BiggerPockets

How To Use A Memorandum Of Agreement To Protect Your Deal

A memorandum of agreement is a legal affidavit which states you have an agreement with the owner for the sale of their property. When properly notarized, this affidavit may be recorded in the county recorder's office. This can be very useful if you want to prevent the seller from going around you and selling to another investor while they have an agreement with you.

When you record the memorandum, it creates a "cloud on title" which makes it difficult for a buyer to insure title since it creates uncertainty about ownership interests in the property. A title company/settlement attorney trying to perform a closing for the property would need to cure the defect by obtaining a quit claim deed from the Affiant to "clear the cloud."

A memorandum of agreement may help protect your profit by allowing you to either:

-Enforce your purchase agreement with the seller

or

-Remove yourself from the deal, but charge the seller a fee in exchange for furnishing a quit-claim deed

You should use discretion as to whether a memorandum of agreement is even necessary for your deal. It should certainly not be used on every deal. However, you may consider using one under one of the following circumstances:

-Your profit potential is large
-You have spent a lot of time on the deal
-You are worried the seller may enter into a purchase agreement with another investor

Comments

• 

  Helen Cote — 3 months ago

  Do we record this memorandum ourselves? Is this effective in California? My California real estate attorney doesn't believe any Title Company in California records this. And even if we record this memorandum ourselves, she doubts it will be able to cloud the title. Anyone in California has recorded Memorandum and Affidavit?

• 

  Helen Cote — 3 months ago

  Do we record this memorandum ourselves? Is this effective in California? My California real estate attorney doesn't believe any Title Company in California records this. And even if we record this memorandum ourselves, she doubts it will be able to cloud the title. Anyone in California has recorded Memorandum and Affidavit?