How a Notice of Interest can save your real estate investment deals
The letters NOI stand for Notice of Interest or sometimes incorrectly referred to as Memorandum of Contract or MOC. It is usually a one-page document that states that the person filing the document for recording in the county clerk’s office has an equitable interest in a property because of a signed contract of sale.
NOI is most often used when an investor signs a sales contract with a home owner/seller and wants to show anyone trying to make another offer on the property that they have a legitimate interest in the property. This is when someone else, usually another investor, comes in and offers the homeowner a higher price.
The practice of investors bidding up properties after they’ve gone into contract is becoming more common in distressed markets, but it happens even in normal markets. Investors who regularly make statements to homeowners like, “Take your highest bid from these other guys and call me back, I’ll give you more money than any of them – I just need to see it in writing.” The ugly part of this statement is the term “in writing” because that usually means the contract must be signed by the homeowner.
While I can’t blame the homeowner for asking for more money, what I’ve seen happen most often is a black hat investor trying to steal the deal actually gets to the closing table and renegotiates the price below what he originally offered to the unsuspecting seller. How do you know? I was on the other side of his offers and had to fight to keep my sellers.
So from time to time we have to fight for our closures and I have covered this in other articles on how to do this. The irony is that it is a criminal offense to “induce” someone to sign a contract when there is another contract. The attorney general’s office will take these cases if you provide proof and the seller cooperates — which usually happens when the homeowner is threatened with a lawsuit or foreclosure.
So when we sign a contract with a seller, we almost always record an NOI in the public registry, which is effectively a lien on the property. I want to repeat it because the subtleties of this “bet” are very far-fetched. This NOI must now be released as a lien on the property before ownership can be transferred unless there is a foreclosure action to discharge it or the lien holder (the original investor/buyer) initiates a foreclosure action to take the property. If that sounds harsh, it’s simply a solution to a problem where one party to the contract won’t hold up their end of the contract terms—just like a lender does to a homeowner.
The NOI does not need to be signed by the owner/seller so anyone can place an NOI on someone’s property. Just remember that there is usually a sign in the registry that says something to the effect of “If you enter a lien that is not valid it is a crime” so think twice before you do it – no Don’t in anger or it could cost you a lot of legal fees.
Having said that, the courts and sometimes the Secretary treat NOIs like recalcitrant matchmakers. They tolerate them probably because of the fees, but they don’t like them much because of historical issues with the seller not knowing these liens have been filed. Many standard real estate contracts expressly prohibit the filing of a notice of interest to be recorded in the public registry. This prohibition can be overcome by striking out the clause relating to it and having the seller and buyer initial it, or by adding a priority clause or addendum to your contract.
Once the NOI is filed in the public registry, the next time title to the property is transferred, the title agent will need to have a signed Release of Lien for the NOI to write a title policy on the property or mark it as “excepted ” in the policy. If the NOI is not extinguished by a lien release, the title has been “clouded” and must be cleared, and the transfer to a new buyer may not be made properly.
This is where you come in to release the lien, and it usually happens when you least expect it – right before you plan to close! Sometimes the homeowner will call when they get a copy of the recorded NOI from the clerk’s office and they weren’t expecting it – the seller is trying to back out of the transaction anyway. Sometimes the seller changed their mind for a good reason, most often they don’t.
You have a few choices when the NOI “hits the fan” so to speak:
1.) Release the NOI using a lien release document and receive a lien release payment
2.) Go down and fight the seller to get to a closing or get paid to release the lien.
In summary, your choice is personal and is determined by the potential lost profit in the deal, the owner/seller’s true motive for not wanting to sell, how much you can get for lien relief, and your disposition that day. Ultimately, the choice is yours whether to force the seller to close or release the lien.
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