A seller-carry payoff demand is calculated by starting at the sub-ledger’s unpaid principal balance, then adding accrued interest through the stated payoff date, any escrow disposition, unpaid authorized charges, and the lien release recording fee. If any component lacks a supporting record in the loan file, it does not belong on the demand.

The workflow below runs from the borrower’s payoff request through demand delivery and the closing-out file. Each step references the specific loan file record that supports it.

Step 1 — Log the Borrower Payoff Request

Capture the borrower request in writing — email, fax, or a recorded phone call documented in the file. Log the request date because the §1026.36(c)(3) seven-business-day response clock starts on receipt. Confirm the requester is the borrower of record or an authorized party (closing attorney, refinance lender) and capture the through-date the borrower or closing agent specifies.

Step 2 — Pull the Current Principal Balance from the Sub-Ledger

The current principal balance is the unpaid principal as of the last paid-through date on the borrower sub-ledger. Confirm the most recent payment posted correctly — principal, interest, escrow, and any fees applied per the note. The sub-ledger entry as of the last paid-through date is the authoritative figure.

Step 3 — Calculate Accrued Interest to the Payoff Date

Read the note for the day-count convention. On a 30/360 convention, the per-diem is the principal balance multiplied by the note rate divided by 360. On an actual/365 convention, the per-diem is the principal balance multiplied by the note rate divided by 365, applied to actual elapsed days. Multiply the per-diem by the days from the day after the last paid-through date through the stated payoff date — that is the accrued interest component.

To illustrate: on a $200,000 principal balance at a 7% note rate under a 30/360 convention, the daily accrual is $200,000 × 0.07 ÷ 360 = $38.89. That per-diem multiplies by the number of days remaining to the payoff date to produce the interest line on the demand.

Step 4 — Run the Final Escrow Analysis

On a loan with an escrow account, run a final analysis from the last analysis date through the payoff date. The analysis identifies the borrower-side balance — surplus or shortage — as of the payoff date. Document the disposition: borrower authorization to apply any surplus to the payoff, refund at the closing table through the title company, or a post-closing disbursement from the holder. See the escrow disbursement process for private mortgage notes for the full disbursement framework.

Step 5 — Add Unpaid Authorized Charges

List the unpaid late fees, NSF fees, and any other charges the note authorizes that the borrower has not paid through the payoff date. Each charge must tie to a specific entry on the sub-ledger or a borrower notice. Charges without an underlying record drop out of the demand.

Step 6 — Add the Lien Release Recording Fee

Identify the jurisdiction-specific recording fee for the lien release or reconveyance document. Add any release-preparation fee the note authorizes. The fee runs as a line item on the demand and reaches the closing table as part of the wire instruction.

Step 7 — Sum the Components and Verify

Sum the principal balance, accrued interest, escrow disposition (net), unpaid charges, and recording fee. Verify the math twice — once against the workpaper, once against the borrower sub-ledger. The sum is the demand amount on the stated payoff date.

Step 8 — Issue the Demand Statement

Produce a written statement with the borrower name and loan number, the property address, the through-date, each component broken out separately, wire instructions or check payee, and a re-issuance contact for an updated demand. Deliver inside the seven-business-day window §1026.36(c)(3) requires and inside any tighter state window that applies.

Step 9 — Receive the Funds and Post the Payoff Entry

Confirm the wire amount matches the demand. Post the payoff to the sub-ledger as a single entry that zeros the principal, books the accrued interest received, disposes of the escrow per the documented disposition, and clears the unpaid charges. The sub-ledger ends with a zero principal balance on the payoff date.

Step 10 — Record the Lien Release and Build the Closing-Out File

Execute the lien release or reconveyance and record the document in the property jurisdiction. Build the closing-out file: the demand statement, wire receipt, final sub-ledger, final escrow analysis, recorded lien release, and the borrower payoff completion notice. Retain the file per the §1024.38(c) retention rule. For lien position considerations that affect the release process, see critical lien priority mistakes private lenders must avoid.

Step 11 — File the Final Form 1098 in January

In January of the year following the payoff, produce the Form 1098 for the borrower-paid mortgage interest from January 1 of the payoff year through the payoff date. Deliver to the borrower at the last known address by January 31 and file the IRS transmittal on the standard schedule. For the full tax reporting framework, see 1098 vs. 1099-INT: the private mortgage tax reporting guide.

Expert Take

The per-diem accrual step is where payoff demands break down in practice. Holders who apply a 30/360 day-count convention when the note specifies actual/365 — or who begin the accrual on the last payment date rather than the day after — produce a demand figure that does not match the closing table’s expectation. The result is a delayed closing or a wire shortage that requires a reissued demand and a reset response clock. Pull the day-count convention from the note itself, not from memory or a prior transaction on a different note, every time.

Frequently Asked Questions

What if the borrower requests a payoff figure good through a date months out?

The demand binds the holder for the through-date the holder selects. A holder responding to a request for a distant through-date can issue the demand at a tight through-date and reissue closer to the closing, or can issue the demand at the borrower’s requested date with the per-diem accrual running to that date. Either approach is operationally valid; the holder picks the one that fits the timeline.

How does a payoff demand differ from an estoppel letter?

An estoppel letter confirms loan terms and the current balance at a stated date without binding the holder to a wire amount on a future closing date. A payoff demand is the binding wire-amount statement for a stated payoff date. A closing attorney requests both at different points in the transaction. See essential documents for a smooth seller carryback transaction for the full closing document checklist.

Who signs the lien release on a seller-carry note?

The current beneficiary of record signs the release. On a seller-carry note, the original carry holder signs unless the note has been assigned — in which case the assignee of record signs. The signature must meet the property jurisdiction’s recording requirements, and the releasing party must be confirmed against the recorded title chain before the document is prepared.

Does §1026.36(c)(3) apply to all seller-carry notes?

The seven-business-day payoff statement rule applies to closed-end consumer credit transactions secured by a consumer’s dwelling. Some seller-carry arrangements fall outside that definition — particularly notes on commercial property or investment property held by an entity. Confirm the note’s regulatory classification before citing the federal clock, and check whether any applicable state servicer-conduct statute sets a shorter response window.

The procedures above describe the operational workflow on a seller-carry payoff demand. Federal §1026.36(c)(3) compliance, state servicer-conduct duties, and the escrow analysis framework carry case-specific consequences. Consult qualified legal counsel on the requirements that apply to any specific seller-carry payoff matter.

Sources

• Regulation Z, 12 C.F.R. §1026.36(c)(3) — Payoff statement. Consumer Financial Protection Bureau.
• Regulation X, 12 C.F.R. §§1024.17, 1024.33, 1024.35, 1024.36, 1024.38. Consumer Financial Protection Bureau.
• Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §2601 et seq. Cornell Legal Information Institute.
• IRS Form 1098 Instructions. Internal Revenue Service.
• 26 U.S.C. §6721 — Failure to file information returns. Cornell Legal Information Institute.
• California Civil Code §2943. California Legislative Information.
• 3 NYCRR Part 419. New York Department of Financial Services.

Related Topics

• 7 Essential Documents for a Smooth Seller Carryback Transaction
• Escrow Account Setup for Private Mortgage Notes
• The Escrow Disbursement Process for Private Mortgage Notes
• 7 Critical Lien Priority Mistakes Private Lenders Must Avoid
• 1098 vs. 1099-INT: The Private Mortgage Tax Reporting Guide
• 7 Tax Reporting Obligations Private Mortgage Lenders Overlook