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How to Keep the Pros from Stealing Your Deals Already Under Contract

Apr 7, 2008
It has been increasingly common in recent years for pro investors to steal deals that are already under contract by another investor. This is probably not a new trend but some disturbing methods have been employed by some pros in the past few years.

Stealing a deal that's under contract simply means that the aggressor contacts the seller after a contract has been signed and offers more money than the contract already in place.

Often the "news" buyer will get a deed signed and coach the seller on what to say to his original buyer to "cancel" the contract. Sometimes a small amount of money does the job, but most times the higher offer is $5000, which is definitely enough for a seller to go with the new buyer.

The new buyer will profess to know the legalities of the transaction and reassure the seller he is doing what is in his best interest, the former buyer didn't offer enough, and the cancellation is legal.

One trick is to tell the seller that the original buyer didn't give a good faith deposit of $1 or more so the contract is illegal anyway. This is absolutely untrue and the new buyer is committing fraud, but his chances of prosecution are less than the seller being sued for "breach of contract" to honor the original contract.

So to take simple precautions to protect yourself, here is what to do:

1. Use a State Standard purchase and sale contact instead of one given by a guru at a seminar as part of a bonus package. If there is a dispute you can't sue the guru because he disclosed to you that you should seek legal advice before using your "free" contract. Never under any circumstances should you use stationary store forms. Do it right and you life will be much easier if something goes wrong, like the legality of the contract being challenged.

2. Explain to the seller that your contract is the same as a deed in the eyes of the courts so the seller cannot sign another contract or a deed with anyone else or he will have committed fraud by selling his house twice. Practice saying this so it doesn't sound like the threat it actually is.

3. Learn to explain about pro "scoundrels" who may be coming after you and the consequences to the seller and how the pro doesn't care and that the seller should ask his attorney before signing any other contract.

4. File a "Memorandum of Contract" in the public records at the county clerk's office. This document does not have to be signed by the seller but we tell the seller we will be filing the "Standard Memorandum" the next day. This document simply states that you as the buyer have entered into a legal and binding contract to purchase the property at such-and-such an address. There is no sale price or terms of the contract that are made public.

If the clerk says the document can not be recorded, ask for a Supervisor and then a County Commissioner because the clerk can not be allowed to determine what a legal document is. If you still have a problem, let your attorney get involved to find out what it will take to have it recorded. The point of recording this document is to alert the title company for the next buyer that there is an open contract that supersedes the newer contract and this confusion "clouds" the title..

5. Finally, as a last or first resort, have your attorney send a certified notice to both the seller and the new buyer about the legalities of the contract and the potential liability to both the seller and the new buyer. This worked in every case where we have seen this "theft" attempted, even where a new deed was recorded by the new buyer!

In summary, you have discovered five powerful ways to stop or overturn an unscrupulous buyer who attempts to circumvent your contract with a seller.
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