How to Save Real Estate Deals Under Contract From Other Investors

Discovering how to keep professional real estate investors from stealing your signed deals almost sounds paranoid. Unfortunately it is an all too common occurrence that professional investors (“pros”) use to get the deal. The pros or their representatives (commission based and hungry) make a presentation to the seller that simply says “We buy 50 properties a month, we close quickly and we are honorable. What we want you to do is sign a contract with any other investor so we know it’s a real offer and then call us. We will give you another contract for at least $2,000 more than he offered.” Too many homeowners fall for this.  They call the first investor back to say they sold it elsewhere or they decided not to sell at all. In every state that I know of this is a breach of contract and knowingly selling to another party while under contract is fraud. But the pros know that most investors won’t even challenge the homeowner and will drop it.

Don’t let yourself be tricked into losing a property where you have a signed contract. Here are five (5) ways to keep these wolves from stealing your deals.

1.) Use a standard contract that has been approved by your state’s Bar Association and preferably your state’s Board of Realtors®. This contract has passed many court challenges.  It is easier to defend in court if it comes to that. Overcome the urge to use a “Standard” contract that was supplied in a course you bought or that you bought at a local stationary store. These will work if unchallenged by the seller, but if you find that the contract doesn’t work in court, who do you sue for malpractice – the stationary store?

All these generic purchase and sale contracts are simplified to contain the minimal requirements of most states. It is a temptation to have the Gurus contract that is so iron-clad that the seller or buyer can’t sneeze without losing his deposit or his home. But are they really that good? I don’t want to be the one who finds out the hard way that your state courts didn’t allow them and threw out your case resulting in a loss of tens of thousands of dollars. So have a STRONG CONTRACT that is approved by your local “industry police” – attorneys and Realtors®. These contracts favor the seller but can be easily modified by inserting clauses and addendums so you can still have your “special considerations” inside your contract.

2.) Explain to the seller that your contract is the same as his having sold his home to you. Use the power of “This contract has been approved by your state’s Lawyers and Realtors®” and it is binding on the seller and especially on you the buyer. The purchase and sale agreement has been held by the courts to be as strong as a deed. This also reinforces the fact that he no longer owns the property and all that needs to be completed is his coming to the closing to pick up a check.

3.) I also explain about the Pros who may be coming behind you to try and get the homeowner involved in fraud against you, the real buyer. Don’t mention the Pro’s by name or you could be on the receiving end of a slander suit. Make it clear to the seller that this is a problem in the industry.  The real motive of the Pros who do this is to get the seller to the closing table and then renege on the contract and renegotiate the price to less than what you originally offered. Unfortunately, this whole scenario is real and happens way too often. Have him prepared to say “no” before he gets the offer. A few thousand dollars is a big incentive to “roll-over” especially if the seller needs the money (who doesn’t?) and the Pro is a persuasive salesman.

4.) File a “Memorandum of Contract” which is a single page document that simply states that you (the buyer) have a purchase and sale agreement for the property in question (address and folio number) between yourself and the seller (owner). The seller does not need not sign but it is very powerful if they do. However, many states require a notary and a second witness so you would have to bring a notary or meet the seller somewhere like your attorney’s office to have it signed.

You will record this document at the county courthouse so it becomes part of the public record. If and when the seller goes to close with another buyer, the title company will “see” your Memorandum in the public record and realize the new buyer may not have a valid contract. This causes a “clouding of the title” meaning the title agent must extinguish your interest in the property before he can issue title insurance. Some unscrupulous title companies could issue a title policy with an “exception” in the insurance for your interest. This is why you need an attorney to support your case.

5.) Have your attorney write the seller a letter and have it sent certified mail or hand-delivered. This is your last and strongest recourse before a lawsuit against the seller. You still have another shot at filing a formal complaint with the State’s Attorney with the request for a fraud investigation against the homeowner and the new buyer. I have never had one of these “last resort” letters not do the trick to get the property back or get a settlement from the seller and buyer before we had to go to court.

So there you have five very powerful ways to protect your contract from being stolen by pro-investors. While you never want to believe it could happen to you, in reality the more deals you do, the more likely it is to happen. With just minimal preparation, you will save yourself tens of thousands of dollars in the future.

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder