Double closings...acting as an agent? Bill? - Posted by Gerald(NC)

Posted by KRG on December 07, 2005 at 22:48:38:

I have my home that is listed at $1.7MM and appraised for $2.6MM. After negotiating the price of the home with an investor who is interested in the property, we agreed to a selling price of $1.6MM. After the price was agreed to I was surprised to receive a contract from the investor with a selling price of $2.6MM on it versus the $1.6MM we agreed to. Upon asking the Investor why he asking me to sign a contract for $2.6MM after we agreed to a selling price of $1.6MM, he indicated that the lending institution funding the loan will only approve 80% LTV. The investor wants me to sign this contract with the selling price listed at $2.6MM versus $1.7MM which he will submit to the lending institution approving the loan. He informs me that at closing the difference between the $2.08MM and the $1.7MM will be issued to him via a check from me after the funds are issued to me. He obviously assures me that there is nothing illegal about a deal structured in the manner. As far as my concerns about being hit with capital gains taxes based on a selling price of $2.6MM, he indicates that this is addressed when I issue a 1099 declaring that my net from the sale is $1.6MM. Is this legal? If it is not, is there a legal way to structure such a deal? Please advise.

Double closings…acting as an agent? Bill? - Posted by Gerald(NC)

Posted by Gerald(NC) on October 18, 2005 at 18:39:00:

I’ve told people, lawyers, title companies, and my lender exactly what Bronchick wrote in his book, Flipping Properties…, step by step how he explained a double closing, and a flip going down. I am being told this is acting as an agent by most I’ve spoken with.

I know of one lawyer round here that will do double closings no doubt. He is my partner’s lawyer. He is the one who wrote our contracts that I know of that most on CRE have flamed due to the “sub-buyer” clause and telling me the same “you’re acting as agent” deal.

Here’s our conveyance clause:

“CONVEYANCE: It is agreed that the Property will be conveyed by Fee Simple Deed. It is agreed that the Buyer shall purchase the property with the intention of reselling at a profit to another party. This sale shall be contingent upon Buyer finding a sub-buyer that shall qualify for owner financing according to accepted criteria of Buyer and its funding sources. Alternative funding sources may require Seller and sub-buyer to contract directly, in which case Buyer shall be paid the difference between the agreed sales price in this contract and the higher sales price with the substituted buyer, in exchange for the release of this contract. Seller further agrees to sign any documents required to close said transaction with the substituted buyer.”

I personally don’t even like the way that reads, but that is the way my partner, (he’s really just the owner of the corp name I am working under), has been doing deals here in NC. He’s done around 2 per month since April that I know if, and I don’t know how many other’s of us out here have complete such transactions. (I haven’t yet).

I’ve found a really good creative lender with a big local company. She has read this clause and sent it to her usual lawyer, and he too says “he’s acting as an agent”. He even at one time, before I used Bill’s Step by step description, said that he thought it was illegal. (I think that was more about me asking if an assignment fee could be part of someone’s financing to pay me with, too which I can see.)

Of course now I am in RE school and becoming an agent myself, as well as my partner who is now a broker and can’t pay me any future fees till I am licensed.

My goal is to get on without my partner anyway. I just wanted to learn with him, (really I just called about doing referrals and was asked to be an associate instead). But these deals like we do are great for me, if I can close one, cuz I have no money or credit to buy with.

Just so you know,

We typically negotiate a price on a FSBO home with the owner, go into contract, as the buyer, for said price with our earnest money clause stating:

“Within ____ days of the execution of this contract by both parties, Buyer shall deposit $500__ as earnest money with _____________ as escrow agent, at __________________________________. If Buyer fails to deposit the earnest money as required by this agreement, this contract shall terminate.”

Say we put in there 30 days. We then use that 30 days to find a “qualified” buyer, with which we then use their $500 check for the earnest money. We get them financed using our “bad credit” lenders. And we go into contract with them with us being the seller now.

You’d then do a double closing, where we’d bring no money, and take home the difference of the price purchased vs. price we sold it for. We usually try to atleast have a $10k difference here. That way if need we pay closing of hold a 2nd on the home for the new buyer. We split this $10k 50/50.

So, Bill, if you show up here, or someone else, any advice, encouragement, etc. would be well appreciated.

Feel free to read my “Depressed and Confused” posting in the main news group for even more information from my thoughts on this.

Thanks in advanced as well!

Re: Double closings…acting as an agent? Bill? - Posted by Brian (UT)

Posted by Brian (UT) on October 19, 2005 at 11:52:19:


I don’t like the clause your partners lawyer created and the first thing I would do is rewrite it, but my real question is why are you guys making this so complicated. Have you ever just considered getting an option for $10 or whatever and selling it? or writting up a better purchase contract and assigning it for a fee and forget all the hocus-pocus?

One more thing, I don’t know the real estate laws of NC but in some other states you can run into the problem of acting as an agent and not disclosing and declaring your status with the seller, a seller could claim you were acting as their agent but were self-dealing, so a license is not a cure-all.