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 CashForMyClosing.com. This company is owned and operated by one of the members of my mastermind group, Brian Meidam. There is a FAQ section on his site that should answer any questions that you have about the process.
CashForMyClosing.com will also provide you with a free proof of funds letter to submit with your REO or short sale offers. All you have to do is fill out the form and a letter will be emailed to you!
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!
Friday, June 5, 2009
How Do You Close Reo Wholesale Deals? (Simultaneous Closings, Double Closings, Transactional Funding, etc..)
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29 comments:
Two words:you rock!
One question- how did you close those other 3 deals?
Thanks Steph,
Ray
Hi Ray,
The other 3 deals (my first 3 REO deals ever), I added my buyer onto the purchase contract with the bank, and then quit claimed them off after closing in exchange for my fee.
I don't recommend doing it this way, as there are too many things that can go wrong.
Steph
Steph-- Great FAQ and answers! I'm on pause through August while in Brazil, but still keeping up with your blog.
Hope all is great!
Hey Alison!
I'm jealous. Hope you are having a great time in Brazil- I've been checking your blog for pics/updates..
Thanks for checking in. :)
Steph
Steph, thanks for sharing this info!
I've seen you recommend finding another wholesaler and offering to market one of their properties for them? Assuming I found a wholesaler willing to do this and then I successfully found a buyer, would I then be making something/or splitting the deal on this or is it more for the experience and to build the relationship? Thanks.
Brian
Hi Brian,
It's up to you, although I think you might as well try and make a buck while your're at it. :)
Most of the deals I do with other wholesalers are 50/50 splits, but sometimes they will tell me what they need to net and then I will add my fee onto their price. It all depends on the deal and the wholesaler I'm working with.
If you plan on profiting from the deal, and you are not licensed, make sure you have the property under contract or option, as you will be brokering without a license otherwise.
Steph
Great Faq Steph!
Steph,
You are so generous with your information! This is great stuff! Thank you!
Wow, thanks for the info Steph.
I have a short sale deal that should be closing at the end of the month that I am probably going to need flash funding for. Do you know if he lends in all states?
Thanks again,
Brandon
Hola Brandon,
Yes, I believe he is lending nationwide.
Have a great weekend,
Steph
Steph, I think I will have to get to know a local wholesaler a bit more to build the trust for something like that to be well received. Thank you for the clarification.
Brian
I know I may have bored you by saying this, but your shared experiences are IMMENSELY helpful. I'm a big fan of your blog, so PLEASE keep it up!!
A&R
Hello,
If I am using transactional funding to close my deals will I need a title compsany? If not, how would this process work as far as getting the b to c closed without a title company?
You will need a title company to close the deal for you.
Check with your lender to see if they have one that they prefer to work with.
Steph
Just a hat-tip (again) on the split-settlement idea for REO's.
We've done two this way now and it's so much less nerve-racking. Plus, now that our Settlement Gal knows that she gets ALL our business ... she's become downright ferocious on our behalf. As an insider (attorney/settlement agent) she can get people to respond to outrageous questions we have like, "Are we actually going to close on the scheduled settlement date that you set?". Not saying that we always like the answer ... but the courtesy extended to her sure beats the run-around/no response that we used to get.
Best,
jimi
Glad it's working out for you, Jimi.
It's always nice to have someone on your side to push things along when necessary (which is almost always when dealing w REOs).
I'm going to be using the one day dough for my transactions. I'll more than likely use the site you recommended. So will I have to hsave as title compsany in place for using flash cash?
If you are going to use Brian's service, I would contact him directly to see how he wants to handle the closings. His contact info should be on the site.
Steph
Steph,
Thanks for all of the wisdom and education! It's always fun to see what's going on today!
One quick question: How do you write the FAR/BAR for the B to C transaction when B doesn't own the house yet?
Thanks! Grant
Hi Grant,
The B to C transaction doesn't have to be on the FAR contract- you can use any purchase contract that you want.
I add a clause into the contract that states that the sale is contingent upon me purchasing the property from the seller/bank.
Not sure if that answered your question. Hope so.
Steph
I have a client interested in purchasing a REO package of properties from me but they can't seem to secure financing. Any suggestions?
I wasnt to asubmit an offer with POFs but they are also asking for 1000 earnest money. I plan on quick turning this property. How do I get around the earnest money?
Write in your contract that the earnest money will be submitted upon acceptance of offer.
If they refuse, move on to the next one.
Steph,
The answer to this seems obvious but...
When you are doing these courtesy closings with your attorney/title co. are you paying a fee or another set of closing costs?
Thanks!
Anthony
There are two sets of closing costs- one when you are buying, and then one when you are selling.
The bank covers most of the costs on the buy side, and then when I sell, I make my buyer pay all of the closing costs.
I usually end up paying somewhere between $250-$800 in closing costs on each deal. I'd say the average is $500.
Steph
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