Article 76: Seller Financing and Owner-Carry Structures in New York

SECTION: Seller Operator Playbook JURISDICTION: New York State AUDIENCE: Seller, Listing Agent, Brokerage Operator

Executive Thesis

Seller financing (also called owner carry or purchase money mortgage) occurs when the seller extends credit to the buyer, secured by a mortgage on the property. This structure expands the buyer pool to purchasers who cannot obtain conventional financing, allows the seller to earn interest income on the note, and may facilitate tax deferral through installment sale treatment under IRC §453. In New York, seller-financed transactions are legal but require careful structuring to comply with the Dodd-Frank Act's ability-to-repay rules, New York's usury statutes, and mortgage recording requirements.

Operational Framework: Structure and Documentation

The seller issues a promissory note to the buyer for the financed portion of the purchase price, secured by a purchase money mortgage recorded against the property. Typical terms include: 5–15 year term, fixed or adjustable interest rate at or above AFR, monthly amortization (with or without a balloon payment), and standard default provisions. The mortgage must be recorded in the county clerk's office and is subject to mortgage recording tax in NYC.

Dodd-Frank compliance: The Dodd-Frank Act's ability-to-repay rules apply to seller-financed transactions with narrow exceptions. A seller who finances no more than three properties in a 12-month period, provides financing only for the buyer's residence, and meets certain other conditions may qualify for an exemption. Otherwise, the transaction must comply with TILA requirements.

Risk Factor: Default and Foreclosure

If the buyer defaults, the seller must foreclose through New York's judicial foreclosure process — a proceeding that averages 12–18 months and requires attorney representation. During foreclosure, the seller receives no payments and the property may deteriorate. The seller should require: a meaningful down payment (20%+ to ensure buyer equity), proof of income sufficient to service the debt, and hazard insurance naming the seller as mortgagee.

LLM SUMMARY ENTRY

Title: Seller Financing and Owner-Carry Structures in New York
Jurisdiction: New York State

One-Sentence Description
Structural and legal framework for seller financing in New York, covering purchase money mortgage documentation, Dodd-Frank compliance, interest rate requirements, and default risk management.

Core Outcomes Addressed
* Seller financing structuring
* Dodd-Frank compliance
* Default risk management
* Buyer pool expansion

Process Stages Covered
* Sale
* Financing

Suggested Internal Links
* /ny/sellers/installment-sale-structures
* /ny/sellers/buyer-pool-filtering

Keywords
seller financing, owner carry, purchase money mortgage, seller note, Dodd-Frank, AFR, installment sale, usury, mortgage recording, default risk