Need Clarification - Option on Note - Posted by Matthew Chan

Posted by John Behle on February 22, 2000 at 22:12:47:

Actually there is a section in the videos where I go through that and a sample of the option form I use in the manual. I always use an option and always tell them I am going to record it. I tell them it is a done deal, they will not be able to sell the note to anyone else - so don’t even think about it.

Now, I may not actually record it. I may be moving quick enough that it will only be a few hours or a day or two to close. I will absolutely record if I get any kind of a “squirrelly” feeling about them.

Need Clarification - Option on Note - Posted by Matthew Chan

Posted by Matthew Chan on February 21, 2000 at 15:42:25:

I am listening to Terry Vaughan’s tapes “Paper into Gold” where he describes getting an option to buy a note. In getting an option to buy a note, I believe he mentions recording a Memorandum of Option thereby clouding the title should the owner try to sell the property.

It was my understanding (perhaps wrongfully so) that any Memorandum of Option must pertain to the actual purchase of the property itself, not the note.

Two weeks ago, I had discussed this very issue with my R.E. attorney about the ways I could “enforce” an option both on property and notes. Optioning properties and then recording a memorandum were no problem. However, my attorney felt that an Optioning a Note was not the same and would not cloud the title.

Can anyone clarify this or get into this a little more. Needless to say, I would like my attorney to be “wrong”. It would give me a much better position.


Re: Option on Note - Thanks for answers! - Posted by Matthew Chan

Posted by Matthew Chan on February 22, 2000 at 18:41:52:

Wow, I am impressed. 3 Note Power People answering my little question. Great stuff. Thanks! Much appreciated.

To cloud or not ? - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 22, 2000 at 15:53:15:


If the seller of a note enters into an agreement with you ( a note purchase agreement or options agreement) and you have some concerns over him / her “wiggling” out of the deal later on, then recording your purchase agreement or option agreement will serve to “cloud” the title of the note and perhaps even the property as well. You should only record if you get that intangible feeling that something is wrong…

I had a seller agree to sell me a note and during the due diligence and processing phase of the transaction the note payor found out that the seller was going to sell the note to us. Well you can imagine what happen; sure enough they reached their own agreement whereby the payor was to refinance and the seller would get more money from the payor than from me for the discounted note sale.

I immeditaly sent my purchase agreement which referenced BOTH the legal description of the real property and the mortgage references as well to be recorded in the county where the subject property was was located.

A few weeks later I get a call from the title company who was working with the lender and their refinancing loan wanting to know what was going on?

The bottom line: I put a stop to the payors refinancing at that time, still bought the note from the seller, and then worked a deal with the payor to pay me off at a slight discount to them. This put $19K in my pocket.

A word of caution about recording such language;
IF you intend to record your note purchase agreement or option agreement make sure the agreement states that it may be recorded at the note buyers option and that such recording may cloude the title to the property and or mortgage & note. In this way you cannot later on be accused by the note seller for a “Slander of title” lawsuit since you disclosed that you might record the agreement.

Consult with your attorney for more details.

Michael Morrongiello

Re: Need Clarification - Option on Note - Posted by John Behle

Posted by John Behle on February 21, 2000 at 20:19:21:

Ditto to what Terry said. Yes, it clouds the title, but of the note - not the property. Most title companies would not have a problem insuring the sale of the property, but would not issue title insurance to a buyer of a note.

Not all note buyers get title insurance. Most do. But any note buyer would check the title and see that there is a problem with the note holder being able to transfer the note.

Re: Need Clarification - Option on Note - Posted by Terry Vaughan

Posted by Terry Vaughan on February 21, 2000 at 17:02:05:


Because of the Convention being around the bend, I don’t have time to go back and listen to what I said (and in what context) back in '92 when I recorded the tapes.

However, I believe your attorney is right and wrong at the same time.

1)Recording a memorandum of option to buy the property would cloud the title on the property.

  1. My attorney says, recording a memorandum as an option to purchase the note would not cloud the title of the property, but would give public notice of your option to buy the note, thereby clouding any other transaction invloving the clear passing of “the holder in due course”.

This actually prevented me from being defrauded by a fellow who was selling a note over and over again! He wouldn’t approve of such “public” notice. I later learned of his fraud in the newspaper when he skipped town with over three million dollars of “note-buyers” money!