Are Double Closings Ever Illegal?

double Hey Moguls, Cody Sperber here.

Ahhh, the double close dilemma…

You know, many of my students over the years have been confused about the legality of various aspects of wholesaling houses - including whether or not double closes and assignments are legal. And that confusion has seemed to result in a lot of people asking the question about them... so I want to deal with that and face it head on in today’s lesson.

After this informative lesson, you’ll not only understand these methods, but you’ll be fully prepared to power through a double close transaction, specifically, without breaking a panicked sweat.

What the Heck is a Double Close, Anyway?

Some of you may be wondering what exactly a double close is, which is totally legit. So let’s define it, shall we?

The double close method is simply two transactions that are closed nearly at the very same time – back to back – on the same day. It’s typically referred to as the “A-B & B-C” strategy with “A” being the distressed seller, you are “B,” and “C” is your cash buyer.

Now that you’ve formally met all the players in the double close game, let’s define the transactions:

In the A-B transaction, you buy the property from the distressed seller.
In the B-C scenario, you sell the property to your cash buyer.

So simple, right?

But with every good usually comes a bad. Which do you want to hear first?

How ‘bout I answer for you? Let’s start with the good news.

With a double close transaction, no one will know how much you’re profiting from the deal, so your privacy is protected. A word of advice - use this method if you’re going to pocket $10,000 or more. Big money tends to make people feel yucky about the situation, and nobody wants that.

honest Now to be the Debbie Downer – since there are two transactions involved in a double close (hence the word “double”), you’ll need to bring two sets of closing costs to the table(s). I know, I know, kinda stinks, but it’s a necessary evil that you’ll have to get used to it. Certainly, don’t let it stop you from turning to this method when the deal calls for it.

A Quick Note – Assignment Method

Before we move on to more about double closes, I’d like to briefly explain the assignment method, which is another good option, so you can see the differences in the two.

The assignment method is when you just ‘assign’ your role in the distressed seller’s contract over to your cash buyer and hop out of the deal. In this situation, you’d charge an ‘assignment fee’ for assigning the contract and that’s your profit. See, you don’t need a real estate license to wholesale deals like this because you were a principal in the transaction by scooping up the deal from the seller.

Really, the only negative here is that you have no privacy – because you’re required to have that 1-page assignment contract, everyone involved will know how much money you’re making in the deal. So, like I said, if you’re profiting more than $10k, you don’t want to use this method, use the double close instead. Less than 10k – assign away.

Heads Up: Possible Delays

Double closings get a bad rap, in part, because banks more and more often are requiring super-tight restrictions on any sales they’re involved with. They don’t always understand the value that we investors bring to the table nor do they always understand how we can buy this, flip that and make major bucks in just a few short hours of work.

To them, those types of transactions seem shady… and maybe we do too. But, it’s nothing personal. It’s not their area of expertise and they’ll likely just don’t understand what we do.

So, just be prepared for pushback.

Watch out for another potential roadblock – it’s going to be tough to find title companies that will execute the A-B transactions we’ve been talking about. Can you find them? Yes. I’m just saying it may be a challenge.

Standard operating procedures have changed, and now title companies can't ensure a title if there is no direct closing where the seller comes to the table with their own (or borrowed) funds. So just know that banks might say “indirect” closings are illegal, but what that really means is that companies simply aren’t comfortable with A-B transactions or their policies have become too strict to allow it.

Honesty Is the Double Close Policy

Back to how double closes really are legal…

The bottom line is this: Double close transactions are absolutely legal – as long as you don’t intentionally hide any information during the deal.

team Look, the rules for double closes do vary by state and some states make it harder, others will say go for it. But the truth is there is NO double close dilemma as long as you put all the cards on the table and don’t leave any up your sleeve.

Some investors try to hide from sellers the fact that they are going to re-sell the property for profit. Common sense should tell us NOT to hide this fact or any other fact, for that matter.

I'll say it again: Don’t hide anything.

Sellers are smart (usually), they know that you're in this business to make money, not just to be charitable. They get it, so tell it like it is. Simply share your end goal – which is to make money - with your sellers while also reminding them that the deal is a win/win situation. Keep it short and sweet.

Remember, you’re the answer to their problem. You're there to ease their homeowner stress AND make a living in the process.

There Is No “I” in Team

You and I both know that the most successful people are successful because they’ve got a power team behind them. Imagine where you would be right now if you hadn’t asked for help all these years. We are where we are, in large part, because of the mentors, teachers, family, friends and investors who have helped us along the way.

So, what I’m trying to say is, don’t do this alone. Rather, build a team of key players to help in your business.

I strongly suggest you work with an investor-friendly closing attorney or agent who understands investors and REI. So that means you need to prescreen them to make sure they know the kind of work you do and how you work – and make sure they’ll have your back. Do your due diligence when it comes to your closing agent. And then use them wisely for this method.

You won’t be sorry you did.

And remember, work your double close deals without hiding anything, because in the end… what they don’t know may hurt you.