Protecting Yourself in Un-Recorded Deals
Ah, you've got a problem!
You and the owner of that neat house have a deal, in writing now, where he's agreed to sell you that house if you'll just make his payments, or whatever.
But you just learned he's busy trying to go around you and sell to somebody else for higher figures! Wow! How can the turkey do this? Isn't it illegal?
More important...what can YOU do to stop this deal in its tracks and force him to deal with you and get you paid before his #2 deal is closed?
There is a method that's been used that does exactly this. It totally freezes things so the new buyer, if he's expecting a title policy, cannot close and the turkey of a seller cannot sell, until he deals with you and gets a release from you...or honors his original deal with you and tells # 2 buyer to go away.
You'd record a simple little doc. called Notice of Interest in that RE, with the deed recorder in that county, setting out the parcel number of the RE, your name & address, and the date of your interest's origination. Not a whole lot of info,but enough to "cloud" the title and keep a new title policy from being written by the title insurance company.
Title companies, in general, don't like this, and you might get chilly phone call from a title co. officer demanding to know what this is about and demanding it be released at once.
If this happens, you tell them you have some superior rights to the property and that's ALL you tell them. You don't have to explain yourself to anybody, and the owner knows what it's about and why you've done it. Tell the title co. person if he'll give you a written request, you'll pass it along you to your lawyer. Period. Say nothing else.
Guarantee this keeps you in the ball game and you will be hearing from the owner or his lawyer. Tell them you'll pass it along to your lawyer and they can deal with him.
Be aware there is at least one state, CA, where this cannot be done. In CA, they have a short "laundry-list" of items that can be legally recorded: deed, mortgage, deed of trust, etc.
So what to do there?
Well, I had this happen. So I prepared and recorded a new Deed from me to an entity I control. Although I had NO deed from my owner/seller, and he had dis-honored his agreement with me and was trying to sell it around me!
I actually got a call from the recorder's office, demanding to know what this was all about. I figured the owner had asked them to call me.
The clerk asked me how I could GIVE a deed when I had never GOT a deed! Pretty nervy of me was the attitude I picked up from her.
What I thought was: pretty nervy of a recorder's clerk to question me! They were WAY out of line getting involved in a private matter.
I gave them the same run-around I describe above, and basically told them nothing.
It got me paid what the guy owed me.
FYI: Please note that in many states whatever document you file, call it a Memorandum of Agreement, Notice of Interest, or whatever, must be notarized in order to be recorded.
Absolutely right! So far as I know, NO state will allow a recording if it does not have NP's signed acknowledgement.
Only reason I didn't mention it is because to my knowledge the NPA (notary public's acknowledgement) is a universal requirement in 50 states, and so long as one is recording a unilateral (one party) doc like this, it's so easy to sign in front of NP, at bank, title company, check-cashing business, etc. All of which normally have a NP.
Of course, your form, when you draft the Memo/Notice, should include the blank NP's Acknowledgement under your signature line; then, when you sign in presence of a NP, he/she can just fill in the NPA's part & sign same and it's done and ready for recording.
Where to find the NPA form? Any deed or D/T in your state will have the same basic form with the standard language contained therein.
Or go on internet, find most any RE form for your state, cut & paste the NPA part and you've got it.
Not to be overly dramatic, but I think this is one of the worst tips ever posted on this message board.
If someone ever tried to cloud the title of one of my properties with one of these inane little worthless pieces of paper, I'd have my attorney go after them tooth, fang and claw in a heartbeat.
If you give a deed on a property without having the legal authority to give one you are just asking for legal sanction.
Congratulations on your "newbie" status
Do you make it a practice to record an interest on all of your deals?
If not, at what point would you do so?
Ie, when calls are not being returned?
Do you have a title company or attorney record this document or is it something you do yourself at the county clerk office?
Johnmerchant,
A big thank you for your article! I'm currently in a situation where it looks like I'm being stiffed for my money. So your article provided a big light in a dark tunnel.
I'll be using this "Notice of Interest" technique for NOW on! It beats going to court.
Thanks again for this instructive and invaluable info!
dmarketing
would NOT recommend that this is the way you do this. Especially the second way where you are deliberately and FALSELY clouding title and you can be sued.
Instead, what I DO recommend is that you take out a promissory note on the property. Whatever money you give the HO or for whatever equity is in the property is now protected by a RECORDED promissory note for what you think you will make on the property.
When someone else wants to clear title they have to pay you off. If the HO refuses to sign the promissory note for money you are giving him then you know something is fishy. This is also a great way to then sell the property with your name never appearing on title. This helps BOTH with seasoning and dealer status issues.
Dreambuilder
I would NOT recommend that this is the way you do this. Especially the second way where you are deliberately and FALSELY clouding title and you can be sued.
Instead, what I DO recommend is that you take out a promissory note on the property. Whatever money you give the HO or for whatever equity is in the property is now protected by a RECORDED promissory note for what you think you will make on the property.
When someone else wants to clear title they have to pay you off. If the HO refuses to sign the promissory note for money you are giving him then you know something is fishy. This is also a great way to then sell the property with your name never appearing on title. This helps BOTH with seasoning and dealer status issues.
Dreambuilder
If you really have an interest in this property, then clouding title is your right. Anyone can sue for anything they want, remember that. However, if you could title and you have a reason for doing so, I would highly doubt a succesfull lawsuit against you. Using a memorandum is a good idea if you have a transaction pending. I think if its a real deal, why not just have a Q/C signed or a promissory note attached? Then again, a promissory note will get paid if the property sells while a memorandum will hold up an actual sale until title is cleared
Notice of Interest is a legitimate way of securing a legitimate interest in the property. If you have a deal in writing, which you should since this is real estate after all, just record the writing. There is also a little thing in the majority of states known as slander of title. If you cloud the title without right, as you did when you recorded a grant that wasn't a grant, you can be sued for damages for blocking the sale as well as punitive damages because your acts were clearly intentional, malicious, and in disregard for the rights of the seller. Highly reccomend that no one try this.
I apologize in advance for the bold face, I got a little carried away. No offense was meant to anyone.
Johnmerchant, as an attorney you will appreciate the following citations, per your request: 769 P.2d 146, 847 P.2d 333, 911 P.2d 1209, 223 P. 170.
I also forgot to mention toritious interference with contractual relationship: 593 P.2d 427, 911 P.2d 1210, 894 P.2d 1060.
Additionally, as a professional and officer of the court, I would doubt that your state's bar would smile on filing false documents, making material representations to a public official, etc.
If I were the cad that owned the property that had promised to sell to you and now went elsewhere. All I have to do when your recorded document pops up in front of the title officer is, Bond the item. Title Company will then write around the item. You have a period of time to file an action but it is limited. Bonding is rather a well used method to get rid of all those crazy things that pop up when people do not properly record their goodies. A simple Trust Deed would have protected you if you could have got it and of course the note that it secured. Come on John, I know you, you could have lien'd or leaned on him a little harder and got your instrument to record. I hate "As to date transactions" people always seem to change their mind or are swayed by the duplicity of others.
My ex wife modified my agreement to pay child support. raised the figure from $2,500 a month to $12,500 a month. Of course the ink was a little different so it failed. Moral: Do Not Put Off the Completion Of A Deal. Finalize, Execute, Record. Cheers, Lucius