A properly prepared and recorded memorandum of agreement prevents this disastrous result in most cases.įor the memorandum of agreement to function, Notarized, and recorded in the public records of the county where the property is located. In general, under Federal law, the trustee is not bound by the agreement, meaning the trustee could force a sale of the property and take half of the proceeds without paying back the down payment loan. Later, the owner who paid less down payment goes bankrupt, and his share of the property is taken over by a bankruptcy trustee. The co-owners have an agreement stating that the owner who paid less of the down payment will repay the other owner when the property is sold. To illustrate a fairly common disaster that the memorandum of agreement is intended to prevent, imagine a situation where two people agree to equally share a property, but owner pays 80% of the down payment.

Second, it prevents a creditor, bankruptcy trustee, or other non-signing owner from using a legal process called partition that forces a sale of the property followed by a division of the money according to title percentage (without regard to what the agreement says). First, it provides “constructive notice” of the existence of the agreement so that creditors or others who become owners through a court proceeding or lien process cannot claim that they are not bound by the agreement because they did not sign it. The memorandum of agreement functions in two ways. The memorandum of agreement protects an owner who is not bankrupt or in debt from creditors, bankruptcies and liens involving the other owner. The most common problem of this type is when a creditor seeks to collect from one of the owners, and the most dangerous situation is where there is a bankruptcy or tax lien.

Recording the memorandum of agreement protects the parties against certain kinds of actions by people that did not sign the agreement but have some claim against the property or against one of the owners. Sample Memorandum of Agreement A memorandum of agreement is designed to be used along with a real estate co-ownership agreement to provide additional protection for the parties.

Memorandum of agreement example