Do Not Close Without Professional Help

Seller-financed deals are real estate transactions with real legal documents. The promissory note and deed of trust are enforceable contracts. A mistake in either document can cost you the property, expose you to personal liability, or make the note unenforceable.

This is not a place for a DIY template from the internet. Hire a real estate attorney who has closed seller-financed deals before. Use a title company that has processed them.

The Real Estate Attorney - What They Do

Your real estate attorney:

  • **Drafts or reviews the promissory note.** This is the core document. It specifies the principal amount, interest rate, payment amount, amortization schedule, balloon date, and what constitutes a default.
  • **Drafts or reviews the deed of trust or mortgage.** This is the security instrument. It attaches the note to the specific property. It specifies the lender's (seller's) rights in the event of default: acceleration, foreclosure, right to cure provisions.
  • **Reviews any carryback provisions.** If the seller is subordinate to a bank loan (second position seller carry), the intercreditor rights need to be clearly defined.
  • **Advises on state-specific requirements.** Foreclosure laws, cure periods, and required notice provisions vary by state. Your attorney ensures the note and deed are enforceable in your jurisdiction.
  • **Reviews the purchase agreement.** The PSA should reference the seller-financed terms, note the balloon date, and specify what happens if either party defaults on the agreement before closing.

How to Find the Right Attorney

Not every real estate attorney has done seller-financed closings. Ask directly: "Have you drafted promissory notes and deeds of trust for seller-carry transactions?" If yes, get a reference from a past client. If no, find someone else.

Good sources: local real estate investor associations, referrals from experienced local investors, local title companies who can recommend attorneys they work with frequently.

Expect to pay $500-$1,500 for document drafting on a residential deal, more for commercial.

The Title Company - What They Do

A cooperative title company:

  • **Runs the title search.** Confirms chain of title, identifies all liens, and issues a title commitment.
  • **Handles the closing.** Coordinates signing of all documents, collects and distributes funds, records the deed and deed of trust with the county.
  • **Issues title insurance.** Buyer's title insurance protects you against undiscovered title defects. Seller's title insurance (if issued) protects the seller in their role as note-holder.
  • **Handles escrow of the deed (if applicable).** On some deals where the seller is nervous, the deed can be held in escrow by the title company and released after 6 months of on-time payments. The title company acts as neutral custodian.

Key requirement: The title company must be experienced with seller-financed closings. Not all are. Some title companies refuse to close transactions without an institutional lender involved. Find one that regularly closes creative deals.

The Key Documents in a Seller-Financed Deal

1. Promissory Note

  • Principal amount
  • Interest rate (fixed or variable)
  • Payment amount and due date
  • Amortization schedule
  • Balloon date and balloon payment amount
  • Default definition (how many days of missed payment)
  • Cure provision (seller must give notice; buyer has X days to cure)
  • Prepayment penalty (if any)
  • Late fee

2. Deed of Trust (or Mortgage, depending on state)

  • Names the borrower (buyer), lender (seller), and trustee
  • Describes the collateral property
  • Incorporates the promissory note by reference
  • Specifies foreclosure procedure and timeline
  • Specifies insurance requirements
  • Due-on-sale clause status (typically waived in seller-financed deals)

3. Settlement Statement (HUD-1 or ALTA)

  • All debits and credits to each party
  • Proration of rents, taxes, and insurance
  • Recording fees
  • Title insurance premium
  • Attorney fees

Setting Up Loan Servicing at Closing

The best time to set up a professional loan servicer is at the closing table. The servicer will:

  • Collect monthly payments from you
  • Apply payments to principal and interest per the amortization schedule
  • Disburse to the seller
  • Issue year-end 1098 forms to you (interest paid) and 1099-INT to the seller (interest received)
  • Maintain an escrow account for taxes and insurance if required

Cost: $15-$30/month depending on the servicer. Negligible compared to the protection it provides.

When you set up the servicer at closing, the seller sees professionalism. Their money is being handled by a licensed institution, not routed through your personal bank account. This removes doubt and friction.

After Closing - What Goes Where

  • **Original promissory note:** Held by the seller (or in a deed-in-escrow arrangement with the title company).
  • **Recorded deed of trust:** Filed with the county recorder. You get a copy. The note is now a public lien on the property.
  • **Deed:** Recorded in your name. The county recorder provides the original back to you.
  • **Title policy:** Issued by the title company. Keep it forever - it covers undiscovered defects in perpetuity.
  • **Loan servicer setup:** Payment instructions delivered to both parties at closing.