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Risks of Not Filing a Memorandum of Contract
1. Protect Your Deals: The Power of Filing a Memorandum
If you're a real estate wholesaler, you know the hustle of finding a great deal. You put in the work to locate a motivated seller, negotiate a price, and get a property under contract. But what happens if the seller gets a better offer and decides to back out? All that time, effort, and money you spent can disappear in an instant. This is where a Memorandum becomes your most powerful tool.
A Memorandum, specifically a "Memorandum of Contract" or "Memorandum of Understanding," is a simple, legal document you can file with the county recorder's or registrar's office. It serves as public notice that you have a valid, legal interest in the property. Think of it as a flag planted on the property, telling everyone, "This property is under contract with me."
2. The Risks of Not Filing a Memorandum
The video highlights three significant risks that wholesalers face when they don't file a Memorandum. These aren't just minor inconveniences; they can cause you to lose a deal and suffer significant financial losses.
Losing Your Interest in the Property
When a contract is private, the seller can easily ignore it. Without public record of your interest, a seller can simply accept another offer, leaving you with no legal recourse to force the sale or recover your time and effort.
The Seller Accepting a Higher Offer
This is a common and frustrating scenario. A seller might sign a contract with you for a great price, but then someone else comes along and offers more. Without a Memorandum on file, the seller can legally sell to the higher bidder, and your contract becomes worthless.
Potential Financial Loss
Finding and securing a deal costs money. You might spend money on marketing, travel, professional photographers, or other due diligence. If the deal falls through because a seller bails, you've lost all that money. A Memorandum helps protect your investment by giving you legal leverage.
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3. The Power and Simplicity of a Memorandum
Filing a Memorandum is an incredibly cheap and simple way to protect your deals. The cost is minimal, often ranging from just $20 to $30, depending on the state and county. This small fee buys you a significant amount of legal protection.
Once a Memorandum is filed, it creates a "cloud on the title." This means that anyone looking up the property's public records will see that a third party (you) has a legal claim to the property. This simple act makes it very difficult for the seller to sell the property to anyone else. A new buyer's title company will flag your Memorandum, and they won't issue title insurance until the issue is resolved. This essentially forces the seller to come back to the table and honor your original contract.
A Memorandum doesn't force a seller to sell, but it does make it nearly impossible for them to sell to someone else without your consent. This gives you immense leverage to either close the deal as planned or negotiate a "quitclaim" or "release of Memorandum" payment from the seller in exchange for you removing the public claim. This strategy helps ensure you don't walk away empty-handed.
Final Thoughts
The Memorandum is the ultimate form of public protection. It acts as an external enforcement mechanism that complements your contract.
For any serious wholesaler, filing a Memorandum should be a non-negotiable step once you have a signed contract. It's a small expense for a massive amount of protection, ensuring that your hard-won deals don't vanish into thin air.
From signing memorandums to closing, every deal starts with Prexium leads. Secure more deals now 👉
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