How to do a double closing in a DRY state as a Wholesaler??

Question

Hello BP,

I'm a wholesaler in NC and have a deal that I want to do a double closing on without bringing any money to closing. I spoke to one attorney that said that's not possible in a Dry state but I know this happens all the time. Any advise would be great!

Ken

Duane Ortega · Answer

@Ken Adkins

I have not heard the distinction of wet or dry states.  However, the days where you can use the end-buyer's funds are long gone throughout most if not all states.

Regarding your goal to conceal your assignment fee from the end buyer since it may cause issues especially if it's large, there is a simple solution to this --- use transactional funding.

Transactional funding funds the first transaction (AB closing: A=seller, B=you, wholesaler) by lending you, the wholesaler, the funds to close with "your own" funds which you borrow from a transactional funder such as myself.  The second transaction (BC closing: B=you, wholesaler, C=end buyer) will be closed with the end-buyer's (C buyer) money.  The transactional funder gets paid from the payoff from the BC closing.

In this way, the C buyer doesn't get to see (at least not immediately) how much you are making if you were to assign the contract to them.

Don Konipol · Answer

When we of the "old school " talk about double closings, or back to back transactions (simultaneous closings), we are referencing the B purchased using the funds provided by the C purchaser, I.E. not having his own funds finance any aspect of the transactions.  Actually, I hadn't even thought about a transaction where B brought his own funds to the table.

Simultaneous closings are never unlawful; the legality aspect comes into play through either committing mortgage fraud to push through the transaction or non disclosure on the part of a party to the transaction or a service provider to the transaction.  Lots have changed in only 40 years!

Ted Akers · Answer

Hello @Ken Adkins,

The distinction between "wet" and "dry" funding generally applies to transactions involving a mortgage, so may not be a relevant distinction unless your end buyer is using a mortgage.  Dry funding generally means that funds do not transfer immediately at signing of the closing documents. Transactional funders are typically looking for your end buyer to be using cash for their purchase.  Is your end buyer a cash buyer or are they funding with a mortgage?

The easiest way to think about it is that title companies (or your closing attorney) want to see "separate" funds for both transactions.  As Don mentioned, the old days of "simultaneous" closings using your end buyers funds are generally gone (whether in a wet or dry state); because title wants to see two distinct transactions that are separately and independently funded.  I am a transactional funder that has funded in dry states.  If your end buyer is a cash buyer a "back-to-back" transactional funding can be accomplished with a slightly different time frame for when the recording and transfer of title takes place.  If your end buyer is using a mortgage that is a different issue, as most mortgage companies will require 90 days of "title seasoning".  Thus, you cannot transfer title to the end buyer until you have owned the property for 90 days.  If that is the case transactional funding can be used but is usually not a real viable option due to fees (they are high due to funding at or close to 100% of your purchase, rather than 65% for most hard money deals).

Ken Adkins · Answer

Thank you for all your feedback!! It was very helpful and yes a lot has changed. :)

Shari Peterson · Answer

@Don Konipol It has been my experience with double closings in Texas and California that all parties must be notified and approve of the immediate resale of a property recently purchased. However, those are the only two states where I have encountered this issue. Furthermore, the amount of profit between the A-B purchase and the B-C sale does not have to be disclosed. Some Title and Escrow Companies require that the profit is disclosed, but there are plenty that do not. Direct Message me if you would like to know of those that don't require disclosing the profit.

Title Companies and Closing Attorneys in other states are happy to do double closings without disclosure to all parties as long as the B Buyer brings their own funds to the closing and doesnt rely on the C Buyer's funds to "pass-through" escrow and be used to payoff the A Seller. Depending on laws of the state or county, as long as they record the title transfer in the proper order, it is all above-board and legal.

Don Konipol · Answer

Title companies won't allow double closings unless All parties are notified and approve, and this includes any lenders in the deal (ususally for the ultimate buyer).  Most title companies have a broader policy and refuse to allow any double closing in which the cash from the third party flows to the first transaction, realizing that in order to accomplish this the second transaction would have to close first, and this means closing a transaction in which the seller (you) does not own the property at the time of sale, I.E., you wouldn't own the property until your purchase occurred using the money from your sale.

We used to call this a SIMULTANEOUS close, but in actuality the two transactions can not be simultaneous.

Brent Coombs · Answer

@Ken Adkins, who uses the term "Dry states"?

As Duane mentioned, using your definition, your End-Buyer will not be allowed to pay the original Seller (because they are not the contracted Buyer), but YOU can fund it by using a "transactional" Lender. (It seems to me, that's the ONLY reason transactional Lenders exist - to help skirt the whole "illegal" unlicensed Wholesaler issue, and to hide those scandalous wholesale profits).

So now you know "THE secret"!

Ken Adkins · Answer

In Dry states I am hearing that you can't close as a wholesaler without the funds to close the first transaction. In other words the end buyer cannot use their funds to close both transactions. In a double close in Wet states that's possible but not in Dry states. In dry states you have to complete the closing with your own funds and then the second closing with the end buyer they will close with their funds. So, if you don't have the funds to purchase you can't complete the transaction unless you assign the original  contract where the owner and the end buyer has to sign off on how much you are making which causes issues if your profit is large.

Crystal Smith · Answer

What do you mean by a "Dry State"?

How to do a double closing in a DRY state as a Wholesaler??

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