Simultaneous Close Vs using and or assigns

[Luke_Frerichs]

Hello,

When wholesaling a deal is it better to do a simultaneous close or simply Assign the contract? who is having the most success with what?

My understanding a simultaneous close is my lawyer does a buy and a sell at the closing table. This keeps me more in control of the transaction, where as my seller will not find out I`m simply tying up his property to flip it to someone else. My buyer will not find out how much I stand to make on the deal.. This is important since I think if you`re making over 15k the buyers greed glands could swell up and they may refuse to do the deal with you although it`s still a good deal for them. Another good point is when you assign a deal you are no longer in control you are out of the loop, there is nothing to do to prevent the risk of the deal going sour. You can only cross your fingers and wait for your cheque.

Im looking towards doing a simultaneous close but have recently heard from someone if your buyer is going to the bank for financing the bank will want to see that I have title to the property. I don`t want to be on title. Where as if I dealt with a cashbuyer I would not have this problem doing a simultaneous close.

Can anyone back this up?. Or give me some more points why a simultaneous close is not the best choice?. If you`re having success with either strategy please share i look forward to hearing from you.

On a final note my understanding is the AREA Purchase contract in AB has always been assignable so using that and or assigns clause is un-needed. As long as you fully disclose to the seller early on that you may not be taking title that your partner (end-buyer) will be. From there exit with a simultaneous close.

What are your thoughts?



Cheers

Luke

 

[lanedry77]

Hi Luke,

If there`s new financing involved, a simultaneous closing will be difficult since the ultimate buyer`s lender will check the title and find that you`re not the owner - despite the fact that you`re selling the property.

If you have an investor-savvy lender, this won`t be a problem, but count on issues if it`s a `regular` lender.

And a cash buyer won`t be an issue with a simultaneous closing either.

Also, with a simultaneous closing, the buyer won`t know your profit (like you said), but if the ultimate buyer walks away before closing -- you`ll be in a position that you need to close yourself, or walk away also, possibly loosing your deposit and risking a lawsuit.

(So in short, I`d say your understanding of the situation is spot-on.)

For those reasons, I prefer to assign the contract.

I also put a term in that the seller accepts that the contract may be assigned. This ensures it won`t be a problem.


Thanks,

David.

 

[Luke_Frerichs]

Thanks David,

Fantastic Advice. I can see now why assigning it is much better

Cheers

Luke

 

[Thomas Beyer]

QUOTE (Luke_Frerichs @ Nov 13 2010, 01:33 PM) ...

What are your thoughts?
A simultaneous close is VERY VERY RISKY !!

You must have the ability to close the deal without the ultimate buyer as the chance is VERY HIGH that the ultimate buyer will not close due to
a) lender doesn`t lend, or
b) doesn`t have the cash, or
c) finds out you are not the owner yet

I have been involved, on the sell side, with 3 deals and one went sideways and a 2nd almost.

Most contracts state that you, the buyer, are responsible for a close even if ultimate buyer bails.

Thus, an assignment is preferred and usually also has to be allowed/approved by seller .. unless seller allows such assignment.

Always always consider what happens if ultimate buyer doesn`t close !!!

 

[RedlineBrett]

QUOTE (ThomasBeyer @ Nov 13 2010, 02:07 PM) A simultaneous close is VERY VERY RISKY !!


They definitely are.

That said, if you MUST use one, as in seller or seller`s lawyer won`t permit you to assign the contract and the deal is too good to pass up (often the case with some pre-foreclosures) then you can protect your position with the following strategy:

1. Get your equitable purchaser`s interest reflected on title of the property. As in get your lawyer to register your purchase contract on there for the world to see.

2. Get your ultimate buyer to give you a deposit towards purchase of *your interest* in the property... not the property itself. Make sure your purchase contract with your ultimate buyer reflects this interest when deposits are discussed, and that you flag the registration number of the caveat you`ve placed on the property.

3. Get a hard money lender set up. You may need to borrow their money for a few hours while you wait to close as your lawyer will be in violation of their trust account protocol if they use the ultimate buyer`s funds to skip you and pay the seller. There will be fees here.

4. Get a letter from your lawyer that you can send to the ultimate buyer`s lender that acknowledges your ownership interest / ownership of the property. You`ll need one in advance for them to send funding instructions (reference the caveat) and then probably another one before they`ll release funds to you. You`ll need this as registering your ownership with land titles takes a few weeks to run its course.

Obviously if you are going to actually do this make sure you consult with your lawyer and map out the plan beforehand. Expect to pay more in legal fees.

Lastly, if you are assigning you should also consult your lawyer about an indemnity agreement on the assignment that keeps your rear clear in the event that the ultimate buyer flakes. If it goes very sideways you`ll definitely get named in the lawsuit that comes out of it and you`ll have to prove you aren`t liable. Better to have something that says the seller said you weren`t than to have to pay a lawyer to argue it in front of a judge and hope you win.

 

[ToddStokowski]

Great questions and responses!

The value of the answers you received is worth many $$ of legal advice, replaced many years of experience and quite a few transactions. Just completing a few of the above, I agree with the comments.

Not to be redundant, but, "if you don`t have a reserve chute, don`t jump out of a plane". I`ve experienced this literally and figuratively.

Have fun!

Todd

 

[Luke_Frerichs]

Big Thanks goes out to all of you, again more great advice. Be sure to know it will not go to waste.

Thanks

Luke

 

[lanedry77]

QUOTE (ToddStokowski @ Nov 15 2010, 08:45 PM) "if you don`t have a reserve chute, don`t jump out of a plane". I`ve experienced this literally [...]
Yikes!

I`ve skydived, but thankfully I cannot say this.

Good job Todd!


Thanks,

David.

 

[RedlineBrett]

QUOTE (ToddStokowski @ Nov 15 2010, 08:45 PM) Not to be redundant, but, "if you don`t have a reserve chute, don`t jump out of a plane". I`ve experienced this literally and figuratively.

Have fun!

Todd

Yikes! code brown!

 

[Ellensamiec]

QUOTE (RedlineBrett @ Nov 15 2010, 02:00 PM) They definitely are.

That said, if you MUST use one, as in seller or seller`s lawyer won`t permit you to assign the contract and the deal is too good to pass up (often the case with some pre-foreclosures) then you can protect your position with the following strategy:

1. Get your equitable purchaser`s interest reflected on title of the property. As in get your lawyer to register your purchase contract on there for the world to see.

2. Get your ultimate buyer to give you a deposit towards purchase of *your interest* in the property... not the property itself. Make sure your purchase contract with your ultimate buyer reflects this interest when deposits are discussed, and that you flag the registration number of the caveat you`ve placed on the property.

3. Get a hard money lender set up. You may need to borrow their money for a few hours while you wait to close as your lawyer will be in violation of their trust account protocol if they use the ultimate buyer`s funds to skip you and pay the seller. There will be fees here.

4. Get a letter from your lawyer that you can send to the ultimate buyer`s lender that acknowledges your ownership interest / ownership of the property. You`ll need one in advance for them to send funding instructions (reference the caveat) and then probably another one before they`ll release funds to you. You`ll need this as registering your ownership with land titles takes a few weeks to run its course.

Obviously if you are going to actually do this make sure you consult with your lawyer and map out the plan beforehand. Expect to pay more in legal fees.

Lastly, if you are assigning you should also consult your lawyer about an indemnity agreement on the assignment that keeps your rear clear in the event that the ultimate buyer flakes. If it goes very sideways you`ll definitely get named in the lawsuit that comes out of it and you`ll have to prove you aren`t liable. Better to have something that says the seller said you weren`t than to have to pay a lawyer to argue it in front of a judge and hope you win.


I consulted my lawyer in Ontario, which may be different, about an indemnity agreement on the assignment, but he could not see why any seller would agree to protect a buyer from something done by the buyer does. Has anyone had more success with this and found a clause that works?

Thanks,
Ellen

 

[EdRenkema]

QUOTE (RedlineBrett @ Nov 16 2010, 05:48 PM) Yikes! code brown!

Been there literally and figuratively

Guess what was scrawled on the inside of the jump bay in the plane...
Sorry to hijack (couldn`t resist)

 

[Thomas Beyer]

QUOTE (Ellensamiec @ Nov 28 2010, 10:06 AM) ..Has anyone had more success with this and found a clause that works?
Usually ALL deposit money is at risk if you don`t close nor the person it was assigned to !

Hence: keep deposits to a minimum ...

 

[RedlineBrett]

QUOTE (Ellensamiec @ Nov 28 2010, 10:06 AM) I consulted my lawyer in Ontario, which may be different, about an indemnity agreement on the assignment, but he could not see why any seller would agree to protect a buyer from something done by the buyer does. Has anyone had more success with this and found a clause that works?

Thanks,
Ellen

You need your lawyer to provide you legal advice on the contracts you are using, NOT on the likelyhood of you being able to sell a particular type of deal to someone.


Because presumably if the seller is motivated enough to sell you the property for enough of a discount to make all this worthwhile they should sign the indemnity agreement too. And if you are a good enough salesman/saleswoman to convince them to give you free equity you should have no problem getting a siggy on the indemnity clause!

 

[WadeFenner]

QUOTE (Luke_Frerichs @ Nov 13 2010, 01:43 PM) Thanks David,

Fantastic Advice. I can see now why assigning it is much better

Cheers

Luke

Having done quite a few quick turn deals over the years I have grown to prefer a simultaneous close over an assignment for the very reasons you mentioned ie Stay in control, not annoy the seller by bringing in another buyer, etc. A lot of the ability to so changed when non-qualifying assumable mortgages went out the window.

If the assignment fee is not too large many buyers will be ok with it but like you say if they see you making too much $$$ for not doing too much (In their opinion) they might get greedy/jealous and not close.

If your deal is that valuable then there ought to be a little room for insurance. Ie The cost of you taking title.

I’ve had a lot of people ask me about the use of hard money lately and here it is again.

I and a lot of other senior REIN members have used Calvert Home Mortgage Corp out of Calgary a lot over the years (Dale). Their prices are pretty reasonable and better than a lot. 1% set up fee & 18% interest (Might even lower it a bit if you ask or not) paid monthly.

It sounds high but it’s perfect for this sort of thing if you only need to take title for a few weeks/months. You can pay them out any time without any penalty so if you close and only take title for two weeks your only cost is the following:

• Legal fees to buy & sell (set up the mortgage)
• 1% set up fee (Of the loan amount)
• And 14 days of interest

So it costs you $3-4,000 so what if the deal is good enough – beats losing it all together and they don`t require you to put down 20%. Dale truly speaks like an investor vs a banker and he understands the business of house flipping as well as anybody I know. Huge bonus to have him looking over your deal to see if its actually that good of a deal and he`s a hell of a nice guy.

For some people the sound of 18% is a bit scary but it’s not so bad once you’ve done it a time or two..... and for short term.

Just better be accurate on your values and other costs or you might get an ass whipping.

 

[Luke_Frerichs]

Hi Wade,

Appreciate your post, I was hoping you would respond. I have had heard good things about Calvert but haven`t followed up with Dale yet. I think i will give him a call.

$3000 to 4K sounds much cheaper then a JV partner..

Cheers

Luke

 

[RedlineBrett]

QUOTE (Luke_Frerichs @ Dec 9 2010, 02:32 PM) Hi Wade,

Appreciate your post, I was hoping you would respond. I have had heard good things about Calvert but haven`t followed up with Dale yet. I think i will give him a call.

$3000 to 4K sounds much cheaper then a JV partner..

Cheers

Luke

I`ve used Calvert too. If the deal makes sense these are good guys to have handy. If your deal doesn`t make sense they won`t lend to you