Note Course Bonus - When A Note Seller Backs Out Pt 2
Published: Wed, 05/23/12
Hello ,
What can you do when a note seller backs out of your deal?
It happens more often than we'd like, that's for sure.
Today Lorelei Stevens, President of Wall Street Brokers, tells us
your options in the second of a two-part article. She's only
been in the note business since 1971! She is obviously a
world-class expert.
Part 1 of her article is at
http://papersourceonline.com/3762/note-seller-backs/
Cheers,
Bill
W. J. Mencarow
President, The Paper Source, Inc.
www.PaperSourceOnline.com
www.cashflows.org
P. S. Check my blog daily for news of the note business and
more at http://papersourceonline.com/blog-articles/
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WHAT CAN YOU DO WHEN A NOTE SELLER BACKS OUT?
Part 2
by Lorelei Stevens
Record Your Agreement
Another approach is to record your agreement with the county
recorder. Your reason for doing this is that it may produce results
at some future time, but it is subject to so many perils that you
may decide it's not worth it.
Here's how it works: You write your preliminary agreement including
a clause in which the note seller authorizes you to record the
agreement in the county where the mortgage or deed of trust is
recorded. (The mortgage or deed of trust is the document which is
recorded against the real estate and is the security for the note.)
Then you record your agreement with the county and let time pass.
Your agreement usually shows up on any title report in the future.
That can be a cloud on the title of the real estate. A backed-out
note seller then becomes eager to remove that cloud, because a
pending transaction usually hinges upon it. Then you can convince
the note seller to pay you an appropriate settlement for you to
release the agreement.
However, there are many possible ways for this plan to backfire.
First, the county recorder may refuse to record such an unusual
document as an agreement to sell a note. Second, if the recorder
agrees to record your agreement, it must contain the legal
description of the real estate securing the note, a detail you must
not forget. Finally, county recorders normally only accept
notarized documents, so you must get the preliminary agreement
notarized, and your note seller may not agree to do that.
Even if you get that far, the title insurance company may decide
that your recorded agreement is not a cloud on the title of the
real estate - as it has to do with real estate paper and not the
real estate itself - and issue title insurance anyway, which
defeats your whole purpose. (ct'd below)
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LORELEI'S LEGAL LESSONS: THE ESSENTIAL GUIDE FOR SUCCESSFUL NOTE
BROKERS & INVESTORS
by Lorelei Stevens
"If I had read her book about 6 years earlier, I would be $200,000
happier." - Rick Cogswell, Katrick & Associates, LTD, buyer of non-
and sub-performing notes
"If I were just getting started in the note business, I would
memorize every page." -- Allen Myers, Private Mortgage Brokers
"An exceptional display of instructional material for note brokers
and note buyers, whether novice or expert." -- John Zarrillo,
former Vice President, The Associates
For information: http://store.papersourceonline.com/essential-guide/
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But the worst backfire comes if the note payor finds that your
recorded agreement is interfering with some transaction - buying
the note, selling the property, refinancing the property - and
becomes angered that you only obtained the permission to record
your agreement from the note seller and not from the note payor -
the owner of the property. You may face a lawsuit for slander of
title unless you release your agreement immediately and/or pay
damages to the note payor. That, of course, also defeats your
purpose and could put you in legal jeopardy with the note payor.
Even though recording your agreement may produce satisfactory
settlements in a few cases, the risks are generally not worth
taking.
Hold Hostage
There are two steps note buyers might think of, but must never
take: One is to refuse to return an original note to a backed-out
note seller on demand. If you haven't paid for it, you are holding
someone else's property hostage. Second is to obtain the seller's
notarized signature on an Assignment of Mortgage or Assignment of
Deed of Trust and record it before the transaction is complete.
This amounts to the same thing: you are holding someone else's
property hostage. You could face severe legal penalties for either
of these acts, which could be considered conversion. Conversion is
"any unauthorized act which deprives an owner of his property
permanently or for an indefinite time". This could get you into
serious trouble.
Having gone through the possible remedies for note sellers who back
out, you can see that there is no magic solution. Every possibility
has its drawbacks. Of course, there may be some circumstances in
which you would want to sue someone or force a settlement. The
experience will be interesting and expensive, and take up a lot of
your attention.
The wisest and most practical thing to do in most situations,
however, is to forget it and go on to the next deal. Put your
effort into the positive. You'll feel better and you'll do better.
COPYRIGHT 2012 WALL STREET BROKERS, INC. ALL RIGHTS RESERVED
Lorelei Stevens is president of Wall Street Brokers, a
nationwide note investment firm. She would like to buy some
notes from you. Contact her at 206-448-1160,
fax 206-448-8476, e-mail: lorelei.stevens@gmail.com
Website: www.wallstreetbrokers.com
Lorelei is the author of "LORELEI'S LEGAL LESSONS, THE
ESSENTIAL GUIDE FOR SUCCESSFUL NOTE BROKERS. Learn the little-known
rules and requirements that can make or break you, written in a
clear, concise and easy to understand style. For information:
http://store.papersourceonline.com/essential-guide/