Private Money Partnering

Protecting The Private Money Deal

Chapter L. Protect Yourself And The Deal

Who Could Hurt You?
How Could You Protect Yourself?

Forms:

Notice Of Option To Purchase
Affidavit And Memorandum Of Agreement For Purchase And Sale

Who Could Hurt You?

Protection From Other Buyers

Most of the time you need protection from other people. The first order of business is to protect your deal from others, even other investors. What you need to do is file at the courthouse an
“Affidavit” or “Memorandum of Contract”. Let me give you an
example of what can happen. I put a house under contract on which the seller had earlier signed a contract with another buyer. Or at least she thought it was supposed to be a contract. The other alleged buyer did not give her the earnest money stipulated in the contract, he did not perform the tasks he agreed to within the time frame stipulated, and had disappeared without a trace. I felt the contract was no longer valid.

To protect myself from a future claim against that title, I told her I would record the memorandum of my interest immediately. If the earlier “flimflam man” had recorded the same protection two weeks earlier, he would have at least put a cloud on the title and the courts would have determined the validity of his contract. Title search revealed that he had not clouded the title and was free to buy the property to the exclusion of all other claims.

Protection From The Seller

You might need to protect yourself from the seller changing his or her mind. In another instance, I put a house under contract and recorded a “Memorandum of Contract.” Two weeks later the sellers said they had changed their mind and they were going to stay in the house. I said nothing and just waited. Six months later the homeowner attempted to obtain a second mortgage on the house. Because of my “Memorandum of Contract” recorded a the court house, which effectively clouded the title, the second mortgage company paid me off to quitclaim my interest and clear the title. In this way, my time was at least protected, even though the deal disappeared. So prior to approaching a money partner about a deal, make sure you have protected the deal at the courthouse.

Protection From Your Partner

Partners need protection from each other. If the property is held on title in both partner’s names, you’re both protected. If the property is in one partner’s name, say Debbie or Dan, or their trusts or corporations, and the Money Momma/Man has a mortgage against the property, then both interests are protected. But if the property title is held by only one party and the other is not on a mortgage, then a “NOTICE OF OPTION” should be filed. The particular content is not as important as the fact that the world will know that there is an interest in that property held by someone, with details unknown and undisclosed in court house records (by design). This courthouse filing means that the partner who is titleholder can not sell the property at midnight and “Run Venezuela”. You do not want to say much more to the world other than the fact that you have an interest in the property which must be dealt with before resale or refinance. The partner not on title now is protected. Remember, to record any kind of transaction you’ll need the legal description and at least two witnesses, one of whom is a notary.

Protecting Private Money Deals - Chapter L (continued)