How Does The Escrow Process Work For Wholesale Houses?

Title and escrow are the least covered topics in wholesaling houses. However, it is important to understand the escrow process because the power of this process can’t be denied. Read on to learn all the details about the escrow process:

Understanding the Escrow Process

Here’s how a qualified escrow company will do for you in a cash/wholesale transaction:

When you receive a signed A-B contract (assignment), the next step is to take your contract to your local escrow company. From there, the process becomes relatively simple. The first step for the seller is to order a title search. This is done to check for potential problems with the title. The report for this is typically received in 3 to 5 days and conveyed to both parties involved in the contract.

With a wholesale deal, some wholesalers may be reluctant to open an escrow account before they find an end-use buyer. However, don’t forget that the benefits of opening escrow are manifold. Firstly, the wholesaler will receive the escrow receipt. This receipt is proof of the contract or the evidence. When you open an escrow account, it will cause the title and escrow company to act. Their action will give more confidence to the seller. They will ask you to provide a copy of the signed contract.

This will allow them to confirm the contract. Moreover, they may also ask for other contract-related information, such as:

  • Beneficiary statements
  • Taxes
  • Review of transfer terms
  • Insurance

Two Ways of Closing Escrow in a Wholesale Real Estate Deal

In a wholesale real estate deal, the transaction (and escrow) will be closed in either of the two ways:

  1. Wet funding also known as end-use buyer’s funds
  2. Transactional funding

The end-use buyer is the cash buyer in a wholesale purchase transaction. Depending on the transaction type (REO, short sale or any other), the end-use buyer will have different levels of involvement in the process. In other words, in a simple wholesaling transaction, the cash buyer will take the place of the original buyer. They will not assume any rights and conditions.

Once the parties and documents involved in the transaction are finalized, then the transaction will move to closing. The escrow office will sit down and review the file, ensuring that all the terms and conditions have been met. Furthermore, they will ensure that all the documents presented are correct and available for signatures like septic inspections, and contingencies released.

As soon as the paperwork is complete, a date will be selected to meet the buyer and seller. Once the transaction is recorded and the file is closed, they will prepare the final HUD 1 statement. Thereafter, the funds will be disbursed to the parties.

The documents will also be forwarded to the interested parties, such as:

  • Tax documents to the county
  • HUD 1 statement to the buyer and seller

By understanding the wholesale house escrow process and building trust with escrow officers, real estate wholesalers will enjoy smoother, more predictable deal closings.

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