What is an Affidavit of Equitable Interest?
Disclaimer: This article is for educational purposes only and does not constitute legal, tax, or financial advice. Federal and state regulations change frequently. Consult a qualified attorney, CPA, or licensed professional before making decisions based on regulatory requirements discussed here.
An affidavit of equitable interest is a sworn, notarized statement declaring that the affiant (typically a buyer or wholesaler) holds an equitable interest in a property by virtue of a purchase contract. When recorded with the county, it serves a similar purpose to a memorandum of contract: providing public notice that someone other than the title holder has a contractual claim on the property.
How it differs from a memorandum
A memorandum of contract is typically signed by both parties (buyer and seller) and references the underlying agreement. An affidavit of equitable interest is a unilateral document -- only the affiant signs it, under oath. This distinction matters because a wholesaler can file an affidavit without the seller's cooperation, which makes it both more accessible and more controversial.
Use in wholesale transactions
Some wholesalers use affidavits of equitable interest as a protective measure when they have a signed purchase contract but are concerned the seller might sell to another buyer or refuse to close. By recording the affidavit, the wholesaler creates a cloud on title that makes it difficult for the seller to transfer the property without addressing the wholesaler's claim.
Legal risks
Filing an affidavit of equitable interest carries legal risk. If the underlying contract is invalid, expired, or has been properly terminated, the recorded affidavit may constitute a fraudulent lien or slander of title. Many states have statutes that impose penalties for filing false or frivolous lien claims, including statutory damages, attorney fees, and in some cases criminal liability.
Even when the underlying contract is valid, courts in some jurisdictions have questioned whether a wholesale contract creates a sufficient equitable interest to justify recording. The assignability of the contract, the contingency periods, and the nature of the wholesaler's interest all factor into this analysis.
Best practices
If you believe you need to protect your contract position, a memorandum of contract signed by both parties is legally safer than a unilateral affidavit. If you use an affidavit, ensure you have a valid, binding contract that supports the claimed interest, and promptly record a release if the contract terminates. Consult a real estate attorney before recording any document that clouds another party's title.