What Is a Simultaneous Closing?

Simultaneous closing is an event that sometimes takes place in real estate transactions. The process calls for the seller of a property to carry a mortgage note on that property, then sell that note at the same time that the property is closed. The end result is that both the note and the sale of the property are settled or closed near the same time, with the note sold roughly within 10 days of the closing of the sale. This process carries potential benefits as well as some liabilities that must be considered carefully before creating this type of financial arrangement.

In order to create a viable structure for the simultaneous closing, it is important to determine several criteria. The fair market value of the property offered for sale is key, since that will be among the data that the lender for the mortgage note will take into consideration. In addition, a full description of the property, noting any amenities or features that help to add to that fair market value, will also be helpful. As a last key piece of information in the creation of a simultaneous closing arrangement, the owner must determine how much profit he or she wants to receive as the result of the arrangement.

With all the necessary information in hand, the owner can work with a lender to create the type of mortgage note desired and be in a position to work with qualified buyers to achieve a sale. Once an offer is made that will allow the owner to achieve the desired profit from the sale, and the lender holding the mortgage note approves of the buyers, the closing for the sale can be executed. Within the following 10 days, the seller will sell the mortgage note to a lending institution or other third party that will then work directly with the buyers to settle the note according to the payment terms and conditions. This situation will continue for the duration of the note if the buyers are happy with the repayment terms, or may be settled early if they choose to refinance the debt using a lender of their own choice. In any event, the simultaneous closing allows the seller to close both components of the deal and no longer be a part of the arrangement.

While the simultaneous closing approach can be beneficial to all parties concerned, there are some potential drawbacks to this type of real estate strategy. Since the original owner of the property is interacting with the buyer as both the seller and the lender, there is the need to make sure that the buyer can qualify for the financing when the sellers sells the loan back to the source provider or to some other third party. This means that it is important to qualify the buyer before agreeing to the sale. Failure to do so may create a situation in which the seller remains the lender in terms of the mortgage note and must honor that commitment by making regular payments on the debt, typically by using the installment payments supplied by the buyer. Unless the owner is willing to remain in this situation for a number of years, taking the time to pre-qualify the buyer is essential.