Understanding the Importance of a Memorandum of Contract in Real Estate

What Is a Memorandum of Contract?

A Memorandum of Contract (MOC) is a legal document that publicly records your interest in a real estate deal. When you're wholesaling or paper flipping houses, you don’t actually buy the property; instead, you control it through a purchase agreement. The MOC helps protect that interest from being bypassed or undermined. When recorded with the local county or parish, it creates a public record showing that you have a signed agreement with the seller to purchase the property.

Why Wholesalers Use a Memorandum of Contract When Wholesaling or Paper Flipping Real Estate

As a wholesaler or paper flipper, the biggest risk is getting cut out of your own deal. This can happen when:

• A buyer or another investor contacts your seller directly and makes a better offer.

• The seller tries to cancel your agreement and sell to someone else.

• You haven't assigned the contract yet, and the seller thinks they can back out.

  
  

The MOC serves as a protective layer, making it difficult for the seller to sell the property to anyone else without resolving your interest first.

When Should You Use a Memorandum of Contract?

You might consider recording a MOC when:

• You suspect the seller is being approached by other investors.

• You've invested time and money into the deal (e.g., inspections, marketing).

• The property is a high-value or highly competitive deal.

• You simply want an extra layer of protection.

  
  

⚠️ Important: A MOC should only be used after a valid purchase agreement has been signed. Misusing it can result in legal issues or claims of clouding the title.

What Information Is Included in a Memorandum of Contract?

A typical MOC includes:

• The names of the buyer (you) and seller.

• The property address or legal description.

• The date the purchase agreement was signed.

• A statement confirming the buyer's equitable interest.

• Signature(s) and notarization (depending on state law).

  
  

It does not include specific financial details, like purchase price or terms of the agreement.

How to Record a Memorandum of Contract

1. Prepare the Document. You can find templates online or work with a real estate attorney to draft one.

2. Notarize It. Most counties require notarization before recording.

3. File It with the County/Parish Recorder or Clerk. Submit the document at the county or parish office where the property is located. A small recording fee may apply.

   
   

Once recorded, it becomes part of the public record and creates a cloud on title—meaning the seller must resolve your interest before they can sell to anyone else.

⚖️ Legal & Ethical Considerations

• Don’t file one just to pressure a seller. That’s unethical—and could backfire legally.

• Only record a MOC when you have a valid contract and a genuine concern that your deal is at risk.

• If the deal falls through, release the memorandum so it doesn’t block future sales.

  
  

Whenever in doubt, consult a real estate attorney—especially if you're working in a state with stricter regulations on wholesaling.

The Benefits of Using a Memorandum of Contract

Using a Memorandum of Contract can provide several advantages:

1. Protection of Your Interests

The primary benefit of an MOC is that it safeguards your interests in the property. By recording it, you ensure that your agreement is recognized publicly, which can deter sellers from attempting to back out.

2. Establishing Credibility

Having a recorded MOC can enhance your credibility as a wholesaler. It shows that you are serious about your business and that you take the necessary steps to protect your investments.

3. Clarity in Transactions

An MOC provides clarity in transactions. It clearly outlines the agreement between you and the seller, reducing the chances of misunderstandings or disputes later on.

4. Facilitating Future Transactions

If you plan to assign the contract to another buyer, having an MOC can facilitate that process. It provides a clear record of your interest, making it easier for the new buyer to understand the transaction.

Common Misconceptions About Memorandum of Contracts

Misconception 1: An MOC Is a Purchase Agreement

Many people confuse an MOC with a purchase agreement. While both documents are important, they serve different purposes. An MOC is a public record of your interest, while a purchase agreement outlines the specific terms of the sale.

Misconception 2: You Can Use an MOC Without a Purchase Agreement

An MOC should only be used after a valid purchase agreement has been signed. Using it without a purchase agreement can lead to legal complications.

Misconception 3: An MOC Guarantees a Sale

While an MOC protects your interest, it does not guarantee that the sale will go through. It simply ensures that your rights are recognized in the event of a dispute.

Final Thoughts

A memorandum of contract is one of the best tools wholesalers and paper flippers can use to protect their deals from being hijacked. It’s not something you’ll use on every deal, but it’s an essential part of your toolbox when things get competitive or uncertain. Used properly, it can give you peace of mind and help ensure that your work turns into your paycheck.

The information in this article is based on the author's experience. Due diligence should always be done before venturing into real estate.