double closes involving lenders - Posted by rayrick

Posted by Jim IL on April 08, 1999 at 18:18:01:

Because you may not want your buyer to be aware of your price.
Sometimes they baulk at the idea of you making “too much”, or, "why should I pay you $xx, when you are only paying $x for the property?"
That is where the double close comes into play.

Have a great day,
Jim

double closes involving lenders - Posted by rayrick

Posted by rayrick on April 08, 1999 at 15:38:15:

There have been a number of posts floating around (some instigated by me!) concerning double closes in which the second half of the close involves some sort of lender that is NOT a hard money lender. Leslie dear posted below that at least some lenders will balk at this if there has been nothing done to the property to justify the mark-up in price. I quote:

"I’m wondering if the lender won’t read the title report. The fact that the seller is not the current owner will be obvious. I tried this only one time, and the lender asked what improvements justified the bump in price so soon. I have not tried it since. Its possible some lenders don’t care, mine disallowed it. "

Examples where this sort of thing would come into play include:

  1. using a straw man to buy property for 80% FMV.

  2. getting an option to purchase for 80% of FMV and then selling for full price.

  3. getting the property under contract for 80% FMV and then flipping as 80% bank loan, 20% seller financed.

It seems to me that if the banks are going to take issue when you are qualifying your buyer with the fact that you do NOT currently own the property, but merely have a contract to buy for 80% of FMV, that NONE of the above would work.
Does it depend on the type of lender?

Who out there does this sort of thing? What has been your experience? Am I missing some key conceptual piece of this type of transaction that is leading to my confusion? Does no one out there want to touch this topic with a ten-foot pole?

-Ray

Re: double closes involving lenders - Posted by Alex Gurevich, TX

Posted by Alex Gurevich, TX on April 12, 1999 at 10:18:05:

Ray,
Just avoid those alltogether, when you are starting out. I take it, you have never been through a loan qualifying process. If you were, you’d realize how cumbersome, complicated process it is, and how many things can go wrong. If you are flipping for cash, buy them cheap and flip to investors.
Go through a dozen of simpler transactions at least, develop some degree of trust and control over (if possible at all) your mortgage broker, learn to be in control of the transaction so you can steer your buyer to your mortgage copmany, and then, maybe, try this lender-dpendent cash flips.

Re: double closes involving lenders - Posted by James-IN

Posted by James-IN on April 08, 1999 at 16:57:27:

Ray,

Double closing occur all the time and they are perfectly legal. Usually, these types of transactions are considered “investor flips” where the original buyer (investor) has no intention of holding title to the property and sells it to a new buyer (not trying to insult anyones intelligence here).

To do a double closing, it really depends on the lender. Many lenders refuse to engage in these types of transactions for mainly one reason – quality control. Many lenders feel the potiential for fraud and lawsuits outweight any benefits that they would receive in doing these deals. There has been a couple of cases recently where investors where flipping properties to each to inflate the FMV of entire neighborhoods. There is also the issues of double contracts, taking advantage of a distress seller, the fact the “flipper” has no real interest, and so on. In my opinion, most lenders overstate the dangers of a double closing.

There are note buyers and a few lenders that will do investor flips and simultaneous closings. Feel free to contact me.

James-IN

Why double closings? - Posted by Tyler

Posted by Tyler on April 08, 1999 at 17:48:13:

I’m still not exactly sure why anyone would go to all the trouble of doing a double closing in the first place. The only time I could see it being useful is when your buyer is a little naive to the processes of the creative community, thus requiring a more “conventional” process.

From my point of view a simple assignment of contract form is easy as pie, as long as your buyer is cooperative.

Fill it out, get the check, shake hands, go eat a nice lunch.

Re: Why double closings? - Posted by rayrick

Posted by rayrick on April 08, 1999 at 20:38:13:

I think you’re missing my point. I’m not talking about wholesale flipping here. I’m talking about some sort of retail flip that involves you paying the seller all cash for somewhere in the neighborhood of 80% FMV. My buyer would not be an investor, but a retail buyer obtaining conventional or non-conforming financing for their end of the purchase.

-Ray