Avoiding Same-Day Closing Disasters

Welcome to The Closer's Checklist, where I identify insights, learning and experience from my 15 years as a BC Notary to help you and your clients close residential real estate deals in BC safely and cost-effectively.

You can learn more about me and what I do as a BC Notary through my work at TNG Legal Services MDP here or through my work at The Notary Group here.

Let's get into it!

What is a same-day closing?

Same-day closings, often called back-to-back or chain closings, can turn into utter disasters. They strike fear into the heart of every conveyancer. Every BC Notary and real estate lawyer has horror stories about how their clients have lost time, money or even deals because they insisted on a same-day closing.

Same-day closings are closings where a client has set the completion date for their sale of one property on the same day as the completion date for their purchase of a new property.

In other words, both the sale of their old property and the purchase of their new property are scheduled to complete the same day.

Clients often think it will be more efficient to schedule both deals on the same day, but nothing could be further from the truth.

Why are these deals so problematic?

Back-to-back closings have many really dangerous failure points. Most of these failure points are things you have literally no control over, so you can't even mitigate for them.

Here are just a few classic failure points on back-to-back deals:

• it turns out you are transaction #5 in a multi-party chain, and one of the previous transaction links in the chain has failed
• the closing date is on a Friday, at mid-month or end of month, when transaction volumes are highest, lenders are busiest and slowest, and the weekend means there is no chance to recover from a late closing
• mortgage funds didn't arrive at the legal firm of the folks buying your sale property until 4:00 in the afternoon (clients often use internet lenders who come up with last minute financing conditions that legal professionals have to scramble to meet on closing days)
• money needs to be moved between different communities (did you know legal representatives have different payout procedures based on where the property is located?)

So what problems do these failure points cause?

• the sale proceeds didn't arrive in time for the client's BC Notary to meet the purchase's 4:00 registration deadline
• the client has to pay additional costs for mover overtime, storage and hotels when their purchase didn't go through as expected
• the client has to pay costs and damages for people behind them in a chain because they failed to complete either their sale or their purchase on time
• the client incurs additional legal costs because new closing dates and arrangements need to be negotiated
• REALTORS? and mortgage brokers end up spending additional time to help negotiate new closing arrangements, or money out of their own pocket to cover overnight storage or hotel costs

But my clients insist on it!

Clients are always to be respected, but they're not always right.

And they often have outdated ideas about closing procedures. It's our job to make sure they are educated about the pitfalls of these dangerous setups.

Clients often think that all their BC Notary or lawyer does on closing date is push a few buttons, and funds are transferred instantaneously.

Nothing could be further from the truth.

Closings generally take 2-4 hours to complete (assuming the conveyancer has done all of the complicated prep work ahead of time), and most funds are still transferred to the next notary or law firm in the chain physically, not electronically.

Trust accounting rules for lawyers and BC Notaries both have significant tracking, audit and safety protocols. It's impossible to estransfer the kinds of significant funds involved in most transactions. Wiring funds can take hours, or even run overnight, so most firms still send a runner to the bank to stand in line, often for up to an hour, to deposit funds to the next firm's trust account.

As legal professionals, its our job to point out why a situation might be dangerous, and to provide alternate solutions.

So what are the options?

Staggering the Completion Dates

The simplest and most effective solution is to stagger the completion dates.

Set the purchase's completion date the next business day after the sale's completion date.

For example, set the sale file to close on Thursday, and the purchase file on Friday. Set the possession dates a day after the completion date, to give us lots of time to get everything sorted.

Bridge Loan Financing

Another solution is to have the clients get bridge loan financing for their purchase.

This is a short term loan the client can arrange with their lender. It lasts for 3-5 days, and is repaid when the sale goes through.

What it does that is super-helpful is get your BC Notary enough money to complete on the purchase file without having to wait for the sales proceeds.

This means the two deals aren't reliant on each other - if the sale falls through or goes late, the purchase can still happen and you don't have a potential law suit waiting to happen on both files.

Clients get nervous about these loans because they think they are expensive, but the cost of interest for under a week is much less than the cost of increased legal costs, overtime for movers and putting other parties up in a hotel for a day or a weekend because the sale went long.

But lawyers don't have these problems, do they?

Yes, they do.

BC Notaries and lawyers have the same standards of care. We use the same closing protocols and we have the same issues with lenders, clients and property chains.

It makes no professional difference whether your deal is being managed by a BC Notary or a lawyer, so don't fall for that old misdirect!

In Closing

We love helping clients get their new homes. But the stress of wondering if your client's sales proceeds will show up in time to complete on their purchase is just something no one needs to deal with in this day and age.

Help us all by staggering the completion dates or encouraging your clients to get bridge loan financing to reduce the risk to them of a chain collapsing in a way they can't control.

Have questions? We'd love to chat. Email us at [email protected] with your questions!