IS SIMULTANEOUS CLOSINGS STILL LEGAL?? especially in NJ??

Question

Hi,

I've heard a lot about simultaneous closings to be illegal nowadays, is it true?? How about in NJ? Simultaneous closing, I mean, using C's money to fund AB transactions.  Transactions are done ALL CASH.  Would there be a problem?

This is pertaining to REOs only, not short sales.

Thanks in advance!

Bill Gulley · Answer

Hi, no, it's not illegal. It's a title concern, ALTA is the main culprit in connection with conventional lending requirements (in notices required by the settlement agent) that a buyer must be able to close the A on their on merit before selling in the B transaction. That is the settlement agent's view in a cash transaction, as explained by American Title.

If you can't close the A transaction then basically you are selling property before you can take good title, you are conveying a warranty deed prior to paying the consideration stipulated in your purchase contract and selling property that is not yours.

To circumvent this issue, you can do a seller financed transaction for the A transaction and technically you can close with the title companies and then payoff your note with the proceeds from your sale in the B transaction.

Doing this, you'll need to explain to you A seller that your funding can not be available until immediately after the transaction is closed, then within minutes the note will be paid off.

There is no difference to the seller in doing this as far as taxes are concerned, if there was a question.

Account Closed · Answer

Hi Thomas. Where in NJ are you? I'm in northern NJ and my investor group uses Metropolitan Title & Abstract in Rutherford. Real estate attorney we use are Christopher Goodson in Montclair and Peter Caplan in Verona. Google these names for their contact info. Good luck!

Colin Bochicchio · Answer

JThomas,

On REO property once you do obtain the property from the bank via your cash offer you can either vest title to an LLC  then sell shares in the LLC or sell the the LLC outright.  IMO a better way is to setup a  land trust  and sell your % of beneficial interest to your buyer when he comes in with his monies at close of escrow and that echoes what JScott mentioned and I agree wholeheartedly.

You would however as stated verify your title/escrow company is  LT friendly and basically that is a corporate trustee or whichever trustee you use is selling the property to a designated beneficiary ( buyer) via directions from the trust's beneficiaries that simple and the escrow agent would follow that direction as well.

I believe each transaction is different depending on what your escrow/tile company will allow so I would "pre-flight" the transaction to see what objections that may have.
Just make sure you have an arm's length transaction.

Mr Finance Examiner: Excellent reply on your posting on this.

Good luck. . :roll:

Thomas K · Answer

Thank you for everyone's help!  I understand it better now.

Colin, I will definitely give you a call soon.

Ryan, lolz, thanks for your thorough answer...lolz, not long-winded at all :)

Duane Ortega · Answer

ThomasK,

I am a transactional funder from NJ and can give you several attorneys/title companies with whom we've worked.  Please email our contact info below.

Best,
Duane.

Ryan Webber · Answer

Holy cow I get long winded when I haven't been on here for awhile.   :wowie:

Ryan Webber · Answer

First off, I would guess that ALTA's influence is different in different parts of the country, but in my part of the country, nobody cares about ALTA.  ALTA is a trade organization that most title companies are not a part of.

Secondly, as far as I could find, ALTA does not specify that you can not do a double/simultaneous closing.

In their Uniform General Closing Instructions, they do reference a simultaneous closing situation in Paragraphs J.1.a.i and K.4.a.i as a "double escrow, double closing, flip sale, pass through, or equity skimming" transaction, and they only stipulate that you can not move forward without  full disclosure of the situation to and authorization from the buyer's lender.

In a wholesaling situation that would most likely be a hard money lender or a commercial lender, and neither one of them will care.  And it would seem to not apply to a cash transaction.

It also states that an exception to this rule of disclosure is in transactions with single family residences where the seller is a federal government organization, which would mean HUD and Fannie Mae REO's.

Now Paragraph G.7 reads:

You could interpret the initial part of that paragraph to apply to a simultaneous closing, but I think you could strongly argue that a simultaneous closing could be a  type of "trade equity" as specified in the latter part of that paragraph, and then Lender authorization would be the only requirement.

There is really no reason the title agent should care if the buyer's lender is fully aware of the situation and okay with it.

Here is the link to ALTA's guidelines if you would like to read it yourself:

http://www.alta.org/images/PDF/09-05-15_UniformGeneralClosing.pdf

Bill, if your title agent referenced ALTA as why they wouldn't do a simultaneous closing for you, I think you should find another agent.

Wait a minute.  I think I remember having a very similar conversation with you way back.  If I remember correctly I think we finally came to the conclusion that you had never wholesaled a property, so it was probably best for you to not be telling people what they should or shouldn't be doing in an area that you have no experience with.

Or maybe that was just my conclusion.  :D

Title insurance is not normally issued until the title company can verify that all deeds and mortgage documents were properly filed.  Usually they verify this by filing the documents themselves.  Yes, this type of transaction is atypical for many title companies, but it does not inherently pose any increased risk to the title company.  They still control all the components (the deeds) that would pose any risk to their title insurance.

This seems to me to be an issue of fear and not fact.  Just as many realtors will quickly tell you that wholesaling is illegal.  Just as some title agents will still tell me that I can't do double or simultaneous closings, even after I've done 100 of them.  Its fear, not facts.

Focus on finding an investor friendly title agent and you shouldn't have any problems.  That's really the bottom line.

Colin Bochicchio · Answer

ThomasK,
As to your question depending on the the Land Trust legal  structuring will determine the protections. In the land trust I utilize we use Kenoe on Land Trusts a 1989 ILLINOIS ruling so there is a degree of asset protection.
This deals with the non-partitioning of beneficial interest since it is personal property not real property so the worse that could happen is a creditor charging order or judgment could take that one beneficiary's interest but can not pierce the trust to liquidate the asset. You can look up the ruling for more information.

If you are using a LT for a such a short hold what liability is there really..??  I would and no legal advice intended is to use the LT and hold your % of beneficial interest in your LLC and that provides very good degree of asset protection and no legal advice just my take on things.

Thomas K, an assignment of beneficial interest is first off a silent assignment and  is a simple document  in the trust to execute, so once again what liability are your referring to.??
As long as your land trust is setup properly you should be fine.
 If you buy the REO property  then you being on title are referred to as the grantor/settlor beneficiary and you assign beneficial interest to whoever you wish.
Just so you are aware the LLC protects the LLC members from liability in attacking them personally and the Land Trust protects the corpus ( real property) so they go together like bread and butter.
Last point is anonymity and privacy and that is what LT is really known for.
The LT is good since it can be used on a per property basis and gives you many exit strategies.
Selecting the right trustee is critical to your trust being legal and correct. That is why I believe using a corporate trustee is the best way to do it especially for longer holds on property.

The attorney we use to legally review these land trusts up that is all they do and do it on a national level so they review all 50 states state law as it relates to LT legislation to be in compliance. The reason why I use the Equity Holding Trust is it has never been pierced legally in 25 yrs of existence so to me that is impressive.

If you have any further questions feel free to call me or email me.
There are 30 actual benefits to using them so hit me up and I will shoot you the document to review.. :cool:

Jimmy C. · Answer

The bank is not going to accept a note at closing.  But I think you know that, so it must have just been a loaded question.

I dont know why some title companies will and some wont.  I always assumed they have different title insurance companies that they write through.

Even if you have trouble finding a title company to allow the simul close, you can just use transactional funding and make your closing on the A to B go through with a wire from your one day loan.  It really doesent cost much, and pretty much anyone should be able to handle both closings for you.

Just as if you were doing a simul close, you will want to request a courtesy closing on the A to B at your title company.

Good Luck!

Thomas K · Answer

Thanks J Scott, I understand it better now.

Thanks Colin for your input as well.  I know that we can wholesale reos via LLC and/or land trust.  Just a quick questions, Land trust doesn't have liability protection, right?  How are you dealing with this issue?  Because my concern is that in case something goes wrong right before I assign the beneficial interest over to my end buyer, what entity is going to protect me?

To FinancialExaminer, what did you mean when you say "To circumvent this issue, you can do a seller financed transaction for the A transaction and technically you can close with the title companies and then payoff your note with the proceeds from your sale in the B transaction.

Doing this, you'll need to explain to you A seller that your funding can not be available until immediately after the transaction is closed, then within minutes the note will be paid off."

Did you mean that we don't pay party A (the bank) at the closing table, but instead, disclose to them that we will be sending the money in later in the day??  Can we still get title insurance for the end buyer if we do it this way?

Thank you all again!

IS SIMULTANEOUS CLOSINGS STILL LEGAL?? especially in NJ??

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