Double Closings

Foreclosures, Short Sales, Tax Foreclosures
21

Helo All,

I am TOTALLY new to all of this, so bare with me please.

Questions:

  1. Let’s assume I have my end buyer in mind (C). I have already done the work with the Seller in FC, (A) and got my short sale approved.
    What is the best way to aviod seasoning all together?

A. Have it in an IL Land Trust, where the seller is the Beneficiary and a third party trustee, a representative of ours (with no real beneficial interest), sells it to our end buyer (C).

B. We have an option on the house and have it filed which would give us “equitable interest” in the property allowing us to sell our interest in the property to the end buyer.

But, don’t you need a HUD for each transaction? What happens to the first one in the A-B simultaneous or double closing.

Can’t you also use the money from the “second” B-C closing to actually fund the first A-B closing. (since the money is there in escrow) “Simultaneous closing”

ANY clarification or help would be GREATLY appreciated!! So confused! :banghead

22

KenLawsonJD…can you post a link where you got your information from. We have heard this several times about fannie and freddie but as far as I can tell it is just hear say. No one can ever produce a link to varify the info.
Thanks

23

Those lenders are usually servicing lenders, not the secondary market investor who owns the loans and the entity who approves the short sale.
Last week, Fannie & Freddie moved to establish policies to prevent the double closing. I received a bank release document with the prohibiting language against a subsequent transaction within 30 days. However, there is a legal problem with this prohibition and some title companies may not enforce it. However, if the condition is violated, the SMI could revoke its approval for the sale.

24

Hi Ken,

I’d like to get more info on this as well. Are you saying you are purchasing a Fannie/Freddie property and their addenda state that you can’t sell for 30 days?

Can you provide us with more info or a link?

Thanks,
Steph

25

Steph,

My firm processes and then mediates short sale proposals. I help investors and real estate agents with short sale cases.

The latest approval and release documents from Fannie stated a condition that prohibits a second transaction on the same property for 30 days. I have a friend at Freddie in upper management that stated that they are moving to do similarly. Since the government now owns those entities, it is the current administration that is moving to try to stop double closings.

However, our government often does things without thinking through the ramifications. The bailouts actually encouraged less approvals for short sales and more foreclosures. Now they are have been trying to reverse this effect.

Since Fannie/Freddie own about 65% of the loans, what they do will effect the entire system.

The reason that they are trying to stop double closings is because they believe that you investors are making money at their expense. That certainly is true, but you are also mitigating their losses. Government entities just do not like individuals making money that they think should be theirs.

There is a legal issue involved with this prohibition though. Title companies may refuse to close with this condition, or they may just ignore the condition and close on the second sale anyway. If you use another title company, they would not know about the prohibition.

A problem, though, could arise if you do a double closing. If you violate the prohibition, AND if the lender has accepted the wire transfer so that the transaction is complete AS TO THE LENDER (secondary market investor), what is the effect of the lender REVOKING their approval. This is what we will be watching. They may not be able to revoke their approval legally. They may not have a valid lawsuit against the parties, notwithstanding the breach of that one element. They may not really have any damages. They could actually create a legal liability for themselves by prohibiting the second closing.

I will continue to watch this. However, not all SMI’s have this prohibition, and by the time any of your proposals come to fruition, the issues may be resolved.

I hope this has been helpful.

26

Thanks for the response Ken.

I’m guessing this just applies to short sales, and not REOs?

I don’t see how they can prohibit someone from selling their own property, although at this point, nothing would surprise me.

Scary.

Steph

27

Steph,

REO’s are a different breed of animal. REO’s are often sold by the servicing lender, and they usually have the authority that is vested in just one department. Steph, don’t hesitate to contact me for further information.

ILwholesaler,

I have been working with lenders for 20 years. My brother is a top executive with one national bank. I have a friend in upper management with Freddie. I mediate short sale cases daily as my business. I have many cases with Fannie, Freddie & others. The prohibition of a second transaction for 30 days I received starting 2 weeks ago in Fannie bank release documents.
Remember, as I have stated several times, I see some legal problems with this prohibition. Since those legal issues are state-specific, and I am licensed to practice law in only one state, aside from federal courts, I can only provide you with general information. Should you get a bank release document with this prohibition, you should take it to a really competent real estate lawyer for advice concerning your legal rights.
Freddie regulations are posted on their website.

28

KenLawsonJD

I heard this from another source last week as well. It was from Bank of America though. Thanks for the heads up. I do have a excellent real estate attorney and he owns the title company, so I guess we’ll see what kind of issues we are going to run into.

29

If the seller is working with a agent, most of the time the agents have certain title companies they work with that handle transactions
for there office! Title companies and Realestate Agents go hand in hand! :beer

30

Okay. looks like double closings is going to be an issue.Investor told me that he has no problem with assigning contract to me. I need to know what are the advantages and disadvantages of assigning contract directly to end buyer? Does lenders are okay with this kind of transaction? Please let me know how this transaction go through?

31

Ken, I received an approval letter recently with language that would prevent closing within 30 days. My title company requested the clause removed or they would not be able to insure the property. Secondly, they explained they would not be able to monitor the property once the closing occurred. Long story short… they removed it. If its FHA, dont bother!

32

You are right. It is difficult for them to monitor it. The inability to insure title is the legal issue. There is also a contract issue here as well that impedes their enforcement. That is not stopping them from trying. Most will not remove the language, particularly government-owned entities.

Thanks for the added response.

Ken

33

Okay. looks like double closings is going to be an issue.Investor told me that he has no problem with assigning contract to me. I need to know what are the advantages and disadvantages of assigning contract directly to end buyer? Does lenders are okay with this kind of transaction? Please let me know how this transaction go through?

34

Sam101

The investor will likely have to get the Buyer named in the acceptance letter changed to your name. I don’t know how you would be able to pay the investor for his services though- it would likely have to be out of your pocket not through your loan. You may want to consult an agent or either your title co. at least.

35

I am trying to figure out how the transaction will take place. Investor is making arount 40k and I am not sure whether I have to pay it from my pocket or it will be part od my loan.

36

First off I wanted to say sorry if this is a duplicate post as I didn’t read all 3 pages of this there is more then one way to do this.

  1. If the end buyer (SAM101) is buying the property from the person doing the short sale. Person 1 could simply colse with you first and use your loan to close with the lender 20 minutes later and the title company/Attorney office can show that money in escrow until they close with the lender that is Short Selling the property. This will save you and him the money and points you might pay to obtain the first loan.

or

  1. When the short sale is completed with the lender you can simply wire transfer the funds (using a HML or your own cash) and take control of the note directly. This way person 1 in the transaction will never take deed to the property and there is no title issues.
37

Sam,

You need to ask your lender if they have title seasoning requirements, and also if they will fund the transaction if the contract is being assigned. If you are using a conventional lender to fund this deal, you are probably not going to be able to pull it off.

Talk to your lender and see what they say.

Steph

38

why would you need 2 appraisels???
Unless the lender is requesting, that only meens they dont trust 1 appraisel.
I believe you are not looking for a lender that does double closings.
YOU are looking for a lender with “no seasoning” requirements.

And by-the-way the guy who is buying the property and flipping it to you, is not using any funds… He is using your funds and paying off his purchase price with what is left over… Isnt life great.
So what is the deal???

39

I am looking for a lender that does not have title seasoning issue.In this type of transaction (two simultaneous closings) what should I include in the contract or do not allow the investor to include: so that I am well protected. Will appreciate your inputs…

40

Just two simple clauses are fine:
you the buyer- c1: that you are to be held blameless if you can’t close.
*this clause goes in your contract from you the buyer to the seller.

you the seller- c2: you are to be held blameless if you can’t seller for any reason.
*this clause goes in your contract from you the seller to your end buyer.

this just protects you so that if the deal blows up either side has the understanding that they can’t come after you…

There is really no tricks or secrets to this… Pretty simple…its a “buy, sell, buy deal”.

*** & why are you looking for a lender??? arent you fliping??? or are you looking for your buyer???