Seller Carried Contracts

A Seller Carried deal is when the Seller of real estate agrees to take payments from the Buyer for all or part of the purchase price.  This can be a very good or bad way to sell real estate, depending upon how it is structured.

There are a number of different methods for this type of real estate transaction to occur.

1.  Seller Will Carry Entire Balance.  This type of real estate sale will involve the Buyer making no down payment to a substantial down payment depending on the terms of the deal.  Usually there will be around a 10% or more down payment to provide some security to the Seller, but nothing down contracts are also fairly common.  In this type of situation I like to use what is called a "Land Sale Contract".  This is is a contract where the Buyer will be making payments to the Seller under a contract.  If the Buyer fails to make payments, the Seller can declare a default and the  Buyer will forfeit all payments made to date and the Seller takes the property back.  If the Buyer pays off the contract, the Seller will record a deed to transfer title to the Buyer...this is called a fulfillment deed.   In this type of deal, I also like to have the payments made through a third party escrow collection company.  The collection company will also hold the fulfillment deed and record it with the county upon final payoff.  The other benefit is that they will keep track of the interest and issue a 1098 and 1099 tax form for the parties to use in reporting the interest on their tax returns. 

Another method is to use what is known as a Trust Deed and Promissory Note to secure the purchase price.  This method is different in that the Seller in essence gets a form of lien against the property that is sold and in a default can take steps to enforce the trust deed/note through a foreclosure.  This is usually done by a non-judicial foreclosure sale (outside of the court process) but could also involve a court case. 

2.  Seller will only Carry part of the Balance.   This usually involves the Seller agreeing to receive payments for part of the purchase price, ie 20%, but the Buyer will get a loan for the balance.  This sometimes is done when the Buyer does not have enough cash to make a large enough down payment to qualify for conventional lending by a bank or other financial institution.  Here the bank will loan money to the Buyer and be in "first position":  This is done through a "first trust deed".  The Seller will then carry the remaining balance on a "second trust deed" which is in second place behind the bank.  The buyer will then make payments to the bank and Seller separately. 

John Hasbrook P.C.
Attorney at Law
112 North Atwater Street
Monmouth, Or 97361
(503) 838-0251
FAX (503) 838-0149
johnhasbrook@msn.com