This morning I received a call from George, the Coldwell Banker Broker now managing the office I sold ten years ago. In our discussion, he said, “Thank you for the time and effort you made to open our minds and teach us about the seller and private financing and exchanging”. He went on to say, “the application of these transactional and negotiation methods and on counseling with our sellers is putting us light years ahead of our competition – allowing us to not just survive but thrive in a difficult real estate market”.

For many years now, I have noticed that a few homeowners, real estate brokers, investors, and buyers have been almost secretly, but certainly quietly using this real estate financing technique that saves time and money.  For sellers, it moves property quickly or at least quicker than with any other method. Additionally, wise brokers have been emptying drawers of expired listings and turning them into closed transactions while earning commissions using the plan and investors have been cashing in on purchasing private notes as a result of this methodology. For buyers, it works perfectly. It’s cheaper with savings of a variety of fees typically charged by banks and mortgage companies such as application fees, points, lender fees, and appraisal costs.

Fast Forward

We were introduced to Owner Finance decades ago as a survival mechanism while owner/brokering a real estate company in California. Interest rates exceeded 20% in those days; anxious and often relocating buyers who couldn’t qualify, disappointed frustrated sellers were left with no sale and one by one our office escrows were canceled. We were desperate and started looking into and attending classes and workshops on seller financing. Boy, what a lean two or three years accompanied by a long and steep learning curve.

It wasn’t only sellers needing to move their property and agreeing to a seller financing proposition; but also, real estate investors needing to move their commercial properties were in a bind also. Motivated to survive we also learned the art of real estate exchanging, not primarily for the Section 1031 tax benefits, but simply as a solution for our investor clients.  Inasmuch as these exchange transactions almost always involved the principals to execute a private note….we were in our glory with our newfound ability to put together transactions using private financing.  Through the years, we, along with thousands of others have quietly, consistently, and without pomp and circumstance regardless of interest rates, credit crunches, liquidity challenges, and/or changes in the economy, been using seller financing often as the method of choice.

Win/Win for all Seasons

Seller financing, the win/win situation for all seasons whether it is the best of times or the worst of times….but whoa, let’s back up here and answer the question many may be asking: What is seller financing  – exactly?

Seller financing is sometimes called “owner financing” or “owner carry back”. It is a type of transaction where the seller acts as the bank and agrees to receive regular payments from the buyer instead of one lump sum. The seller transfers the deed to the property to the buyer and in return receives a mortgage or note and trust deed (depending upon the state) which places a lien on the property and obligates the buyer to make regular payments.  Although this kind of deal offers high flexibility with the arrangement negotiated privately, it is important the seller and buyer seek professional help in setting it up to ensure validity.

For sellers, carry-back notes are negotiated at greater than market interest rates and therefore receive top value if and when the seller decides to sell the note to a note investor. Recognizing the benefit of the transactional and closing savings as well as other benefits, buyers typically have no problem with paying a little more in interest over the life of the loan.  However, a word to the wise here to sellers is appropriate. Hedge your bets and minimize risk by requiring a respectable down payment. If the buyer has nothing or little to lose, what’s to stop them from simply walking away.  Insist on a credit report and references and by all means, have the documents professionally prepared and professionally serviced.  Hmmmmmm, “Professional Service”, well that’s where we enter – “stage left” with our two cents worth.

The Servicer – Enter Stage Left

The Note Servicing Center has been servicing sellers carry back notes since 1984.  We set up an impound trust account to make sure the taxes and insurance are paid in a timely manner by the buyer and also provide the buyer with payment coupons, collect the monthly payments and disburse them to the sellers’ bank account or wherever directed. We take care of the statutory year-end reporting as well as the 1098 and 1099 required by the IRS and offer other benefits – many absolutely free, such as On-Line password-protected viewing of client accounts are available 24/7.  Check us out at Whether you’re a buyer, seller, broker, or just plain curious about Seller Financing, contact us to find out how we can help you successfully put together your seller financing transaction.

This article was modified from an article originally written by Roberta Standen and posted to this site on 2008/06/24.