Seller financing is back in the Wasatch Back. When bank rates climb and a seller owns a property free and clear, carrying the note starts to look like a good idea to both sides. Sometimes it is. But I see the same handful of mistakes every month, and most of them come from treating a private loan as a handshake instead of a loan.
Here is what buyers and sellers get wrong, and what a properly built deal looks like.
What is seller financing, in plain terms?
The seller acts as the bank. The buyer takes title to the property and signs a promissory note promising to pay the seller over time. The note is secured by a deed of trust recorded against the property, so if the buyer stops paying, the seller can foreclose.
That is the whole structure: a note, a deed of trust, and a servicing plan for collecting payments. Three documents. The trouble starts when people skip one, or borrow a template from another state.
Why is a one-page note a problem?
A note pulled off the internet usually gets the interest rate and payment right and misses everything else. What happens on a late payment? Is there a balloon, and when? Can the buyer prepay without a penalty? What happens if the buyer sells or transfers the property before the note is paid off?
Each of those gaps becomes an argument later. The seller assumes one answer, the buyer assumes another, and neither wrote it down. A note is a contract. It should say what both people expect.
Does the seller actually have security?
This is the mistake that costs the most. A seller hands over the deed, takes a signed note, and never records a deed of trust. Or records one that describes the wrong parcel, or was signed without a notary. In each case the seller thinks the property backs the loan. It may not.
Without a properly recorded deed of trust, the seller is an unsecured creditor. If the buyer refinances, sells, or files bankruptcy, the seller is standing in line behind everyone who did record. The deed of trust is what turns "you owe me" into "I can take the property back."
What is a wraparound, and when does it go wrong?
A wraparound (a "wrap") is seller financing on a property that still has a bank loan on it. The buyer pays the seller; the seller keeps paying the original lender. The seller's note "wraps around" the existing mortgage.
Wraps can work, but they carry two risks that people underestimate. First, nearly every bank loan has a due-on-sale clause, which lets the lender call the whole balance when the property transfers. Second, the buyer is trusting the seller to keep paying the underlying loan. If the seller stops, the bank forecloses and the buyer loses the property even though the buyer never missed a payment.
Both risks can be managed with the right structure and disclosures. Neither can be managed by ignoring them.
Do Dodd-Frank and licensing rules apply to a private seller?
Sometimes, and this surprises people. Federal rules under Dodd-Frank set requirements for certain seller-financed loans on residential property, and Utah has its own licensing framework for people who make or service loans. Whether those rules apply depends on facts like how many properties the seller finances in a year, whether the buyer will live in the home, and how the note is written.
A seller who finances one property they used to live in is in a different position than an investor carrying notes on five rentals. The point is not that every seller needs a license. The point is that you should know which side of the line you are on before you close, not after a regulator or a buyer's attorney raises it.
A local example
A couple in Midway sold a building lot to a buyer who planned to build in two years. They carried the note at a fair rate, five-year balloon. The buyer's title company prepared the deed. Nobody prepared a deed of trust. Eighteen months later the buyer got a construction loan, and that lender recorded first. The sellers were now behind a bank on land they had owned outright, and the only reason it turned out fine is that the buyer was honest and paid them off. That is luck, not a plan.
What does a complete seller-financing package include?
My Seller Financing / Wraparound Note Package is a flat $2,500. It covers the note, the deed of trust, the wrap structure if there is one, servicing setup so payments are tracked and documented, and a memo on Dodd-Frank and licensing exposure for your specific deal.
If the property has an existing loan and you are weighing a wrap or a subject-to purchase, the Due-On-Sale Exposure and Transfer Structuring Opinion, a flat $3,000, looks at what triggers the clause, what the Garn-St Germain exceptions actually cover, the realistic enforcement risk, and how to structure the transfer to reduce it.
You know the fee before you engage. That is how I run the practice.
A note on this article
This is general information about how seller financing works in Utah, not legal advice for your situation. Every deal turns on its own facts, and you should talk to an attorney before you sign.
If you are buying or selling with owner financing anywhere in Heber Valley, Park City, Kamas, or the rest of the Wasatch Back, the full flat-fee list is at acreservices.law. Use the contact form there to tell me about the deal and I will tell you which package fits.