If you have been working with REO’s or bank owned properties for a while, you have already noticed that they are a whole different ballgame. Many real estate investors prefer to simply assign the contract to their end buyer rather than do “double closings” or “simultaneous closings” when wholesaling properties. This is their preferred way of handling the transaction. Other real estate investors (like me), prefer to do double closings. It just seems “cleaner” to me. Even though it costs a little more, I like doing it this way. When you are working with bank owned properties you will need to familiarize yourself with their procedures.
Can I Assign The REO Contract To The End Buyer?
When you are ready to sell a property and you are accustomed to assigning the contract, this might be one of your first questions. 99% of all banks will include a clause in their addendum that prohibits assigning the contract. They will reject your offer pretty quickly if you try to submit a contract with an “and/assigns” after your name. Also, they will almost always say that you have to use their title or closing agency in the bank’s addendum.
Does this mean that you can’t wholesale REO properties? Absolutely not! You may just have to do things a little differently. You will need to do a “double closing” or “simultaneous closing”. I want to really stress that the time to figure out where you will be closing this transaction is before you actually get it under contract. In my city, we use closing attorneys rather than title companies, and it is pretty common to do double closings. But in some areas this isn’t the case. You will need to familiarize yourself with the common practices where you do business.
Can I Choose the Place I Want Close?
Most banks will stipulate in their addenda that you must use their title company to complete the title work and prepare the closing documents. However, in most cases you can do the actual closing wherever you want.
Once that bank has completed all of the title work and has prepared all of the documents for the A-B transaction (your purchase from the bank), you can let them know that you prefer to sign everything at your closing attorneys’ office or Title Company. They can simply forward the documents to your preferred location. You can tell them that your closing attorney will do a “courtesy closing” for them. (You will of course be paying for this closing also.)
Don’t ever tell the listing agent or the bank’s title company that you are flipping the property. This will only cause confusion. Unless the agent is a real estate investor, chances are he won’t understand this process. The only parties that typically will know about the B-C transaction (my sale to the end buyer) will be me, my closing attorney and my end buyer at times. My attorney works with real estate investors on a daily basis and is used to doing these types of closings.
If you live in a part of the country (CA for example) where title companies don’t normally do simultaneous closings, find someone that is actively doing REO wholesale deals in your market and ask who they are using rather than just cold calling random title companies. Do your homework and find out what is “usual and customary” for your part of the country before deciding dive into the world of bank owned properties.