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Wholesalers: Assignments vs. the Double Closing

March 23, 2018

 

Wholesalers are misunderstood, especially here in Massachusetts.  Because their transactions are arranged and structured differently, many real estate agents and attorneys are confused.  Some even assume wholesaling is illegal.  It's not, but the multi-layered rules in real estate make these transactions much more complicated - especially with the closing.

 

Many out-of-state commenters give some imperfect advice when it comes to Massachusetts.  Their general gist is this: if you're making a substantial profit as a wholesaler, you should cover it up through a double closing instead of a much simpler assignment.  That's because an assignment would reveal to the seller your big gains.  While there are ways to achieve the double closing, I advocate for the assignment method instead.  Here's why:

  • The seller is going to find out the profit anyway.  It's public record, easily searchable, and many third-party sources will also report it.

  • The simultaneous double closing, without interim funding, excludes buyers with traditional, appraisal-dependent financing.  A double closing in this circumstance would violate the rules of virtually all lenders and title underwriters.  Admittedly, an assigned contract also triggers many of the same appraisal concerns, but that's the point.  Covering up the wholesale price to the end lender is deceitful, and no attorney can ethically facilitate that.

  • Assignments much cheaper.  In a double closing, most of the closing costs, including the 0.456% transfer tax, are paid twice.

  • There are ways to be tactfully transparent with the seller.  In fact, I'd argue that sustainable business models would require it.  For example, a simple explanation at the outset that you are unlikely to be the end buyer should explain the arrangement.

Moreover, there are some circumstances when wholesaling isn't allowed.  Then, a double closing is really just a bad cover up.  Those situations are:

  • Short sales.  Most short selling lenders require affidavits that property isn't being wholesaled.  Obviously, this means that you can't legally do it.

  • Properties with certain deed restrictions.  If the property requires approval of the buyer or imposes limitations in resale, then a double closing can't be used to skirt the restriction.

If you're not familiar with wholesaling, then I've probably lost you.  My apologies.  However, if you are a local wholesaler looking for some above-board legal strategies, let's talk.

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