Rental Property Investor · Charlotte, NC · Member since 2019 · 161 posts · 178 votes
I recently watched a video that talked about common errors to avoid. One of the common errors was "Not getting a Memorandum of agreement when buying real estate." The little explanation that followed said that in their opinion, everyone should obtain an MOA, a memorandum of contract, or an affidavit, and have it notarized along with a signed contract so that the seller can't back out or sell to someone else and cancel your contract.
Where I'm confused, if you have a signed contract, then why do you need an MOA (MOU) or affidavit. Isn't the contract legally binding enough? I couldn't find the answer through a google search because MOAs can apply to a lot of different areas. I'm located in Charlotte, NC.
Investor · Charlotte, NC · Member since 2016 · 14 posts · 7 votes
7y
Well a bank wouldn't lend on it, and title insurance wouldn't insure it. So technically, yes, someone with cash who did not do a title search or did and was okay with a clouded title could buy it. But then they'd either have to do quiet title action to clear it up or pay you to get off the chain title to resell it.
So either way, you'd just hang out there on the chain of title until you pop up later and someone has to deal with your Memorandum.
BUT if no money has passed for option fee or earnest money, your original option or purchase and sale isn't binding, so your memorandum wouldn't be either.
Investor · Charlotte, NC · Member since 2016 · 14 posts · 7 votes
7y
Hi Aidan,
Here in NC, A Memorandum of Purchase and Sale or Memorandum of Option to Purchase that is notarized can be filed on public record. So once filed, you're on the chain of title until a Termination of Memorandum is signed. If a Seller backs on your deal, in order to have a clear title to sell to someone else they have to get you to sign the Termination of Memorandum to clear the title. You can require payment for signing this, which gives you leverage and a way to make money on the deal even if you don't end up being able to buy it.
Rental Property Investor · Charlotte, NC · Member since 2019 · 161 posts · 178 votes
7y
@Elizabeth Goforth so if it clouds the title, do you have any legal right to the property? For instance, if someone else purchased the property even with the clouded title, could I take legal action?
Rental Property Investor · Charlotte, NC · Member since 2019 · 161 posts · 178 votes
7y
Let me elaborate further. Technically no money has passed. A contract was signed, the MOA recorded, inspections ongoing, but no deed has been recorded. Do I legally have a right to the property through the MOA?
Investor · Charlotte, NC · Member since 2016 · 14 posts · 7 votes
7y
Well a bank wouldn't lend on it, and title insurance wouldn't insure it. So technically, yes, someone with cash who did not do a title search or did and was okay with a clouded title could buy it. But then they'd either have to do quiet title action to clear it up or pay you to get off the chain title to resell it.
So either way, you'd just hang out there on the chain of title until you pop up later and someone has to deal with your Memorandum.
BUT if no money has passed for option fee or earnest money, your original option or purchase and sale isn't binding, so your memorandum wouldn't be either.
Las Vegas, NV · Member since 2009 · 196 posts · 32 votes
5y
Has anyone brought suit against the seller for breach in the event they decide not to sell?
This would be on a case-by-case basis and depend on the amount of the wholesale fee. In most cases, probably not worth the legal costs and time unless (a) the wholesale fee justified it, and (b) there are other assets to attach, otherwise, you would be replacing one lien for another on the property.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
5y
@Aidan Mulligan No, you have no rights to the property. It is simply a way to put pressure on a seller if they change their mind. This is used almost exclusively by wholesalers because they’ve found found a desperate or uninformed owner, got them to agree to a low ball price, then the owner realizes they got hosed on the price so they may try and get out of it.
Also, you will face liability should you Not terminate the Memorandum when applicable....you can’t buy it or find another buyer.
@Aidan Mulligan No, you have no rights to the property. It is simply a way to put pressure on a seller if they change their mind. This is used almost exclusively by wholesalers because they’ve found found a desperate or uninformed owner, got them to agree to a low ball price, then the owner realizes they got hosed on the price so they may try and get out of it.
Also, you will face liability should you Not terminate the Memorandum when applicable....you can’t buy it or find another buyer.
Actually, we have brought a claim against a seller in breach for selling the property to another buyer, but it was a Lis Pendens, and was settled in our favor. The contract is a legal binding instrument and there are consequences for bother buyers and sellers. I have zero mercy for sellers that blatantly forego a signed contract for a better deal with another buyer. When we, as the buyer, did everything in good faith, put EMD in escrow, and had/have every intention to close even if we didn't find an end buyer, the seller deserves to be penalized. They signed the contract. If we have to, we will proceed against these types of sellers and every wholesaler should.