The letters NOI stand for Notice of Interest or are sometimes incorrectly called a Memorandum of Contract or MOC. It is usually a one-page document that stipulates that the person submitting the manuscript for recording at the County Clerk’s Office has an equitable interest in a property because of a signed purchase and sale contract.
The NOI is most commonly used when an investor signs a purchase and sale contract with a homeowner/seller and wants to show anyone trying to make another offer on the property that he has a legal interest in the property. This is where someone else, usually another investor, comes along and offers the homeowner a higher price.
The practice by investors of up-bidding properties after they are under contract is becoming more common in distressed and traditional markets. The investors regularly tell homeowners, “Get your highest offer from those 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 that statement is the term “in writing” because that usually means the homeowner must sign a contract.
While I can’t blame the homeowner for wanting more money, what I have seen happen most often is a black-hat investor trying to steal the deal, getting to the closing table, and re-negotiating the price to below what he had initially offered the trusting seller. How do I know? I have been on the other side of his offers and had to fight to keep my sellers.
So occasionally, we have to fight for our closings, and I have covered this in other articles about how to do this. Ironically, it is a criminal offense to “induce” someone to sign a contract when another contract is in place. The Attorney General’s Office will take these cases if you show proof and the seller cooperates – usually 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 record, which is effectively a lien against the property. I want to repeat this because the subtleties of this “lien” are very far-reaching. This NOI now has to be released as a lien on the property before the title can be transferred unless there is a foreclosure action to extinguish it or the lien holder (the original investor/buyer) starts a foreclosure action to take the property. If this sounds harsh, it is just a solution to a problem where one party to a contract won’t hold up his end of the contractual terms – just like a lender does to a homeowner.
The NOI does not need to be signed by the homeowner/seller so anyone can put an NOI on anyone’s property. Just remember, there is usually a sign in the Clerk’s Office that says something to the effect of “If you enter a lien that is not valid, it is a felony,” so think twice about what you are doing before you do it – don’t do it in anger or it could cost you a lot in attorney’s fees.
The courts and sometimes the recording clerk treats NOIs as unruly in-laws. They tolerate them probably for 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 forbid filing a notice of interest to be recorded in the public record. This prohibition can be overcome by striking this clause about it and having both seller and buyer initial it or adding an overriding clause or supplement to your contract.
Once an NOI is filed in the public record, the next time the title to the property is transferred, the title agent will have to have a Release of Lien for the NOI signed to write a title policy on the property or note it as an “exception” in the policy. If a Release of Lien does not extinguish the NOI, the title has been “clouded” and needs to be cleared, and a transfer to a new buyer may not correctly occur.
This is where you come in to release the lien, which usually happens when you least expect it – just before you were planning on closing yourself! Sometimes the homeowner will call when he gets a copy of the recorded NOI from the Clerk’s Office, and he didn’t expect it – either way, the seller is trying to renege on the transaction. Sometimes the seller changes his mind for a valid reason, but most often, it is not.
You have a couple of choices when the NOI “hits the fan,” so to say:
1.) Release the NOI using a Release of Lien document and get paid to release the lien
2.) Honker down and fight the seller to come to closing or get paid to release the lien.
In summary, your choice is personal and determined by the potential lost profit in the deal, the homeowner’s/seller’s real motive for not wanting to sell, how much you can get paid for a release of lien, and your disposition on that day. In the final analysis, the choice is yours to force the seller to come to closing or release the lien.
by Dave Dinkel
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