Are double closings in New York legal? Cause I am reading a book now on Options and the author clearly states that Double Closings are illegal because it is illegal to close on a property you do not own which technically is regarded as Grand Theft.
What does everyone think? He also says Lease-Options are illegal and if a lender finds that lease-options are taking place they have the right to foreclose on the property…
Your author is needs to be a little more informed before he speaks, it appears. Who is it, John T. Reed?
Double closings are not illegal as long as they are performed correctly. Correctly being, close on the buy first, then on the sell. It doesn’t actually work as some of the guru books lay it out where you close with your buyer, then take that money and close with the seller (at least it doesn’t if you want to do them legally). Of course, it’s only possible to do a double closing for your buyer is a cash buyer or is getting financing the does not require title seasoning.
Lease options are not illegal, period (again, assuming that you’re following the state laws concerning them in first place). If a L/O is structured for more than a 3 year term, then some lenders may consider that a “sale” instead of a rental. And because of the Due On Sale clause that is in practically every loan made in the USA today, the lender would have the right, or option, to call the loan due (not foreclose). Most would not if the loan was current.
Violating the DOS clause is NOT illegal.
Raj
it was actually an author this forum promotes. Thomas Lucier.
He says it in both his books. His flipping book and his options book
For ea=xample if i am going to double cl,ose on a deal I couldnt close with my buyer first then the seller?
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No Troy, you cannot close with your buyer first, then the seller (this is taken from NC law, though I’d guess that most states have very similiar laws/guidelines).
Besides the issues of selling something that you do not yet own and the correct chain of title, the is another very simple reason.
The closing agent is responsible for verifying the funds for closing a transaction. What happens if you close with your buyer in the morning, then go in the evening to close with the seller and something goes wrong. Hey, let’s pretend that it’s just as simple as the seller has decided that they do not want to sell the property anymore. Forget about the legalities of that because whether it’s legal or not for the sellers to balk at the closing table is really not important. What IS important is that the closing is NOT going to close that day.
So what happens? Well, you have to tell the buyer the buyer, “Sorry, but you know that closing that we had this morning, and how happy you were to get that house and all. Well, I’ve got to tell you that you don’t really own it because I didn’t really own it and now I can’t get you a clear deed to it.” Think they’ll be okay with that?
Also, at least with state’s that have attorney closings, the attorney is legally responible for the validation of the closing. So by verifying to the end buyer that they will have a good and marketable title (which they don’t), the attorney would most likely be heavily fined, probably disbarred and possibly even sent to jail for fraudalent practices. How many do you know that are willing to risk that for a few hundred bucks they make for a closing?
Raj
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Swirlaze,
I believe that’s just want I said (granted though, not as brief).
Double closings are perfectly legal and valid, as long as they’re performed legally. Many times they are not, either through sheer ignorance or intentally, illegal is illegal.
I simply laid out just a couple of the problems associated with NOT performing a double closing correctly, that being closing with the seller first, the end buyer second.
Raj
There’s a risk associated with any activity, whether it’s creative or not. The point is to select activities that minimize risk, and that requires being aware of all significant risks associated with a given activity. For example in this case I find it less risky to do a separate addendum to contract to pay you as the middle man then to double close!
I am also in NYC and as far as I know lease options are not illegal here.
They are very tricky though and sometimes they work and another time they dont. My sister bought a house with Option To Buy some years ago. She paid 400.00 per month for 5 years to the seller, after which she would get her own financing and she did. She paid a total of forty eight thousand total for a house and when she was done the house was valued at three hundred and fifty thousand…Now that’s a deal.
Also a frend I know was living here then bought another house and moved to Florida. When he was leaving he found a couple who offered Rent With Option. The option was for two years then they would get financing…Of course they could not get financing for one reason or other so the deal was broken…Thing is they would no longer pay the rent and would not leave the house or let Real Estate Agents or anyone in.
My friend has to bite the bullet. He went to a bank, borrowed up the 80% of the value of the property (that is what the bank would lend him) and stopped paying for the house. The bank had to deal with them after that.
This is one of the bad senarios that can happen RO.