The letters NOI stand for Notice of Interest or are sometimes mistakenly called Memorandum of Contract or MOC. It is usually a one-page document that states that the person filing the document for registration with the County Clerk’s Office has an equitable interest in a property due to a signed contract of purchase and sale.
NOI is most often used when an investor signs a purchase-sale contract with a homeowner/seller and wants to show anyone trying to make another offer on the property that they have a legal interest in the property. This is when someone else, usually another investor, comes in and offers the homeowner a higher price.
The practice of investors overbidding properties after they are under contract is becoming more common in difficult markets, but it also occurs in normal markets. Investors who regularly make statements to homeowners like, “Get your highest offer from those other guys and call me, I’ll give you more money than any of them – I just need to see it in writing.” The ugly part of that statement is the term “in writing,” because that usually means a contract had to be signed by the homeowner.
While I can’t blame the homeowner for wanting more money, what I’ve seen happen more often is a black hat investor who is trying to steal the deal actually goes to the closing table and renegotiates the price. below what he had originally offered to the trusted seller. How can I know? I have been on the other end of his offers and have had to fight to keep my vendors.
So from time to time we have to fight for our closures and I have covered this in other articles on how to do this. The ironic part is that it is a criminal offense to “induce” someone to sign a contract when another contract already exists. The Attorney General’s Office will take these cases if you show evidence and the seller cooperates — which usually happens when the homeowner is threatened with a lawsuit or foreclosure.
So when we sign a contract with a seller, we almost always record an NOI in the public registry that is actually a lien on the property. I want to repeat this, because the details of this “burden” are very extensive. This NOI must now be released as a lien on the property before title is transferred, unless there is a foreclosure action to extinguish it, or the lien holder (the original investor/purchaser) initiates a foreclosure action to take the property. If this sounds harsh, it is simply a solution to a problem where one party to the contract will not stop the termination of the contractual terms – much like a lender to a homeowner.
The NOI does not need to be signed by the home owner/seller so anyone can place an NOI on someone’s property. Just remember, there’s usually a sign in the clerk’s office that says something like “If you file a lien that’s not valid, it’s a crime,” so think twice about what you’re doing – don’t do it in anger or it could cost you a lot in attorney fees.
Having said that, the courts and sometimes the registrar treat NOIs like unruly in-laws. They tolerate them maybe for the fees, but they don’t really like them because of historical issues with the seller not knowing these liens were filed. Many standard real estate contracts specifically prohibit the filing of a notice of interest to be recorded in the public registry. This prohibition can be overcome by striking this clause and initialing it to both the seller and the buyer, or by adding a clause or addendum to your contract.
Once an NOI is recorded in the public registry, the next time title to the property is transferred, the title agent will need to have a signed NOI Lien Release to write a title policy on the property or mark it as “excepted.” in politics. If the NOI is not extinguished by the Lien Release, the title is “foggy” and must be cleared, and a transfer to a new purchaser may not be properly made.
This is where you come in to release the lien, and it usually happens when you least expect it – right before you plan to close! Sometimes the homeowner will call when he receives a copy of the recorded NOI from the Clerk’s Office and he wasn’t expecting it – in any case, the seller is trying to deny the transaction. Sometimes the seller changed his mind for a valid reason, more often than not.
You have a few choices when NOI “hits the fan” so to speak:
1.) Release the NOI using a lien release document and get paid for the lien release
2.) Rush and fight the seller to close or pay to release the lien.
In summary, your choice is personal and is determined by the potential lost profit in the deal, the homeowner/seller’s real motive for not wanting to sell, how much you can be paid for the lien release, and your mood on the day. In the final analysis, the choice is yours to force the seller to close or release the lien.