Seller Financing and Owner-Carry Structures in New York

Overview

Seller financing makes the seller a creditor: the buyer signs a repayment obligation and the property secures that obligation. This is not a standard cash-flow tactic. Federal mortgage rules, New York law, tax treatment, lien priority, servicing, default remedies, and the seller's own financial risk all depend on the transaction.

The federal rules are narrower than the common shorthand "Dodd-Frank exemption." The Consumer Financial Protection Bureau's Regulation Z provisions below exclude a qualifying seller financer from the rule's definition of loan originator. They are not a blanket exemption from every federal or state lending requirement.

This article is general educational information, not legal, tax, lending, or investment advice. A New York real estate attorney and tax adviser should approve the structure before the seller offers financing or accepts a financed offer.

Verified Federal Rules

For the three-property route, Regulation Z section 1026.36(a)(4) applies to a person providing seller financing for three or fewer properties in a 12-month period. Each property must be owned by that person and secure the financing; the person must not have constructed the residence in the ordinary course of business; and the financing must be fully amortizing, based on a good-faith determination of the consumer's reasonable ability to repay, and fixed-rate or not adjustable until after five or more years with stated adjustment limits.

For the one-property route, section 1026.36(a)(5) applies only to a natural person, estate, or trust financing one property in a 12-month period. The property must be owned by that seller and secure the financing; the seller must not have constructed the residence in the ordinary course of business; and the repayment schedule may not produce negative amortization. The rate must be fixed or not adjustable until after five or more years with stated adjustment limits.

These provisions concern seller-financer treatment under Regulation Z's loan-originator definition. Counsel must determine which other federal and New York requirements apply to the actual transaction.

Transaction Protocol

Before marketing seller financing, give counsel the proposed borrower, property use, lien position, seller identity, number of seller-financed properties in the relevant 12-month period, rate structure, amortization, maturity, payment schedule, and servicing plan.

Have counsel prepare or approve the note, mortgage, disclosures, recording package, insurance requirements, default provisions, and servicing process. Have the tax adviser determine the applicable federal-rate and installment-sale consequences from current IRS material; do not use a rate or tax result copied from this article.

Underwrite the buyer as a creditor would. Review documented income, assets, debts, credit, insurance availability, and the buyer's ability to carry taxes, insurance, maintenance, and repairs. Select the down payment, rate, maturity, and any balloon only after that review; there is no universal safe percentage or term.

What Not To Assume

Do not assume that financing no more than three properties eliminates all lending regulation. Do not assume that a balloon, a specific down payment, or a rate a fixed percentage above the Applicable Federal Rate is automatically compliant or prudent. Do not promise tax deferral without transaction-specific tax advice.

Sources

• Consumer Financial Protection Bureau, Regulation Z § 1026.36, fetched and read 2026-08-07.