Sell-then-buy piggybacks in a changed market
Richard D. Vetstein takes a legal look at buyers who are selling and sellers who are buying.
Many home buyers today still need to sell their current homes and use the sale proceeds for their next purchase. Often, there is a closing in the morning on the “sell,” and a closing in the afternoon on the “buy.” We attorneys refer to this as a “piggyback” or “back to back” sale. Back in the boom days, we were doing piggyback transactions all the time, and lenders were able to offer special programs, like bridge loans, to facilitate these back to back transactions. The days of bridge loans, no-docs, and 100 percent financing may be over, but piggyback transactions are still going on, but in a changed market.There are numerous factors and variables to consider when doing a piggyback transaction, from a legal, financial/lending and marketing perspective. There can be at least 11 different people involved – buyer, seller, 2 agents, up to 3 attorneys, loan officer, appraiser, home inspector and contractor. The piggyback transaction works best when one person takes on the role of “project manager.” It’s usually your real estate agent or attorney. Communication and coordination is the recipe for a successful piggyback transaction.
On the legal side, the overriding goal is to keep your buyer’s feet to the proverbial coals on the sale while protecting your deposit on the buy. It may seem like common sense, but it’s best to hire the same attorney to handle both transactions. An experienced attorney will line up the two mortgage contingency deadlines so that your buyer will obtain a firm loan commitment as soon as possible (with no contingencies, especially the sale of other property), and you have sufficient time on your purchase to get your own firm commitment while protecting yourself from any worst case scenarios like job loss, defective title, etc. The attorney should always be on top of these important deadlines so he or she can ask for extensions and otherwise exercise any opt out rights. Failure to do that can result in the loss of your deposit. Delays are common today in the tighter lending environment.As the closing day approaches, everyone gets into high gear, with the agents coordinating smoke certs and pre-closing walkthroughs, the attorneys drafting preliminary HUDs, deeds, and coordinating wires, and loan officers sending closing packages. Speaking of wires, your attorney should be able to coordinate a wire of your sale proceeds then process a wire into the IOLTA account of the purchase closing attorney.
The closing day is about as hectic as you can get. I suggesting giving your attorney a power of attorney so he or an associate can attend the closing on the sale, get on record, coordinate the funds, and you can deal with moving and attending the purchase closing in the afternoon.
Have you done a piggyback transaction? Was it bumpy or smooth? Any advice for first timers?
