Six hours of somebody's money. Who's actually holding the risk?

The wholesaler, in almost every version I've underwritten.

Work through the order of events. The funder advances only after the end buyer's funds are confirmed in escrow, or at least after the closer confirms they're coming under instructions the funder wrote. That's why the exposure window is hours instead of months. So the case where the funder loses money requires the confirmed funds to evaporate after the advance, which is rare and usually means someone in the chain did something wrong.

The wholesaler's position is different. They signed a note that matures the same day. They took title. If the resale dies, the loan is due, the house is theirs, and they now need real financing on a property they bought that morning. Nobody's guaranteeing them a second buyer at the same price.

One thing to check in your friend's term sheet, orchard, is whether there's a personal guarantee and what the default provisions look like when the loan doesn't get repaid on the day. That's the paragraph that tells you exactly who the funder thinks is carrying it.

Size the numbers and it settles itself. Funder's upside on a 100k advance is maybe 1,000 to 1,500 flat. Their downside if it goes wrong is 100k against a house they'd have to foreclose on. Nobody writes that trade unless they're very confident the repayment is already sitting in the account.

Which tells you they've engineered the risk onto someone else. That someone is the borrower.

Does the funder even have a lien in that six hours, though? If there's no recorded security interest, "foreclose" isn't available to them and @ledger's downside is worse than he's describing.

@vellum they usually record something. A deed of trust or mortgage goes on record with the A to B deed and gets released when they're repaid, and whether it's a deed of trust or a mortgage depends on the state. Some funders skip recording on short same-session closings and rely on the escrow instructions instead, which is faster and thinner protection. Ask which one your funder does before you assume.

Coming from the same slow corner as orchard, what I can't picture is the timing. Are the two closings actually the same afternoon, or is "same day" a loose way of saying within a couple of days? The answer changes who's exposed and for how long.

@arbor typically same day and often the same sitting, sometimes an hour apart.

The thing that confused me when I started reading about this is the fee. 1,250 on 100k for six hours annualizes to an absurd number, and people use that to say it's predatory. That's the wrong way to look at it. It's a fee for a service with fixed costs, wire handling, document prep, someone watching the escrow account. Nobody's earning an annual rate on capital that's out for an afternoon.

Look for three specific paragraphs in your friend's sheet, orchard. What triggers the advance. What time the loan matures. What happens after it matures unpaid.

Most of the ones I've read make the advance conditional on the closer confirming end buyer funds, mature at close of business the same day, and then convert to a default rate plus fees with a personal guarantee behind it. Read together, those three tell you the funder has priced the deal assuming they get repaid and has papered it so that if they don't, the borrower is the one negotiating.

Seen it once from the outside. A guy I know had a financed end buyer whose lender pulled the loan the morning of. He hadn't closed the first leg yet, so he lost the deposit and the funder's commitment fee and nothing else. Cheap lesson. If he'd already taken title he'd have owned a house at full retail with a note due at 5.

Everything in this thread is new to me. Is a double close just buying and selling the same house on the same day, or is there something more to it than that?

@rigging that's it. Two separate transactions, two deeds, two settlement statements. The wholesaler actually owns the property in between, which is the whole point, because some states have gotten strict about selling contracts you never owned and taking title sidesteps that objection. How those rules apply is state specific and worth a licensed attorney's read before you build a business on it.

Voting funder for the lowest risk and wholesaler for the highest. That's the deal the funder is selling, small fee for a short window with the exit already lined up.

Came in ready to vote escrow agent because they touch all the money. @warrant's three paragraphs changed my mind. The escrow agent has procedural exposure if they disburse wrong, and that's a different thing from having capital at risk. The wholesaler is the one who wakes up owning a house.