Asked to fund a one-day double close for a wholesaler I've never met in person

A wholesaler I've dealt with twice by phone wants transactional funding for a back-to-back closing. Numbers as presented:

A to B at $118,000, B to C at $139,000, same day, same title company. He wants $121,500 to cover purchase plus his side of closing costs. My terms would be 2.5 points plus $1,500 doc fee, so about $4,540 on money out for under 24 hours. C is buying cash per the wholesaler, funds allegedly at the title company already.

What I have verified: the A contract, the B to C contract, the title commitment showing one open mortgage and no other liens, and the wholesaler's two prior closings with a different funder.

What I haven't verified: anything about the physical property. Nobody I trust has been inside. The wholesaler has photos and a video from someone he hired. The house is 1,100 square feet in a working-class neighborhood in a state I've never funded in, and one where sale prices aren't public, so my only comp support is what he sent me.

My exposure if C doesn't close is that I own a house I've never seen at $118,000 in a market I can't underwrite from here. That's the whole risk. Condition matters only in that scenario, but in that scenario it matters completely.

The decision is whether to require an independent walkthrough at his cost before I wire, which adds two or three days and might blow his timeline, or price the unknown into the fee and move. I'm also unsure whether I should be insisting on written confirmation from the title company that they'll do the two closings in that state at all.

Answer

2nicole_adeyemiPassivePRO5

Insist on the title confirmation. That's not optional and it's the cheapest thing on your list.

Back-to-back closings depend on the title company's underwriting counsel being willing to insure the second deed when the first was funded minutes earlier, and whether they'll do it varies by state and by underwriter, sometimes by the individual office. Recording practice differs too, and in some places the gap between funding and recording is where your money sits naked. Get an email from the closer saying they've done this structure in that office, that they'll disburse in the order the two contracts require, and what they need from you as the funder. If that email is hard to get, you've learned the real answer.

On condition, you're pricing a tail risk, so size it rather than eliminating it. If C fails you own a $118,000 house you can't see. Ask what a $150 local walkthrough plus a $450 inspector actually costs in delay, then compare that to your loss if you inherit the property with $25,000 of deferred work you didn't know about. Two days of delay is almost always the cheaper side of that trade.

One more thing that's more important than the photos. Verify C's funds yourself with the closer, not through the wholesaler. "Allegedly at the title company" is doing enormous work in your post. Everything else in the deal is fine if C closes and nothing else in the deal matters if C doesn't.

6 replies

1mikeoconnell7SP2APRO6

@parcel's point about getting it from the closer rather than the borrower is the one I'd tattoo on something. Every deal I've watched go wrong had one fact that traveled only through the person who benefited from it.

1tashaford30PB2APRO7

$4,540 for under 24 hours reads like a lot until you write down the downside, which is owning a house sight unseen 1,000 miles away. Then it reads thin. Would you fund this at 4 points? If yes, the fee isn't the issue and you should ask for the walkthrough. If no, you don't want the deal.

1tonyv88SO4CPRO6

I'd want to know if it's occupied. Nobody's said. If there's a tenant or a holdover occupant in there, your worst case isn't a house with unknown condition, it's a house with an unknown person in it and eviction rules you've never read in a state you've never worked. That changes the price of your tail risk by a lot.

1jessreyes12AU1APRO8

Basic question because I don't understand this structure yet. If C already has cash sitting at the title company, why does the wholesaler need your $121,500 at all? Is it just that A won't accept an assignment, so he has to actually buy it first?

3bmoreno23AB1B

@compass I had to look this up last month. That's usually it, some sellers or their lenders won't allow the contract to be assigned, and some wholesalers do the double close so the seller never sees what the end buyer paid. It costs them the funding fee and two sets of closing costs to keep that private.

tender, the thing I'd be nervous about in your seat is that the video came from someone the wholesaler hired and pays. @trellis's occupancy question too, that seems like it should be answerable in one text message.