Simultaneous Closing

The second way you can get paid is through an assignment fee. You may be wondering what an "assignment" is. It occurs when you assign the contract to the buyer who agrees to pay you a certain amount of money to take over the existing contract and all of the contingencies with your original contract.

Here's an example of an assignment: Let's say that in your original contract with the sellers you state that not only will you buy the house, but you'll also buy them a car and send them to Florida on a vacation. The buyer to whom you're assigning that contract will have to meet these contract terms. For the privilege of buying the original contract from you, the buyer pays you a certain fee.

That brings us to an "assignment closing." This occurs when there's only one closing, and you charge your assignment fee to the buyer. Here's how the process works:

Step 1: The seller deeds the house to the buyer.

Step 2: The buyer brings in the cash and pays the seller their fee and you your assignment fee.

The seller doesn't deed the house to you; you never own the title. That's why there are no capital gains taxes. You're just there to collect your assignment fee.

In terms of assignments and double closings, I have a general rule. When my wholesale fee is $15,000 or less, I normally assign the contract. When it's greater than $15,000, I normally double close on it. Of course, it all depends on the individual situation. There have been times when I assigned a contract even on a $30,000 wholesale fee because I trusted the buyer.

Sometimes you'll need to deal with a "pass through" closing situation. A pass through close is the same as a simultaneous closing with one difference; there's only one title policy, not two. Each time you close on a house and you go through a title company, you buy title insurance (title policy). In a normal closing, the seller will insure the title while the buyer will do a separate title policy. But, in a pass through closing, there is only one title policy insured from the original seller that passed through you to the end buyer. The advantage of this method is that it cuts down on closing costs since there's only one policy.

Be aware that title companies aren't always aware of this method, so make sure they know how to use the technique before the closing. Also, be aware that not all title companies will accept the use of a pass through. In addition, realize that there's a small disadvantage with pass through closings. The title is insured only for your buyer to your seller, and you don't get part of that insurance. So, if anything happened during the few seconds you've owned the house, you're not covered. Of course, the likelihood of such an occurrence is remote, so I use pass through closings most of the time.

In a double closing, whatever you promise the seller ends with you. Whatever you agree to with the buyer is between you and the buyer. They're not going to take over your existing contract. Instead, they'll have a brand new contract between you and the end buyer.

Once you assign a contract to a new buyer, you no longer have equitable interest in that property. Technically, you're now not either the buyer or the seller. You're the "middleman" who's receiving a fee. That's why you have to put the affidavit of memorandum into the county clerk's office and fax your assignment sheet over to the title company right away.

On a double closing, there are capital gains taxes, but there aren't any on assignments because that's considered income.

I'm sometimes asked if it's better to use a title company for a closing or a lawyer. The answer is that it varies from state to state. In Houston where I live, I normally use a title company because fee-based attorneys go through the title company for underwriting and insurance, anyway. So, in effect, I'm saving myself money by going directly to the title company.

I'm also asked what happens to a simultaneous closing when something unexpected happens; for example, the seller is in a car accident and can't make the closing. Remember, when the buyer pays the money, the title company is holding it in escrow. So if the seller (or buyer) gets delayed and the signing gets delayed a day or several days, the buyer has to come in and sign again. In order for the transaction to be considered a double closing, both parties have to sign on the same day. If it's a different date, then you have to buy the property and get your seller to sign first. Your buyer can sign on the next day.

Another situation that may occur is that the seller is located out of town or out of the country. In that case, they may assign the Power of Attorney to a friend or partner and have that person represent them at the closing. This is fine since the results are the same for you. The person with Power of Attorney will come in and sign for the seller, and you come in and sign as the buyer.

Be aware that there are two sets of closing costs when you do a double closing. The title company or attorney has to create two sets of documents so they receive more recording fees. For example, if you have two title policies, the title company has to insure it from when you buy the property and then insure it again when you sell it.

Of course, any closing involves paperwork, and that's the subject of my next article.

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