Back To Back Closings: How do they Work?Posted on June 27, 2013 by
A lot of people ask me a lot of questions about Back to Back closings and so I thought I would share some of what I have seen over the past 15 years or so on them. A lot of lawyers will tell you that they are flat out illegal, and this is generally untrue. I will explain how to do a Back to Back closing and make it work for you.
The first question is whether to do a Back to Back closing or an Assignment Closing. In an Assignment Closing there is only one closing fee, so you save about $1000 on your lawyer fees. The main reason to avoid an assignment closing is that the Buyer and the Seller both will see exactly how much you are making on the closing and either side may freak out and kill the deal if they know you are making more money than they think you should. It can be worth that $1000 to have a smoother transaction where no one gets their feather’s ruffled over your fees.
The second question is whether or not you can actually do either. If the end buyer is paying cash, you are in the clear. If the end buyer is getting a loan there are new issues. The attorney in a loan transaction, represents the lender. Therefore they have to inform the lender of anything the lender MIGHT object to. I know of no conventional lenders that will allow a flip transaction OR an assignment fee on their deals. If your end buyer is using conventional money, it will be necessary to buy the house yourself, using your own money, and probably hold it for at least 90 days before a conventional lender will lend on it. If the end buyer is using Hard Money then you have a chance. Each Hard Money lender goes by their own rules. Some will allow assignments or flips, but they require you to send them both the Buy and Sell HUD. Some will only allow you to make a certain amount of profit. As with everything, it’s a negotiation. But this needs to be worked out before the deal gets to the attorney, because they will be on the lender’s side and not yours.
Once you get everything decided, you have to know how a Back to Back Closing works. Generally the Buy side for you will be a ‘dry’ closing where the seller does not get his funds until the buyer comes in to buy. This is a problem. Technically it has to be specifically agreed to by the seller. And this will raise thorny questions like ‘why can’t I get my money right now?’ It is generally better for the Sell side to happen first. That way funds are available. Most attorneys will hold all funds from the Sell side and all documents until the Buy side also happens. After all, you cannot sell a house you do not own yet. But once both sides have fully signed, it is easy for everything to flow through. It can be difficult where the Buy side is at one Attorney’s office and the Sell side is at the other. Coordination of these deals is important.
I hope that this has been informative and helpful. If you have further questions, feel free to contact me at my office.
Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel. It does not constitute advertising or solicitation. The information in this article may or may not reflect the most current legal developments; accordingly, this article is not guaranteed to be complete, and should not be considered an indication of future results.