What Is A Seller Carryback Loan?

A seller carryback loan can be a great alternative when traditional financing isn’t available or not favorable.  A seller carryback loan refers to a situation where the seller of the property carries back a note and deed of trust signed by the buyer which evidences a debt owed by the buyer to the seller for the purchase of the property. In other words, the seller is taking the role of a lender. Similar to a bank loan, the borrower is obligated to repay the seller and if the borrower defaults the seller can foreclose on the property. Therefore, it is important to check the buyer’s creditworthiness to determine their ability to repay.

The two main documents involved in a seller carryback arrangement are the promissory note and the trust deed. The note memorializes the terms of the loan, payback obligations and other rights and obligations of the parties. The terms of the note are negotiable by the parties; however, there are numerous state and federal laws that limit or restrict what the parties can agree to, such as usury laws.

The trust deed secures the collateral for the loan, which is the property. It is recorded in the County records and gives notice to the world of the priority of the trust deed.  The trust deed allows the lender or seller to foreclose on the property in the event the borrower defaults on the loan.

These financing arrangements if set up properly can provide the buyer and seller with creative and flexible financing options that they might not get through a traditional lender.  Moreover, there are potential tax benefits to the seller since rather than paying taxes on the profits from the sale they can defer the taxes until the principal is paid, which could be years later. Given the complexity of seller carryback financing it is important to consult an attorney to ensure that you take advantage of all the benefits of seller carryback financing.

Questions or comments? Please let us know. For more information you may also email steve@blakelawca.com.

The information found on the Blake Law Firm website is provided for educational and informational purposes only. This information is not legal advice and does not create an attorney-client relationship. Prior results do not guarantee a similar outcome. If you need legal advice please consult a licensed, qualified attorney in your area.

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