In our last article, we explained that “Seller-financing” refers to the owner/seller of a property agreeing to allow the buyer to make payments over time. We also discussed the different reasons why both buyers and sellers may prefer this type of deal structure. In this article, we are going to review the different versions of owner financing and explain which make the most sense from a practical, legal perspective.
How traditional financing works in a real estate transaction
When an owner agrees to sell their real estate, they name their purchase price. The buyer must then bring the purchase price to closing in order to receive the deed to the property. The buyer could happen to have the funds in a savings account. Or the Buyer could borrow the funds from a bank and bring (i.e. wire) the funds to the closing.
Upon bringing the full payment for the purchase price to closing, the buyer receives the deed and becomes the new owner of the real estate. The seller gets to walk away with one lump sum payment. The buyer will then start making payments to the bank within the next month. This is the traditional way of handling a real estate deal.
How seller-financing works in a real estate transaction in Oklahoma
An alternative to the above-described scenario is that the owner agrees to provide the financing to the buyer for the purchase price. In this scenario, the owner will present to the buyer the terms of the financing. This will include:
1. Down payment required
2. Amount financed (which is the purchase price, minus the down payment)
3. The length of the loan
4. The interest rate
5. Any points or origination fees charged to the buyer to secure the loan at the stated interest rate.
6. Events of Default and remedies
7. Any balloon payment due
If the buyer and seller agree on terms, then they will have to draft documents for this deal. At this point, there are two ways to structure this owner-financed deal.
The Seller conveys the deed, but the Buyer consents to a mortgage lien on the property
In a traditional real estate purchase, where the Buyer obtains conventional financing from a bank, the Buyer receives title to the property at closing. This is because the Buyer brings 100% of the purchase price to closing and the Seller receives 100% of the purchase price (less closing costs). Because the Seller is paid off, the Seller conveys title to the Buyer. The Buyer receives title, but conveys a mortgage to the Bank. The Bank holds the mortgage while the Buyer makes payments. If the Buyer defaults, the Bank can foreclosure its mortgage, which is to say it will file a lawsuit to sell the property to pay off the loan.
The above example involves a Buyer borrowing the money from a third-party, not the seller. Since this article is about Seller-financing, let’s discuss how this would work in a seller-financed transaction.
When the Seller chooses to provide the financing, the Seller may convey title to the Buyer, and have the Buyer convey a mortgage to the Seller. The Seller would hold the mortgage until the loan is either paid off or there is an event of default allowing the Seller to foreclose.
But the Seller does not always have to convey title to the buyer prior to receiving the full purchase price. There is an alternative option for sellers, which we discuss below.
The Seller holds the deed, and the Buyer receives it after making all payments
It is possible in Oklahoma for the Seller to hold the Deed while the Buyer makes payments on the property. In this type of arrangement, the Buyer may take possession of the property, have full rights over control of the property, but does not get the title to the property until all payments have been made. This arrangement is often referred to as a Contract for Deed, because the Buyer does not get the Deed until it has paid the contract in full.
Which is better? Contract-for-Deed, where the Seller retains title, or a traditional note-and-mortgage, where the Seller conveys title before receiving the full purchase price? I will discuss this in our next article.
Seller-Financing Attorney in Oklahoma City
Hire an experienced real estate attorney to help you sell your property. Travis C. Smith is an experienced investor and attorney that can provide insight and context to your decision making. Travis can assist you in choosing the right deal structure for your current situation. Call our office at 405-607-7799 or send an email to schedule a consultation.
Protect Your Investments Beyond the Deal
Seller financing is a powerful tool—but every real estate investor eventually faces the same truth: your portfolio needs a plan just as much as your transactions do. Without a solid estate plan, properties can get tied up in probate, delayed, or distributed in ways you never intended. My newsletter gives real estate investors clear, practical guidance on protecting assets, avoiding court involvement, and keeping your deals running smoothly long after you’re gone.