A "kitchen table close" typically refers to an informal real estate closing that takes place outside of a traditional closing office, often literally at a kitchen table. This type of closing can be more convenient and quicker for all parties involved.
Using an LLC (Limited Liability Company) close method in a real estate transaction can provide several benefits, including liability protection and potential tax advantages. However, in this context, the main advantage you're highlighting is avoiding the title seasoning requirement by the Federal Housing Administration (FHA).
Title Seasoning Requirement: Title seasoning refers to the period that a property must be held by the seller before it can be sold to a buyer who is using an FHA loan. The FHA typically requires a 90-day seasoning period to prevent fraudulent property flipping.
How the LLC Close Method Avoids Title Seasoning:
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Transfer of Ownership to LLC: The property is first transferred to an LLC. The LLC holds the title rather than an individual. This can sometimes be done without triggering the title seasoning requirement, especially if the LLC is structured correctly and the transfer is properly documented.
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Selling the LLC Instead of the Property: Rather than selling the property directly to the buyer, you can sell the ownership interest in the LLC that holds the property. Since the LLC's ownership of the property might not trigger the same seasoning requirements, this can effectively bypass the FHA's 90-day rule.
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Title Insurance and Legal Considerations: It's crucial that all legal and title insurance requirements are met, and that the transaction is transparent and legitimate. Working with a knowledgeable real estate attorney is advisable to ensure compliance with all regulations.
Advantages:
- Speed: The buyer can purchase the property more quickly without waiting for the 90-day seasoning period.
- Flexibility: This method can be particularly useful in competitive markets where properties sell quickly.
Disadvantages:
- Complexity: The process can be more complex and might require the assistance of legal and real estate professionals.
- Risk of Non-Compliance: Incorrectly structured transactions could result in legal issues or problems with title insurance.
By using an LLC close method and conducting a kitchen table close, you effectively streamline the process and avoid the FHA's title seasoning requirement, making the transaction faster and potentially more advantageous for both parties.
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