiring instructions is becoming more common.