Short Sale Double Closing in Todays Market
Real Estate Consultant · New York, NY · Member since 2008 · 10 posts · 1 vote
Hi Everyone,
I wanted to post a new thread about how to do these deals given current market conditions.
We have a cooperating seller who would be willing to just give us the deed in liu of foreclosure however we haven't filed due to the short sale.
We have a buyer for the property. Standard financing, non fha. (However for others please note any FHA Differences, I've read they have removed their seasoning requirements for 1 year?)
We have a good price on the short sale negotiated with the bank
What is the best way to set up a double closing so that we can retain the proceeds.
I've read about Land Trusts and Option Contracts and the pros and cons however I know the lending landscape is changing.
Is anyone using one of those double closing funding companies.
Right now two title companies have refused to to double closings. The bank we are short selling wants to see the hud and they obviously don't want to see anyone making a profit on the hud.
I know this thread has been discussed some in the past however with the ever changing market I'd appreciate a new update.
Thanks,
Have to agree with Will: Lenders are really opposed to investors making money at their expense. And it is much better to use your own funds.
Double Closings are viewed as as sneaky at best and illegal in some cases.
If your using your own funds, then all that is required is the HUD-1 to reflect the fully funded A to B transaction. The subsequent transaction B to C is an entirely different close and is not required to be disclosed (some title company opinions may vary here). A problem in this scenario might be with the B to C transaction where the buyer's lender may question this transaction since full disclosure will reveal the A to B transaction. In my experience, the underwriter may take a closer look or will scrutinize the preceding transaction . As long as the title company will insure, usually this can be overcome with a quick explanation of the A to B transcation. Usually the larger the margin between the AtoB and BtoC transactions, the greater the chance for scutiny.
Using flash funding or your own funds to close is really called back to back closing as they are really two seperate closings. In trying to effect an actual double closing, your trying to use the end-buyers funding so you do not have to come to the table with any of your money. This is also known as simultaneous closing.
The reason many title companies do not allow this, (check your state laws) is because many states have passed laws that require full disclosure of the transactions. This means that Seller's lender must be informed of this fact. The title company will be required to provide a HUD1 both prior and after the sale. Some lenders they will issue an approval letter with the stipulation that you must close with your own funds, or even that you must be on title for a minimum amount of time.
This approval letter usually will effectively negate any possibility of a double closing. I hear people are still doing double closings and but I have not been so fortunate.
Personally, I lack the capital to close most deals because of various reasons and I use private monies from local investors. I cost me 12% / year plus one point with a minimum of 3%. It is a bit expensive, but I can have access to funds usually within 2 business days and can float for 29 days without having to pay additional fees. This way, I do not have the troublesome double closes to deal with. I can also effect repairs if I need to and can also give the end-buyer extra time if needed.
If there is enough margin in your deals, I would recommend going in this direction. Check your local REIA to see if there is any private money doing this type of lending
If you have a qualified buyer (non FHA) and you have a good enough spread between your buy price and the sell price, why not just close with cash, then immediately re-sell? Save all the drama and headaches of the double close.
Will,
I assume your talking about Hard $. In your experience, do Hard $ lenders give short term loans like that? The guys in my area want minimum 1 year and 5 pts up front, 14% interest.
I like your thinking on the transaction, it would definitely simplify the process.
Jeff
Have to agree with Will: Lenders are really opposed to investors making money at their expense. And it is much better to use your own funds.
Double Closings are viewed as as sneaky at best and illegal in some cases.
If your using your own funds, then all that is required is the HUD-1 to reflect the fully funded A to B transaction. The subsequent transaction B to C is an entirely different close and is not required to be disclosed (some title company opinions may vary here). A problem in this scenario might be with the B to C transaction where the buyer's lender may question this transaction since full disclosure will reveal the A to B transaction. In my experience, the underwriter may take a closer look or will scrutinize the preceding transaction . As long as the title company will insure, usually this can be overcome with a quick explanation of the A to B transcation. Usually the larger the margin between the AtoB and BtoC transactions, the greater the chance for scutiny.
Using flash funding or your own funds to close is really called back to back closing as they are really two seperate closings. In trying to effect an actual double closing, your trying to use the end-buyers funding so you do not have to come to the table with any of your money. This is also known as simultaneous closing.
The reason many title companies do not allow this, (check your state laws) is because many states have passed laws that require full disclosure of the transactions. This means that Seller's lender must be informed of this fact. The title company will be required to provide a HUD1 both prior and after the sale. Some lenders they will issue an approval letter with the stipulation that you must close with your own funds, or even that you must be on title for a minimum amount of time.
This approval letter usually will effectively negate any possibility of a double closing. I hear people are still doing double closings and but I have not been so fortunate.
Personally, I lack the capital to close most deals because of various reasons and I use private monies from local investors. I cost me 12% / year plus one point with a minimum of 3%. It is a bit expensive, but I can have access to funds usually within 2 business days and can float for 29 days without having to pay additional fees. This way, I do not have the troublesome double closes to deal with. I can also effect repairs if I need to and can also give the end-buyer extra time if needed.
If there is enough margin in your deals, I would recommend going in this direction. Check your local REIA to see if there is any private money doing this type of lending
No, I am not referring to hard money, but your own cash. That is what I do. I also use private funds as well, but I almost always put some of my own funds in there so I have "skin in the game" which makes my private lenders much more "warm and fuzzy" as well as keep the LTV so low, they would want to foreclose rather than only get principle and interest!
All that said, you should be contracting deals good enough to have the worst case scenario which is using hard money. I get hard money at 12.5% and 3 points. You should in deed have enough room in your deal to cover that and have enough profit left over to make it worth your efforts. While the terms are usually 6 months-12 months, you should have NO Pre-Payment penalties and thus, your only real costs other than a few weeks max of interest is the points, appraisal, and closing costs.
If your deals do not have room for this, you need to go back and get better deals. Find private lenders! They are your best avenue, or equity split partners who bring the cash and take 50% of the profits. 50% of something is surely better than 100% of nothing!
Jeff-
That is crazy expensive!! I would look into private money. Some mortgage brokers that specialize in creative financing can give you better terms since their costs are lower. I found private money source through my REIA. At first I had to bring in 20%, but after one transaction, they were happy to make 3% after one or two weeks. Now, they fund 100% of the purchase price @ 3% up to 29 days.
Thanks for the replies guys. Sorry...not trying to hijack this post, I just thought others may have similar questions.
Scott, I thought that guy was crazy with those terms. I heard of a guy in my area that was giving a construction loan to some builders for 6%, not sure how many points but I am in the process of getting his contact info. Too many deals out there to not have a good private $ source.
Again, thanks for the feedback. It's always good to get someone else's perspective on things.
Jeff