Wrap-Around Seller-Finance Agreements with Escrowed Payments
The following documents are typical closing documents for a wrap-around seller-finance agreement with escrowed payments.
- Contract for Sale of Real Property. The contract is a framework for the entire transaction among the parties and identifies the obligations of each party. This instrument should be signed and dated by all buyers and sellers, and each party should receive a xerographic copy of the executed contract.
- General Warranty Deed with Vendor’s Lien In Favor of Third Party. The deed is the conveyance document that transfers title in the property from the seller to the buyer. The deed must be signed by all sellers, and the notarized original should be filed in the real property records in the office of the county clerk in the county in which the property is located. The original copy of the deed will be automatically returned to the designated buyer by mail within one to three weeks.
- Wrap-Around Promissory Note. The promissory note is the primary loan document signed only by the buyer that describes the terms of the seller-finance loan and the buyer’s/borrower’s obligations for making loan payments. The promissory note is a private agreement between the parties and is not filed in any public records. Therefore, it does not need to be notarized. The original copy of the promissory note should be kept by a designated seller and xerographic copies made for all other parties.
- Wrap-Around Deed of Trust. The deed of trust is a loan document that grants a security interest in the conveyed property to the seller. This instrument identifies the obligations of the buyer and defines the events of default that will allow the seller to foreclose on the property should the buyer default. The deed of trust must be executed by all buyers, and the notarized original should be filed in the real property records in the office of the county clerk in the county in which the property is located. The original copy of the deed of trust will be automatically returned to the designated seller by mail within one to three weeks.
- TREC Form OP-H Seller’s Disclosure Notice. Chapter 5.008 of the Texas Property Code requires that all sellers execute a Seller’s Disclosure Notice unless a specific exception applies. All sellers are required to deliver an executed copy of this notice to the buyer(s) within seven (7) days of the execution of the contract, but we recommend delivering the notice with the contract is signed by the seller(s). Sellers are advised to truthfully disclose all known defects about which the disclosure notice inquires.
Escrowed Taxes and Insurance
If the seller’s underlying monthly loan payments include escrowed property tax and insurance payments, the contract should pass those escrowed payments on to the buyer. Because escrowed property tax and insurance payments are not a part of the loan, those escrowed amounts are not included in the monthly payment amount described in the loan documents. Therefore, it is the seller’s responsibility to inform the buyer of the amount of monthly escrowed payments that will be added to the monthly loan payment. The seller should also promptly notify the buyer when the amount of the required monthly escrow payment changes (i.e., when property taxes increase or the insurance policy or premium amount changes).
Our real estate attorneys have experience advising clients in seller-finance matters and preparing all necessary documents in complex seller-finance transactions. If you need an attorney to prepare a seller finance package or require consultation and guidance concerning a potential sale, call us at 713-454-7875 or email us your concerns.