Purpose of a Memorandum · The Cowboy Sales Process

1. Why is Filing a Memorandum So Critical?

Many wholesalers sign a purchase agreement and believe they're fully protected. They are not. A purchase agreement is a private contract between you and the seller. If a savvy—or unscrupulous—investor learns about your deal, they can easily contact the seller and offer a slightly higher price. Without a public record of your interest, the seller may be tempted to breach your contract for a quick payday.

This is where the memorandum shines. When a title company or attorney runs a title search for the new buyer, they will find your memorandum. This discovery will "cloud the title," meaning the title is not clear for a new sale until your interest is resolved.

The Power Play

A clouded title puts a full stop on the new transaction. The title company will refuse to issue title insurance, and the new buyer will be unable to close.

The Negotiation Advantage

Now, the title company or the new buyer's attorney is forced to contact you to get you to release the memorandum. At this point, you hold all the leverage. You can demand a release fee to step aside, effectively getting paid for a deal you were about to lose. The amount of this fee is negotiable and can often be a significant portion of your original anticipated profit.

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2. The Most Common Reason for Failure: Improper Filing

A memorandum is only effective if it's filed correctly. A small error can render the document useless and leave you exposed. The most common mistakes are related to not following specific county requirements.

Here are the critical details you must get right:

1. Know Your Jurisdiction

The Rule: The memorandum must be filed in the county where the property is located. This seems obvious, but it's a common mistake.

The Catch: Some properties, especially in rural or suburban areas, can sit on or near county lines. You must verify which county the specific parcel of land belongs to before filing. A quick search of the county's Property Appraiser or Tax Assessor website can confirm this.

2. Adhere to County-Specific Requirements

The Rule: Every county's Register of Deeds or Clerk of Courts office has unique requirements for what information must be included on a legal document.

The Catch: These requirements are not universal. While a memorandum generally includes the property's legal description, the date of the contract, and the parties involved, some counties may require additional details, like specific formatting, a return address for the document, or a reference to a previous deed.

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3. The Modern Solution: Electronic Filing (E-Recording)

Historically, you would mail or physically deliver your memorandum to the county office. This process was slow and carried significant risks. If your document was improperly filled out, you wouldn't know until it was mailed back to you weeks later, by which time your deal could be long gone.

The best practice today is electronic recording (e-recording).

Speed: The process is nearly instantaneous. You can file a memorandum the moment your purchase agreement is signed, often within minutes.

Built-in Safeguards: E-recording platforms are programmed to check for the specific requirements of each county. If you try to submit a document that's missing a required field or has a formatting error, the system will reject it immediately and tell you exactly what needs to be fixed. This prevents you from making a critical, costly mistake.

Efficiency: You can fix the error and resubmit the document right away, ensuring your deal is protected with minimal delay. This eliminates the uncertainty and lost time of the traditional mailing method.

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4. The Power of the Memorandum

The Pros

A well-executed Memorandum of Agreement can be a powerful shield for your deals. Here’s why you should consider using one:

It Prevents Sellers from Backing Out: Once a seller signs a purchase agreement, filing an MOA creates a public record of your interest in the property. This acts as a powerful deterrent. If another investor or buyer tries to make an offer, a title search will reveal your MOA, signaling that the property is already under contract. This public notice makes it far less likely that the seller will try to sell to someone else for a better offer.

It Protects Your Investment: When you spend time, effort, and money on marketing, lead generation, and due diligence, you’re investing in that deal. An MOA protects that investment by legally documenting your position as the rightful buyer of the property.

It Creates a Public Record: The act of filing the MOA with the county recorder’s office creates a legally recognized, public record of your agreement. This makes it difficult for any third party to claim they were unaware of your prior arrangement with the seller.

The Perils of the Memorandum: The Cons

While an MOA offers strong protection, misusing it can create significant problems.

It Can Cause Delays: If you file an MOA improperly or forget to release it, it can cause significant delays in the closing process. This can frustrate all parties involved, including your cash buyer.

It Can Lead to Legal Disputes: If a seller or another party believes you have misused the MOA, they could take legal action against you. This is why ethical use is critical.

It Can Sour the Relationship: While you don't have to disclose every single detail of your business, filing an MOA without a prior conversation could damage the relationship with the seller. A transparent conversation about the purpose of the memorandum builds trust and makes the process smoother for everyone.

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5. The Ethical Use of an MOA

Using an MOA is about more than just legal protection—it’s about professional integrity. Here’s a simple rulebook for ethical use:

Be Transparent: Before filing, have a clear conversation with the seller. Explain that the memorandum is a standard part of your process and that it creates a public record of the agreement to protect both of you.

Release It When Necessary: If your deal falls through—for instance, if you can’t find a buyer—you must release the MOA immediately. Leaving a memorandum on a property you are no longer buying is unethical and can create a “cloud on title” that prevents the seller from selling the property to someone else. It's not just a nuisance; it's a major ethical breach that can lead to legal issues.

Know When to Walk Away: If a seller has a legitimate reason for backing out—like a family emergency, job loss, or a personal crisis—do the right thing. Release the MOA and let them move on. You don't want to hold someone hostage to a contract in a time of need.

From signing memorandums to closing, every deal starts with Prexium leads. Secure more deals now 👉

The Cowboy Marketer⁠

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