There has been a lot of bad press about double closing and flipping real estate recently. In fact, some lenders, real estate agents and title companies will even tell you that double closing and flipping are illegal. Don’t believe them. Flipping and double closing are perfectly legal. Flipping and double closing real estate should not be confused with the so called property flipping schemes, practised by unscrupulous investors, which are illegal. So, what is flipping and double closing and how do you do take advantage of the benefits without breaking the law?

While a typical property closing involves a title being delivered by deed from the seller of the property to the purchaser, double closing also includes a middleman. That is, the seller sells the property to a middleman (or dealer) and then they sell the property to a third party (purchaser). In some states, this double closing deal is referred to as double escrow. Double closing, or double escrow, contrary to popular belief is actually quite legal and can prove very rewarding for the dealer.

How is a double closing deal made?

Firstly, the dealer (middleman) agrees to purchase the property from the seller by signing a written agreement. The dealer then on-sells the property to the third party purchaser who agrees to purchase the property at a higher price by signing a written contract.

The dealer of the property does not put up any money for the purchase. It is the third party purchaser who outlays the money for the property. Where the purchaser is borrowing the money for the deal, they will have the funds wired to the attorney, escrow agent or title company (referred to as the closing agent).

The seller signs the deed to the dealer and the deed is then deposited in escrow with the closing agent rather than being delivered to the buyer. Following this, the dealer then signs a deed to the purchaser. This deed is also deposited in escrow with the closing agent.

The double closing deal is completed when the closing agent delivers the funds for the final purchase price to the seller. The dealer then receives the difference between the initial purchase price and the amount paid by the purchaser. The closing agent records the two deeds, one after the other, with the relevant office.

Why double close?

Firstly, the main benefit of double closing real estate for property investors is that they can purchase a property and then on-sell it for a profit without outlaying any of their own money. For the purchaser or seller of the property, double closing can offer a way of protecting their privacy by concealing their identity from the other party, and using the dealer in the middle as a type of agent.

What is the difference between double closing or flipping real estate and the illegal schemes?

What the media refer to as property flipping schemes are entirely different to double closing and flipping as described here in that their aim is to artificially inflate the price of the property with the intention of selling it to an unsuspecting property investor for much more than what the property is actually worth. For example, a property may be sold many times in succession, each time for an increasingly higher price. In many cases, substandard repairs will be made to the property to help justify these inflated prices. Eventually, the property will be sold to an unsuspecting, and usually unsophisticated, property investor. In such schemes, the seller, appraiser and mortgage broker are often in on the scam often submitting fraudulent loan documents and bogus appraisals in order to convince the investor of the property’s ‘value? It’s here where the law is being broken.

As you can see, these illegal schemes are totally different in that they are fraudulently conning unwitting investors into purchasing a property for much more than the property’s true value. As many of these investors are purchasing with loans insured by the Federal Housing Authority (FMA), it is easy to see why the Senate has taken such a keen interest by holding hearings into these schemes.

Double closing and flipping real estate are legitimate real estate strategies that can be used to create wealth for the dealer without giving to outlay large sums of money. And for the seller and purchaser, using a dealer in double closing and flipping deals can help protect their privacy.

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