I'm the end buyer and my seller doesn't own the house yet

Under contract on a small three bedroom rental at 168,000, my first one, and my loan officer asked a question I couldn't answer. He pulled the county records and the person on my purchase contract isn't the owner of record.

I called the seller and got a straight answer, which I appreciated. He's a wholesaler, he's under contract with the actual owner at 141,000, and he's closing his purchase the same morning as my closing using what he called transactional funding. So a lender wires him the 141,000, he takes title, and my funds pay that lender back an hour later.

What I have: a signed contract, an inspection done, my lender's conditional approval, and 22 days to closing. What I don't have is any sense of what's different about this for me.

The questions I've written down. Does my title insurance cover a chain of title where two deeds recorded the same day? Am I exposed if his funder's money doesn't show up and my closing is the one that gets moved? He told me his funder gets repaid from my closing, and I can't tell whether that means my money is doing the work.

And the awkward one. Knowing he's paying 141,000 does change how I feel about 168,000, though my inspection and my own numbers on rent were fine before I knew. I don't think I'm going to renegotiate. I keep looking at the number anyway.

My actual decision is whether to ask my closing agent to explain the sequence to me in writing before I release my earnest money contingency, or whether that's a normal thing that will just make me look green.

Answer

2mikeoconnell7SP2APRO6

Ask for the sequence in writing. It's a normal request and any closer who does these regularly can answer it in three lines. I coordinate these files and I'd rather send that email than field a panicked call on closing morning.

What you want to hear: your funds are received into escrow, the first closing funds and the deed to the wholesaler is signed, then the deed to you, then both record, with the funder paid off from the file. Whether both deeds record the same day and in what order is state specific and sometimes county specific, so let the closer state it for your state rather than trusting a general answer.

On title insurance, the policy you buy is issued after the search that covers the chain including that morning's deed, and a same-day pair of deeds isn't unusual to an underwriter. Get your commitment and read the exceptions. If anything about the sequence bothers the underwriter, it shows up there, and a real estate attorney in your state is the person to read it with if it does.

On whether your money is doing the work, sort of. The funder advances the 141,000 because your closing is already committed and funded, which is why their fee is flat and their money is out for hours. If your loan doesn't fund, they don't advance, the first closing doesn't happen, and nobody bought anything. That's the design. Your exposure is a delayed closing rather than a house you paid for that doesn't exist.

The 141,000 is going to sit in your head either way. Your rent numbers and your inspection are the only two things that decide whether 168,000 works.

I'm the end buyer and my seller doesn't own the house yet

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