Double closings, or “back to back closings”, occur when two separate real estate settlements on the same property are scheduled sequentially. Effectively they occur at the same time, because the first or A-B or “A to B” closing is conditional on the second or B-C or “B to C” closing. If B-C doesn’t close, then A-B is unwound and is never finalized.
The natural reaction of many people, when they don’t understand something, is to claim “fraud!” or “illegal!” Are you tired of hearing this? We are.There is nothing illegal or wrong about double closings. There are perfectly legal and ethical. Parties generally run into problems, however, under three sets of circumstances.
First, the end buyer’s financing, particularly FHA or VA, does not always permit double closings due to a lack of seasoning of title. Many retail lending institutions and/or mortgage insurance providers (like HUD-FHA) demand that investors hold title to properties for 90 days in order to avoid issues with fraudulent flipping where no value is added to the property, but there is a significant price increase on a subsequent conveyance. Second, sometimes the selling entity – usually an REO lender or short sale bank – inserts deed restrictions on the first transaction, and thereby prevents a double closing. Finally, sometimes other deal participants, such as title companies or even real estate agents, attempt to put the kibosh on a deal due to lack of understanding or knowledge. Incidentally, it is always a good idea to provide full disclosure to all parties, at least as to the structure of the deal, even if specific terms are not fully transparent.