Double Closings and City Inspections

William R. · 2012-11-07T22:35:11-08:00

So I happened to get a non-assignable property under contract for 42k that needs 18k worth of work that can be turned in 90 days for 120k with solid comps in a desirable area. Super duper excited right... Problem is the City wants to do an inspection (things gurus leave out of their courses), and they are not going to give me two set of stamps for the A-B,B-C,(City workers words was that's a flip) which pretty much forces me to have to have to buy the property in an entity. Question: If an city requires a physical inspection of the property before they will stamp the deed, does that mean that double closings are impossible and I should only contract these properties with an entity? Also when forming the entity, can I get away with wholesaling the property in a C-Corp instead of an LLC, considering the cost is $281.25 vs $600.00, or am I setting my self up for failure, because there is a major disadvantage in using a C-Corp instead of a LLC in wholesaling to Rehabbers... Thanks for reading

Steve Babiak

Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes

13y

When the city does their inspections, they will identify anything needing repairs before it passes the inspection. So the question I would have is do they expect the fix-up to happen BEFORE you can re-sell? Or do they just want to get paid twice for inspections because there are two closings, and both of those closings can happen without first getting the repairs needed to pass inspections?

As to entities, the LLC can elect to be taxed in a number of ways, and I believe that C-corp taxation is one of the choices allowed.

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William R.

OP

Contractor · Chicago, IL · Member since 2008 · 56 posts · 8 votes

13y

Thanks for your response Steve, one of the particular cities I have a property under contract with said that I will not be able to make the repairs until I take legal possession, and then they will not issue another transfer until the work is completed, and gave me the disgraceful stare as I proceeded to try reword her definition of a flip in a much nicer way, lol

I would of gladly paid them twice :-/

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J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

13y

I'm confused. Is the city saying that they won't allow you to resell a property (transfer title) until certain work is done???

That seems to be something that would be out of their jurisdiction...

Of course, I'm not an attorney, and I guess I've heard stranger things...

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William R.

OP

Contractor · Chicago, IL · Member since 2008 · 56 posts · 8 votes

13y

To my understanding, Calumet City, South Suburb in Chicago area, requires a stamp for me to transfer an insurable title.

(I was quite surprised that several suburbs in this area require this as well)

Calumet City requires an inspection for each stamp they are going to do. So when I buy the property from the bank, I have to sign the paperwork that I intend on doing x amount of work. When I told the lady that I was going to do an A-B for 42k and B-C for 52k, she shouted THATS A FLIP, and they will not stamp my second deed for a higher price without any work being done....

I wanted to throw my shoe at her, but it wouldn't make it past the protective glass....

Do you have to deal with those issues in GA, J Scott?

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Simon Campbell

Miami, FL · Member since 2012 · 612 posts · 189 votes

13y

It looks like you are not the only one with this complaint. I found a records of a legal case Mann v. Calumet City (http://il.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20090217_0000172.NIL.htm/qx) whereby they stated that the inspection requirements and time frame are too long and thus restrict the owner's rights to sell the property. The court's decision, in favor of the city unfortunately, can be found under Section 1d(3).

Though I am not an attorney, it appears as if the city has found a way to limit property flips and wholesalers.

You may want to consult a real estate attorney to see if there is anyway around this requirement or you could simply switch hats for this deal and become the investor (1 transaction) rather than the wholesaler (double close).

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Mike SumskyPro Member

Rental Property Investor · Bremerton, WA · Member since 2012 · 116 posts · 61 votes

13y

Two ways this might work: Buy the property in an LLC, then just sell ownership in the LLC for your fee (I think you alluded to this in your post). Or, have your wholesale buyer fund your purchase, give them a note and mortgage, as well as a signed deed that can be held in escrow until the work is finished (for their security). When work is done, you can proceed to the 2nd closing. Just thinking out loud here.

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Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

13y

Was that finding in circuit court, move up the ladder on several fronts, limitation of commerce, owner's rights, lack of any public good other than an occupancy permit. You all need to be fighting that as buying and selling is legal, the city needs an education. Try some honey first.

In the mean time, use options and you'll only have one closing. Leases provide possession. There are always legal ways to skin that cat!

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William R.

OP

Contractor · Chicago, IL · Member since 2008 · 56 posts · 8 votes

13y

Thank you Simon, Mike, and Bill for your helpful contributions!

I don't understand why miniature cities feel the need to throw up anymore Red Tape over their Real Estate markets, which is just suppressing prices even more by keeping all of the RE Entrepreneurs far away....

I had the darnedest time locating a buyer for the deal, because of that very reason....

I managed to lock it up in a corp, and I'm going to proceed to closing soon. I'll keep you guys up to date.

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Double Closings and City Inspections

Double Closings and City Inspections

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