Property’s Under Contract — Can the Seller Still Take a Higher Offer?

Hey there, Cam Dunlap here with a question I got recently on my coaching hotline… a caller asked:

“When a property house is under contract with a seller, is it possible that the seller could sign another contract with someone else who maybe makes a higher offer? And, do you register your contract with the title company or how do you prevent yourself from that scenario?”

Well, the answer is: Yes, they could do that, but(!) yours predates it and, therefore, technically nullifies that second one. 

So, when you have the property under contract, you have it under control. Now it’s possible that you could get into a bit of a disagreement with the seller or, maybe you decide you no longer want to buy the property and you release them from your contract and thereby let them sell it to the other buyer.

For whatever reason, you might choose to walk away. But(!), you certainly have the legal process on your side — your contract predates anything that comes after it and, therefore, takes precedent. 

Now, while I’d say that this is a rare scenario, it can happen. So this, among other reasons, makes the case for getting the signed contract to the title agent as soon as possible, because they’re going to begin title work.

Now, if another contract surfaces with some other title agent, it’s possible that the title agents could bump into each other, and then you just let them work it out. Again, this is just a possibility, so don’t count on it.

So, you’re not exactly “registering” the contract with the title agent, like my student originally asked, but you’re getting it to them so they can begin the closing process. There’s a process that leads up to the day of closing, and then bam, it happens. The process begins when you get the contract and your earnest money deposit, at the same time, to the closing agent… whether it’s a title company or an attorney, immediately following you getting that contract with the seller. That is a must, in every case, full stop.

Now, there is another way to protect yourself in this scenario.

If you feel it’s necessary or justified, you could use a document called the Affidavit and Memorandum of Agreement Concerning Real Estate. 

Basically, it’s a document that the seller does not need to sign. You sign it, it gets notarized, and then it gets recorded on the public record. 

Now, you’re the one who’s going to have to make that happen, though. You’re going to take it to a notary, sign it in front of a notary, then march it into the county office and say, “I’d like to record this document.” 

There’ll be a nominal fee to do that. 

Once you’ve done that, the recorded document becomes a “cloud” on the seller’s title, or what a title company would call a “title issue” that needs to be resolved. 

So what that document basically says is, and let’s say that I have the student Vince’s property under contract, “Hey, world, be advised that Cam and Vince have a written agreement on Vince’s house, where Cam is purchasing Vince’s house. For further information on this, please contact Cam. Signed and notarized, Cam.” 

So, you’re telling the world that you have a contract on this property. 

Now, to do that routinely, I think, is a waste of time and energy. 

And to do that where you DON’T actually have a signed contract with the seller could get you in trouble. Don’t do that, ever, because it could be considered slander of title. If you go and say, I have a contract on this property and you don’t, and you record that on the public record, that could almost for sure be considered slander of title and get you into a legal mess. Don’t do that. 

So, you wouldn’t do it routinely… 

In fact, where I personally have used it most is where I have an agreement with a seller, like a lease option or an agreement for a deed or a land contract where I don’t have the deed… but I have an agreement with the seller to receive the deed on a future date, that’s where I’ve recorded it more routinely because the agreement with the seller is long term and I want to protect my interest in the property. 

So, if the seller decides to take up recreational crack smoking and forgets about our deal and that I have a tenant in the house and goes and tries to sell it, that gets stopped in its tracks because a title company, when it does the title search, is going to see this affidavit and say, “Wait, whoa, hang on a minute!”

They’ll see that Vince and Cam have an agreement on Vince’s house, and it’s dated 18 months ago. And say Vince also now has the property under contract with Danica, the title company is going to say, “Hold on a minute here.” 

And that’s when they’re going to reach out to me in this case because I’m the one who recorded that affidavit. So it’s a way to protect your interest if you feel the need.

Would I do it routinely if I’m wholesaling houses? 

No. 

In fact, I could count on one hand the number of times I’ve recorded that when I was wholesaling or rehabbing the house, where I had a 30-day contract.

In one case in that scenario, the seller just stopped communicating…  never provided documentation, and refused to respond to any communication from my attorney. He simply ghosted us. So, I recorded it — and this was a long time ago.

Well, that seller still owns that property. But at some point, I’m going to get a call saying, “This document says you had an agreement with this seller… to buy their house, 20 years ago. What’s up with that?”

And then I’ll have a story to tell, and we’ll have to come to some sort of settlement.

So, if you’ve got reason to believe that the seller is going to or has played a game, and you think there’s some flim-flam going on, then you may want to record it. But I suggest you do it sparingly and only when you really feel the need.

And there you have it… 

You’re protected with your contract but there’s an additional measure you can take if you feel like it would be helpful on a deal-by-deal basis.

Now go get some deals.

Have a great weekend,

Cam Dunlap

P.S. Want to learn how to make this year your best year ever? Join me and a few of my top deal makers for this one of a kind virtual wholesaling masterclass now! <– It’s free!