Should you get a seller to sign a memorandum?

Question

Would anyone recommend asking sellers to sign a memorandum if you feel like they may potentially get cold feet on selling a property to you? I’m also curious on how you would file it at the courthouse if the seller backs out of the deal?

Steve Morris · Answer

"I saw a video in which the guy said that if you get them to sign a memorandum and they tried selling to someone else"

I'd file it under the "they say a lot of stuff on the Internet" category.

Wayne Brooks · Answer

The “memorandum of purchase contract” you heard about is something that You draft sign on your own, then record. Be aware that you have to cancel/release it, and record it, if you back out. The seller doesn’t sign this.

Wayne Brooks · Answer

@Joe Splitrock He’s looking at wholesaling...trying to not let a buyer back out when they realize they made a bad deal.

Joe S. · Answer

It’s an affidavit of contract. Once you get a contract you can sign an affidavit of contract and file it. Not too many people actually do this because it can be a hassle.

Barry Ruby · Answer

Hi Caleb,

I prefer to draft and present a Term Sheet to a seller as a first step before generating a formal purchase and sale agreement. The Term Sheet addresses a number of critical deal points that are considered "deal makers / breakers". Many states consider LOI's and Term Sheets to be non-binding so, you want to make sure of the terminology and venue you are operating in.

My property purchases typically concern ground up developments which can easily take years rather than months to get to closing. Due diligence is conducted in a manner that creates a series of milestones that are a part of and lead to closing. Identifying the milestones and their timing dictates how earnest money gets posted and goes hard to meet the predevelopment program. Having the seller informed and "on board" with these factors is critical and can be satisfied with a well drafted Term Sheet.

Binding or not, I have found it helpful to necessary to get the key business points stated and agreed to before going to a formal contract. Doing so, saves time and fosters the early trust and understanding of the parties associated with the transaction.

Let me know if you are interested in drafting a term sheet and I can send you a draft template to guide you. In any event, you should also consider creating a critical path and budget to address your conduct of due diligence activities which should be used in structuring the terms and conditions of your intended purchase. I can send an Excel template to help you do that too.

Wayne Brooks · Answer

@Steve Morris Yes, can record an Affidavit/Memorandum. It simply puts the world on notice that you have a contract to buy on it. It’s more common to record a memorandum of lease with commercial properties....putting potential buyers on notice.

Steve Morris · Answer

So you can record in Florida on title without a judgment or owner agreement? How is it recorded as exactly?

Not arguing, I've never seen that in OR/WA. Closest was two times in a lawyer drafted PSA after the PSA was signed.

Wayne Brooks · Answer

@Steve Morris Recorder office....same place deeds and mtgs are recorded.

Joe Splitrock · Answer

@Caleb Shaffer some context here might be helpful. Are you buying a $100K single family house or $10M apartment complex? For small deals, usually the purchase contract is sufficient. For larger deals, there is more expense and time involved in getting the deal done, so the process is different. The main purpose of a Memorandum of Purchase Contract is if you have reason to believe the seller will get cold feet and try to back out. It essentially clouds the title, so if they try to sell to someone else, it makes it harder to transfer title. They have resolve the contract dispute with you. If you think someone is going to back out, it may be a bad deal to begin with. Forcing someone to sell is difficult. The best you can probably hope for is compensation for your expenses incurred.

If you want to tell us a little bit about the deal, we can probably give you better advice on what makes sense in this case.

Should you get a seller to sign a memorandum?

Should you get a seller to sign a memorandum?

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