Protect, Structure, and Maximize the Value of Your Mortgage Notes

Seller financing is when the property seller acts as the lender and the buyer makes payments directly to them instead of going through a bank. The buyer signs a promissory note and gives the seller a security interest (typically a mortgage or deed of trust) in the property. It's commonly used when traditional financing is unavailable or when both parties want flexibility on terms.

Subject-To means the buyer takes ownership of a property 'subject to' the existing mortgage remaining in place. The seller's original loan stays in their name, but the buyer takes title and makes the payments. This can be useful for investors, but it carries risks such as the due-on-sale clause, so proper documentation and clear agreements are essential.

A wrap mortgage, or wraparound mortgage, is a new larger loan that 'wraps around' an existing mortgage. The seller continues to pay the underlying loan and keeps the difference between the buyer's payment and the original payment as income. Wraps can offer attractive returns, but they must be carefully structured to address the due-on-sale clause and proper servicing.

A land contract, also known as a contract for deed, is an agreement where the buyer makes installment payments to the seller but does not receive the deed until the contract is fully paid off. The seller retains legal title during the payment period, while the buyer typically holds equitable title. This can be simpler to execute but requires careful legal drafting.

Lease options combine a rental agreement with the right to purchase the property at a later date. They can be useful when a buyer needs time to improve credit, save for a down payment, or test the property before committing. They are also used by sellers to generate immediate cash flow while securing a future buyer at a set price.

Hybrid structures combine elements of two or more creative finance techniques, such as a seller-financed second lien behind a subject-to first mortgage, or a land contract with a lease option exit. Hybrids can be tailored to fit specific deal constraints, but they require clear documentation, accurate lien priority, and a solid servicing plan.