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Questions on Double Closing

A double closing occurs when a real estate property is purchased and sold, simultaneously, with the help of three parties: the original seller, a middleman who is an investor, and the final buyer. A double closing can happen for many reasons. One of the common reasons is to allow the middleman to use the purchaser’s funds to buy the property from the original seller. Another popular reason is to hide the identity of the seller or purchaser.

Listed below are a few questions answered by real estate lawyers on double closing related issues.

Can I do a double closing in New Jersey as a real estate investor? I want to place a house under contract, get a buyer, and pass the title from the seller to the buyer in order to earn profit on the deal.

If you are playing the role of a dual agent, you can do this as long as you get the buyer and seller to execute a dual agency agreement that indicates both parties are being represented by you. There really shouldn’t be a problem as long as everyone knows and agrees to your role.

What is the difference between a double contract and double closing?

The term "double contract" can be used in many ways in real estate. Double contracting is the process by which two contracts are created in a real estate transaction. One of these is considered the "real" contract and lists the true elements of the transaction. The second is a "false" contract or an illegal contract that is shown to the lender and helps the buyer project a higher sales price and get a larger loan. This kind of contract helps to deceive the lender and is not legal.

Double closing is the process by which a person purchases a piece of real estate and immediately sells it. One contract is drawn up to record the transaction between the buyer and the seller, while another contract is drawn up for the new buyer. Both the documents are placed in escrow and the closing occurs concurrently. This is a process followed by many real estate investors who are keen to make a quick profit on a piece of property. It is a perfectly legal process but is sometimes referred to as double contracting by mistake.

In Indiana, is it legal to perform a real estate double closing, where the transaction from A to B and the transaction from B to C happens at the same time while an investor makes money from the sale?

Yes, this is considered legal in Indiana. But since there is a strong crackdown on mortgage fraud, it could be difficult to locate a closing company that agrees to conduct a double or simultaneous closing.

In Virginia, if I enter into a purchase option agreement with a seller, am I allowed to sell the property to another buyer with the knowledge of the original seller? Do I close this deal with an assignment of my option to the new buyer or can I do a double closing? Also, can I do this under my LLC as a business without possessing a real estate license in VA?

Possessing an option won’t give you any rights to sell the property. However, it is possible to sell the option if there are no restrictions in the option agreement preventing you from doing so.

Once you sell the property, the person who buys the option would have to pay the price mentioned in the original contract to the seller. You would be allowed to keep only the amount charged to sell the option. Basically, your only rights while holding the option are that the seller cannot sell the property without you releasing your option.

Finally, your LLC can own the option and you would need a license only if you were marketing the real estate. Since you are only selling an option here, it doesn’t matter.

Usually, when a double closing happens, a real estate investor first gets into a contract with a seller to buy a property and then before closing the deal, enters into a second contract to sell the property. A double closing is then used to close both transactions at the same time. To separate the buyer and seller, the closing usually takes place in two separate rooms or at two different times or locations.
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