What a lender is actually holding when funding a same-day double closing

Consider a lender asked to fund a double closing for a few hours rather than a term loan. The structure: a wholesaler has a house under contract at $137,000 and a cash buyer at $168,000, with both closings scheduled at the same title company the same afternoon, seller to wholesaler first, then wholesaler to buyer about an hour later. The lender is asked for $137,000 plus roughly $3,400 in closing costs, with a return of 2,750 flat plus one point, about $4,120 for that window. Four questions belong in any diligence on a deal like this. What secures the loan. A mortgage or deed of trust recorded against a property held for only an hour raises a real timing question about whether the recording completes before the second closing, and title companies handle this differently, so it's worth confirming directly with the settlement agent rather than assuming. Whose name is on the note, an LLC or an individual, and whether a personal guarantee is part of the deal, since that changes what recourse looks like if something goes wrong. What happens if the end buyer's wire doesn't arrive. The lender owns that property until it resells, with all the carrying cost and exposure that implies, so it's worth walking through that scenario before agreeing to anything. And on a dry close, where the end buyer's funds cover both legs and no outside funding is needed at all: if that structure is available, it's worth asking directly why outside funding is being requested instead. Sometimes the settlement agent won't run a dry close, or the timing doesn't support it, and that answer should come from the borrower, not be assumed.

sonia_alvarez CB4APRO 17

Answer

joe_delgado5ActivePRO

I've been on the borrower side of a dozen of these so I'll take them in order.

Yes, you get a mortgage or deed of trust, and yes it gets recorded, but recording practice and timing vary a lot by state and county, and in a same day double close the paperwork often records after the fact in sequence. Your real protection is the closing agent's instructions, not the recorder's clock. You wire to the title company or attorney, not to him, and the instructions say your funds are only released into the A-B closing and your payoff comes out of the B-C proceeds before he sees a dollar. Get that in writing signed by the closing agent.
Both, if you want to be able to collect. LLC on the note, personal guarantee attached. Every funder I've used required it.
It looks like you owning a house you never underwrote, at 137k, with no idea what the roof is like. That is the whole risk. Which means you underwrite the house as if you're buying it, because on a bad day you are.
Because a dry close needs the end buyer's funds to sit in escrow and cover both legs at once, and plenty of closing agents in plenty of states won't do it, or the buyer's lender won't allow their money used that way. He's calling you because someone said no.

joe_delgado5ActivePRO

6 replies

devon_pierce SS4APRO 15

The 4,120 on 137k for one day looks enormous until you notice you are pricing the possibility of owning the house rather than the hours. Once you look at it that way it is not obviously generous.

devon_pierce SS4APRO 15

raj_mehta14 PF4BPRO 10

Worth being precise about what this is. A note in the ordinary sense assumes a schedule of payments over months, and this instrument is paid the same day. Functionally it sits closer to an escrow arrangement with a fee attached, although @joe_delgado5's answer points to the part that matters, which is that a real recorded lien sits behind it for the hours the money is out.

raj_mehta14 PF4BPRO 10

bmoreno23ActivePRO

@joe_delgado5's answer to question 4 is the first time dry close has made sense to me. So the end buyer's cash sits in escrow, and the title company uses it to pay the seller on the first closing, and the wholesaler never brings money. If that works, the whole transactional funding industry only exists because closing agents refuse to do it?

bmoreno23ActivePRO

luis_carrera CS1CPRO 12

I would add one item to your list. Ask him what happens if the seller's payoff comes back wrong, an undisclosed second lien or a judgment nobody found. That delays the A-B leg past the B-C leg and your money is already committed. Ask to see the title commitment before you wire rather than after. @bmoreno23 it is more that some agents will not and some states' good funds rules make it awkward. There is no one single reason.

luis_carrera CS1CPRO 12

gregpowell66 AC4BPRO 19

On number 3, do the walkthrough. At that price 137k buys very different buildings depending on what the mechanicals look like, and if the wire fails you'll want to already know whether you're sitting on a 150k house or a 105k house. Half a day of your time against 137k of exposure.

gregpowell66 AC4BPRO 19

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