It’s Amazing What Closing Attorneys Don’t Know
I got a call for transactional funding and the investor asked what I needed. I explained that I had to talk to the closing agent and then see the closing HUDs. The investor sent me the information for the closing attorney as I requested and that started the odyssey. What a challenge I had trying to make this closing attorney understand how a double closing worked.
Actually this problem of real estate closing attorneys and some non-attorney owned closing agents understanding how investors work is not isolated. I am used to working with closing agents and attorneys who do as many as a 100 closings a month with investors and they thoroughly understand how we work. Neither type of closing agents (attorney or not) that we deal with will do anything illegal so let’s clear the air on that.
So I called this prestigious law firm and asked for the attorney who was doing the closing. He was polite and I mentioned why I was calling and he immediately responded with, “Well there is a double probate so I don’t think it will close.” What optimism – to me that means double attorney fees – not the end of a deal!
I then explained how I do transactional funding – paying for the A – B leg and then the end-buyer pays for the second closing. I said it slowly as he had been practicing for only about 5 years. But he blurted out that it was illegal to use the end-buyer’s funds to close the A – B leg. He went on to explain that the investor needed the money to come from his personal account to close the initial purchase.
I started over again but even slower this time explaining that I was paying for the initial closing using real money that was wired into his escrow account. Then later that day the end-buyer would close also with wired funds – just like banks do for home buyers. This seemed to bring him back to Earth but he said it was illegal to use end-buyer’s money to close the A – B. I asked him for the state or Federal Statute as I disagreed.
He then flipped into an apology mode saying that it was his firm’s policy and not a violation of any law – other than what his title insurer decided. I never asked to use the “C” buyer’s money to close but that’s what he heard. This misinformation from closing agents and attorneys is how urban legends start and are perpetuated by the public.
As another example I spoke with an attorney in California who was referred by an investor in the area. When I asked him about double closings he went on a rant about how he knew it was illegal to make $100,000 or $150,000 profits on a wholesale deal – there had to be fraud involved. When he stopped spouting off I explained the profit was an appalling low 10% and he instantly stopped ranting and said that was OK. I guess size does matter to him.
In a third case from another state, the closing agent wanted our Student to sign a Disclaimer stating that the end-buyer’s funds would be used to close the A – B leg – even though that was not true. The Disclaimer also had to have the seller (“A”) sign it allowing the closing to use the end-buyer’s funds.
The agent said at least three times that it was state law that required it. The agent called back about three hours later and confessed and apologized that she was wrong and it was not state law but her firm’s requirement. How can a law firm have a requirement that makes you lie in writing and run the risk of killing the deal by improperly informing the seller and the end-buyer? What are they thinking?
I’ll tell you what they are thinking, it’s better not to do the business than have a potential lawsuit by the seller or the end-buyer. In a lawsuit the closing agent will have defense costs and no potential win. Gee, maybe there should be reciprocity between attorneys…. I wonder why there isn’t?
The answer to overcome this misinformation problem is to interview your potential closing agent, attorney or not, and tell him what you want to do. If his/her ears start twitching or hair standing on end, don’t waste your time – get a referral from other investors who are doing double closings by the THOUSANDS every day! Go on to someone who understands what is happening and who will give you the correct information you need to further your real estate career.
To your limitless success,
PS – you can always go online to find a local REIA and look at their corporate sponsors to find an investor-friendly closing agent – attorney or not.