The Truth about Simultaneous Closings “Double Closings”

This question has come from several investors lately, all confused about the many definitions and opinions of how to perform a Simultaneous Closing. I have seen the term used recently by note buyers explaining the use in the sale of a note during a double closing. The term has been used for about two decades defining the process of consecutive closings in the purchase and resale of a property. Normally, the process has been used to buy and sell a property without having the necessary cash for an actual purchase. Example: John has contractual control of a property by means of option or purchase agreement for a particular price. John does not have the funds to purchase himself or simply would prefer not to use his money, but has a buyer who does, giving John the option to control the transaction and profit without ever outlaying any funds. 

Why would you want a simultaneous closing? The main purpose is control. Many times, new investors will try an “assignment of contract” as the method to profit from a home they would like to “flip” or wholesale. The problem with an assignment is that everyone, the original seller, the new buyer and anyone else involved is familiar with all profit, details and parties to the transaction prior to close. Some Hard Money Lenders will also set limits on your profits when revealed through assignments. You can try to keep as much as possible away from each party, but at some point either before closing or at the closing table, the parties will know how much you have profited. Should this matter? You would think not, but people are susceptible to emotion. I have witnessed avid investors and many homeowners, no matter how happy they were at the inception of the “original” agreement in terms and price, once finding out that you are profiting off the transaction, are now considering how much they are “losing”. You know you have value, you know they were fine with the original agreement, you know without your experience, work and network; they would have never spoken or come to an agreement in the first place.

Common sense doesn’t always apply. The buyer will many times look at their property being worth “more” than what they sold it to you for, thereby feeling “ripped off” by your smooth sales pitch, even when they couldn’t sell it on their own for the same price. The new buyer, many times will see your profit and believe they could have purchased the property at a better bargain and now challenge their worth and their profit in relation to yours. They may calculate how much you made for what they consider “no real work” and that their portion is now unfair.

I have seen opinions in forums, yet none address the legal aspects. They write about some state laws or uncooperative title or attorney firms, but there are federal laws as well. The main issue is whether the simultaneous closing is disclosed to the lender. This is why so many wholesalers require cash or Hard Money Loans. Very few conventional lenders will allow you to use the funds from their mortgage in the resale for your purchase transaction. If this is not revealed to the lender, it may be considered fraudulent. The transactions are closed in reverse. When the transaction is recorded at the courthouse, there will be no indication of which closing happened first as the closings are not “time stamped”.

For more information on this topic, email marc@direct2invest.com.

By: Marc Tesla

 *any statements are opinions and we recommend you verify with professionally licensed individuals if you have any questions.