When Back-to-Back Becomes Simultaneous

One of the most common investment strategies employed by those who buy and sell property for a short-term gain is back-to-back close. As the term indicates, this technique involves two closings – or completed real estate transactions – which happen at essentially the same time.

For example, many times the scenario happens wherein a homeowner decides to move, and they plan to use the proceeds of the sale to buy a new house. Once they get an offer to purchase their first home, they go shopping for another one. But they can’t afford to buy it until the sale of their first house is completed. In this kind of situation, they may elect to schedule two closings – back to back – at their attorney’s office. First they close the sale, and then they turn right around and close the purchase of their new home.

Using this kind of basic concept, investors sometimes tighten the time frame even more. Rather than buying a house and then borrowing money to fix it up to generate equity or buying one and assuming the duties of a landlord in order to make a profit, the investor simply buys a property and sells it at the same time. While signing the paperwork to buy the property, the buyer also sells it to someone else, so the entire investment cycle is completed within a matter of minutes, not months or years. The closing attorney has all the paperwork for all of the components of the transaction drawn up and signed at the same meeting, all the parties convene at the same time, and the “signing party” begins and ends and all of the buying and selling occurs at one sitting.

But another more complex variation on this strategy is what brokers refer to as the “simultaneous close”. These closings are often used as clever tools for those who sell property by using owner financing but don’t really want to carry the mortgage loan for an extended time. These sellers don’t intend to be note holders, but are simply trying to figure out a way to help their buyers come up with the financing necessary to purchase the house. As soon as the sale is completed, these owner-financing sellers are interested in selling the mortgage note to an investor who will give them a lump sum of cash in payment. This allows the seller to “cash-out” of the transaction and not assume any responsibility for actually collecting monthly payments or carrying an extended mortgage for the new buyer. Because it all takes place at one sitting, the simultaneous close is also called a “table closing”.

For this kind of transaction to go smoothly, the seller (who wants to sell the house and the new mortgage at the same time) must take care to meet specific legal guidelines that exist to prevent lenders from charging unfairly high interest rates. If the seller accepts payment for the property, agrees to carry the mortgage, but sells the note immediately, it might be construed that the seller is trying to hide from the role of “lender” to avoid compliance with all laws pertaining to fair lending practices. In other words, the seller wants the convenience of making a loan, and only for a moment – long enough to get the deal signed and done. But within that moment the seller may incur the entire legal responsibility of a lender, and not disclosing that in a totally transparent fashion can be a violation of the law.

The seller also needs a qualified note buyer – who understands the complexities of simultaneous closings and other loan instrument procedures – to purchase the mortgage. Because delays or failures to comply to rules and regulations can be costly, the seller who wishes to take advantage of a simultaneous closing is strongly encouraged to seek expert advice from experienced, certified, financially stable mortgage brokers before entering into this kind of transaction.

Those who find a legitimate broker or buyer of notes to partner with may be able to enjoy the convenience of walking away with cash in hand, but never lose sleep about the future legal or tax consequences of actions. If a simultaneous closing is not appropriate to help an investor or seller meet his or her financial goals, a qualified and competent mortgage broker will understand and recognize those facts, counsel the client, and then offer advice and alternative strategies and plans for a more desirable course of action.