6/5/2009
Of all the questions I get from readers about the mechanics of structuring and completing an REO wholesale deal, the one I get asked most frequently is how to handle the closings. I thought I would post a few of the most frequently asked questions, in hopes that it would clarify the process for you…..
Here we go…
* Can you assign an REO?
99% of the time- NO. Most banks will have a clause in their addenda that prohibits you from assigning your contract. Every bank contract that I have ever signed has been non-assignable.
* My realtor told me that simultaneous closings are illegal, is this true?
I have been told that simultaneous closings (back to back closings where the funds from the second transaction are also used to fund the first transaction) are illegal, too, but I have yet to have anyone show me the law or statute that supports this as being true. I have consulted with two real estate attorneys in Tampa, and both have told me the same thing- no, simultaneous closings are NOT illegal. Many title companies will not perform simultaneous closings, as their underwriters will not insure the transactions, but this does not make them illegal.
It may be different in other locales, but in Tampa, simultaneous closings are alive and kicking.
If you have questions or concerns about the legalities of simultaneous closings, check with a real estate attorney in your area. It’s best not to take legal advice from realtors, mortgage brokers, neighbors, Aunts, Uncles, etc (or me, for that matter). Always do your own due diligence.
*How do I find an investor friendly title company in my area who will close an REO wholesale deal?
The best way to find a good title company is to ask for a referral from someone who is actively doing REO wholesale deals in your market. That is how I found mine- I sought out the wholesalers who were doing the most volume and I asked them who they were using. Peer Title was the recommendation that I was given, and I have been with them ever since.
If you grab the Yellow Pages and start cold calling random title companies and asking them if they perform simultaneous closings- be prepared for a mountain of REJECTION. Most title companies do not do them, and many do not even know what they are. Save yourself the headache, and just ask someone who is active in your market for a referral.
* I thought that the banks make you use their title company on REO deals- how are you getting around this?
OK, here is where there seems to be A LOT of confusion..
Yes, it is true that most of the banks force you to use their title companies (and most of their title companies SUCK, btw). There is no way around this that I am aware of.
The bank’s title company is in charge of doing all of the title work and preparing all of the closing documents. Once all of this is ready, and the deal is ready to close, I let the bank’s title company (or the listing agent if I am not in contact with the title company) know that I will be signing all of the documents at my attorney’s office/title company. I then request for them to email the closing documents and wiring instructions to my title company. I tell them that my title company will do a “courtesy closing” for them, which means that they will get all of the closing documents signed and collect the funds for the purchase. Once everything is signed and funded, my title company FedExes the documents back to the bank’s title company and wires them the funds from the sale.
I do not ever try and explain to the agent or the bank’s title company that I am flipping the house on the same day via simultaneous close. This will only cause confusion. All they care about is that the deal gets closed on time, and I make sure that it does.
I have closed all but 3 of my deals in this manner and have never run into a problem doing it this way.
The key here is to have an investor friendly title company on your side who is familiar with this kind of transaction. You need to line this up BEFORE you put something under contract. If you wait until after you have a deal signed to try and coordinate all of this, you are asking for trouble. Have your exit strategy lined up FIRST!
*I’ve searched and searched, and I can not find a title company in my area who will perform a simultaneous closing. Now what?
If you are unsuccessful in finding a title company who will do a simultaneous closing, you can do a double closing instead (where you will have to bring cash to the table). You can accomplish this by using transactional funding aka “flash cash” or “flash funding” to fund the transaction between you and the bank. There will be fees associated with borrowing the money, so make sure to factor that into your numbers when you are structuring your offers.
If you are looking for a transactional funding source for your REO or short sale deals, I recommend FundThisWholesaler.net. If you need a proof of funds letter to submit with your REO or short sale offers, you can get one @ FundThisWholesaler as well. Click here to get a free proof of funds letter.
I hope this answers some of your questions about the mechanics of closing an REO wholesale deal. If you have further questions, or would like me to clarify anything in this post, feel free to ask.
Have a great weekend!
