What Is Simultaneous Closing?
Simultaneous closing (SIMO) is a real estate financing strategy in which two simultaneous transactions occur during the closing on a single piece of property. In this type of arrangement, the seller creates a mortgage note on the property to help finance the property for the buyer. The note is then sold to an investor upon closing, at which time the investor pays the seller cash. The buyer thus makes mortgage payments to the investor holding the note, the seller receives cash from the investor for the note, and the buyer receives the title to the property. This removes the seller from future transactions, as he or she will not receive mortgage payments.
In a typical simultaneous closing scenario, the buyer and seller would negotiate and agree upon most of the details of the sale, although the investor may have some input or offer some suggestions. Once the closing has been completed, all further transactions related to the property will take place between the buyer and the investor who has purchased the note.
Understanding Simultaneous Closing (SIMO)
Simultaneous closing (SIMO) can have some advantages for both the buyer and seller, even though it can be a bit more complex than the standard property sale transaction. The seller may be motivated to initiate a simultaneous closing if cash is needed in the short term. The buyer is more likely to receive favorable financing from the seller because of the shortened transaction period.
However, there are some considerations to keep in mind. Some companies will not insure the property title during a simultaneous close due to the speed of the transaction since the parties' creditworthiness will be harder to determine in such a short time. In recent years, the real estate industry has seen a rise in predatory lending, mortgage fraud and other deceptive practices, which has made title insurance companies more cautious about any transactions that involve complex steps, or those that are processed on a timeline that is faster than the typical schedule.
How Simultaneous Closing Differs From Concurrent Closing
When the term simultaneous closing is used in this context, it is different from when the phrase is sometimes used by real estate agents or buyers to mean two closings in a rapid-fire succession of two properties, one right after the other. That is sometimes also called a concurrent closing, and usually involves a situation where the purchase of one property is contingent on the prospective buyer selling their existing home.