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Owner Financing Contract

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OPTION AGREEMENT FOR THE SALE AND PURCHASE OF REAL ESTATE
GENERAL FORM

WARNING: THIS CONTRACT HAS SUBSTANTIAL LEGAL CONSEQUENCES AND THE PARTIES ARE ADVISED TO CONSULT LEGAL AND TAX COUNSEL.

This Option Agreement is made on this the day of , 20 , by and between , hereinafter referred to as the “SELLER”, whether one or more, and , hereinafter referred to as the “PURCHASER”, whether one or more.

FOR AND IN CONSIDERATION of $10.00 and other good and valuable considerations, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows:

1. GRANT OF OPTION: The Seller does hereby grant unto the Purchaser the exclusive and irrevocable option to purchase, upon the terms and conditions hereinafter set forth, Seller's property situated in County, , together with all improvements located thereon, described as follows:

SEE ATTACHED EXHIBIT "A" FOR DESCRIPTION

2. EXERCISE OF OPTION: This option to purchase may be exercised by the Purchaser at any time prior to midnight on , 20 by notice in writing to the Seller addressed to the following address:

All notices will be deemed delivered to Seller upon deposit in the U.S. Mail Certified, Return Receipt Requested, addressed to the above address.

3. DEFAULT BY PURCHASER: In the event of the failure of the Purchaser to exercise this option, or in the event of any default by the Purchaser after the exercise of this option, all money paid by the Purchaser to the Seller upon the execution of this Agreement, or upon any extension, shall be retained by the Seller as consideration for the granting of this Option to the Purchaser, and all rights of the Purchaser under this Agreement shall terminate.

4. TITLE: Within fifteen (15) days after the Purchaser has exercised this Option as hereinabove provided, the Seller shall deliver to the Purchaser, or to Purchaser's attorney, a Certificate of Title, title report or title abstract by a reputable attorney, title company or abstract company, upon which title report insurance can be obtained, covering the property described in paragraph I above which shall reflect that marketable fee simple title to the subject property is vested in Seller and that same is insurable by a title company of Purchasers choice. Said Certificate shall be subject only to taxes for the current year, easements, and rights of way of record, and prior mineral reservations. Should said Certificate reflect any other exceptions to the title unacceptable to Purchaser, Purchaser shall notify the Seller in writing of any defects within fifteen (15) days (the title review period) and the Seller shall have a reasonable time (but not more than 25 days) in which to make the title good and marketable or insurable, and shall use due diligence in an effort to do so. If after using due diligence the Seller is unable to make the title acceptable to Purchaser within such reasonable time, it shall be the option of the Purchaser either to accept the title in its existing condition with no further obligation on the part of the Seller to correct any defect, or to cancel this Agreement. If this Agreement is thus canceled, all money paid by the Purchaser to the Seller upon the execution of this Agreement or upon any extension shall be returned to the Purchaser, and this Agreement shall terminate without further obligation of either party to the other. If title is acceptable to Purchaser, the closing shall occur within fifteen (15) days after expiration of the "title review period". At closing Seller shall convey title to Purchaser by Warranty Deed subject only to exceptions acceptable to Purchaser.

5. PURCHASE PRICE: The purchase price for the property shall be ($ ). The purchase price after the application of the option money shall be paid by Purchaser to Seller in cash. Closing shall take place within fifteen (15) days of Seller's delivery to Purchaser of an acceptable Title Certificate as provided for in Paragraph IV.

6. OPTION MONEY: Upon execution of this Option, Purchaser has paid unto Seller the sum of ($ ) as "Option Money". In the event that Purchaser exercises the option to purchase this property within the initial option period or any extension thereof and is not in default in any other terms of this Agreement, said Option Money shall shall not apply toward the purchase price at closing.

7. EXTENSION: Purchaser shall be entitled to extend the time within which this Option may be exercised to midnight , 20 , by paying unto Seller in cash an additional sum of $ prior to the expiration of the initial option period and by giving notice in writing to Seller of Purchaser's election to extend the option. Upon closing of the sale within the extended option period, said sum shall apply toward the purchase price.

8. EXPENSES OF SALE: In the event that Purchaser exercises this option to purchase the subject property, the following closing costs shall be paid as provided. (Leave blank if the closing cost does not apply.)

Closing Costs Purchaser Seller Both*
Attorney Fees
Title Insurance
Title Abstract or Certificate
Property Insurance
Recording Fees
Appraisal
Survey
All other closing costs

* 50/50 between Purchaser and seller.

9. POSSESSION: Purchaser shall be entitled to possession of the property at closing.

10. RIGHT OF ENTRY: During the term of this Option or any extension hereof, Purchaser shall be entitled to enter upon the property for the purpose of conducting soil tests, engineering studies, surveys and any other desired inspections of the property.

11. TAXES: Taxes shall be prorated as of the date of closing.

12. DEFAULT: This contract shall be binding upon and inure to the benefit of the heirs, administrators and assigns of the parties hereto and upon default in any of the terms of this Agreement the defaulting party agrees to pay all costs of Court and a reasonable attorney's fee.

13. ATTORNEY'S FEES: The prevailing party in any legal proceeding brought under or with respect to the transaction described in this contract is entitled to recover from the non-prevailing party all costs of such proceeding and reasonable attorney’s fees.

14. REPRESENTATIONS: Seller represents that as of the Closing Date (a) there will be no liens, assessments, or security interests against the Property which will not be satisfied out of the sales proceeds unless securing payment of any loans assumed by Purchaser and (b) assumed loans will not be in default. If any representation in this contract is untrue on the Closing Date, this contract may be terminated by Purchaser and the earnest money will be refunded to Purchaser. All representations contained in this contract will survive closing.

15. AGREEMENT OF PARTIES: This contract contains the entire agreement of the parties and cannot be changed except by their written agreement.

16. NOTICES: All notices from one party to the other must be in writing and are effective when mailed to, hand-delivered at, or transmitted by facsimile machine as follows:

To Purchaser at:

Telephone ( )

Facsimile ( )

To Seller at:

Telephone ( )

Facsimile ( )

17. ASSIGNMENT: This agreement may may not be assigned by Purchaser without the consent of Seller. This agreement may be assigned by Seller and shall be binding on the heirs and assigns of the parties hereto.

18. PRIOR AGREEMENTS: This contract incorporates all prior agreements between the parties, contains the entire and final agreement of the parties, and cannot be changed except by their written consent. Neither party has relied upon any statement or representation made by the other party or any sales representative bringing the parties together. Neither party shall be bound by any terms, conditions, oral statements, warranties, or representations not herein contained. Each party acknowledges that he has read and understands this contract. The provisions of this contract shall apply to and bind the heirs, executors, administrators, successors and assigns of the respective parties hereto. When herein used, the singular includes the plural and the masculine includes the feminine as the context may require.

19. NO BROKER OR AGENTS: The parties represent that neither party has employed the services of a real estate broker or agent in connection with the property, or that if such agents have been employed, that the party employing said agent shall pay any and all expenses outside the closing of this agreement.

20. EMINENT DOMAIN: If the property is condemned by eminent domain after the effective date hereof, the Seller and Purchaser shall agree to continue the closing, or a portion thereof, or cancel this Contract. If the parties cannot agree, this contract shall remain valid with Purchaser being entitled to any condemnation proceeds at or after closing, or be cancelled and the earnest money returned to Purchaser.

21. RECORDING: This agreement may may not be recorded in the official records of County, .

22. OTHER PROVISIONS

23. GOVERNING LAW: This contract shall be governed by the laws of the State of .

IN WITNESS WHEREOF, the parties have executed this Agreement on this the day of , 20 .

Seller

Seller

Purchaser

Purchaser

STATE OF

COUNTY OF

PERSONALLY appeared before me, the undersigned authority, the within named, , who acknowledged, signed, executed and delivered the above and foregoing agreement.

DATED this the day of , 20.

NOTARY PUBLIC

My Commission Expires:

STATE OF

COUNTY OF

PERSONALLY appeared before me, the undersigned authority, the within named, , who acknowledged, signed, executed and delivered the above and foregoing agreement.

DATED this the day of , 20.

NOTARY PUBLIC

My Commission Expires:

EXHIBIT “A”

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What an Owner Financing Contract Is and When It Applies

An Owner Financing Contract is a written agreement where a property seller provides credit to the buyer to cover all or part of the purchase price. It typically combines a promissory note (loan terms, interest, schedule) with a security instrument (deed of trust or mortgage) that secures repayment in the real property. Parties set price, down payment, interest rate, amortization, late fees, default remedies, and whether the instrument will be recorded. These agreements are enforceable in the U.S. when they meet standard contract elements and applicable electronic signature rules such as the ESIGN Act (15 U.S.C. ch. 96) and state UETA laws.

Why Parties Choose Owner Financing

Owner financing can expand buyer pools, speed closings, and allow sellers to earn interest income while maintaining some security in the property; it also transfers tax and cashflow timing considerations that both parties should evaluate.

Why Parties Choose Owner Financing

Typical Users and Parties Involved

Owner Financing Contracts are used by sellers, buyers, brokers, and closing professionals in transactions where traditional mortgage financing is limited or intentionally avoided.

  • Individual sellers using seller-carryback financing to market property to more buyers
  • Buyers unable or unwilling to obtain full bank financing who accept installment payments
  • Title officers and closing agents tasked with recording the security instrument

Each participant has discrete responsibilities: sellers draft or approve terms, buyers confirm affordability, brokers facilitate disclosure, and title professionals record security instruments.

Who Can Sign and What Their Roles Mean

Seller — Property Owner

The seller acts as lender in the transaction and must have legal authority to encumber the property. As lender the seller sets interest, payment schedule, and enforcement rights, and typically signs the promissory note and the mortgage or deed of trust securing repayment.

Buyer — Purchaser

The buyer is the borrower obligated to make scheduled payments and to maintain the property per contract terms. The buyer signs the promissory note, executes the security instrument, and must provide identification for notarization and recording where required.

Core Sections of a Strong Owner Financing Contract

A complete agreement integrates loan mechanics, security, default remedies, and administrative terms so parties understand payment, priority, and enforcement steps.

Promissory Note

States principal, interest rate, amortization, payment amounts and dates, late charge terms, prepayment provisions, and what constitutes default; forms the primary borrower promise to pay.

Security Instrument

Deed of trust or mortgage creates a lien on the property securing the note; it specifies remedies, foreclosure method, and recording instructions to protect lender priority.

Payment Schedule

A clear amortization table or schedule shows due dates, principal and interest split, balloon payment if any, and any grace periods for late payments.

Interest and Fees

Defines fixed or variable rate calculation, caps, default interest, and allowable fees; ensures compliance with state usury limits and disclosure requirements.

Default and Remedies

Specifies cure periods, acceleration rights, late fees, foreclosure steps, and whether the lender will accept reinstatement or loan modification.

Recording and Notices

Describes who will record the security instrument, where it will be recorded, and how legal notices and payment communications must be delivered.

Step-by-Step: Preparing the Owner Financing Contract

Follow these sequential steps to prepare a complete and enforceable owner-financed sale, from term negotiation through closing and recording.

  • 01
    Gather documents: Title report, IDs, prior deed
  • 02
    Negotiate terms: Price, down payment, rate
  • 03
    Draft agreement: Note, mortgage, disclosures
  • 04
    Execute and record: Sign, notarize, record instrument

How to Complete and Customize This Contract Online

Use an electronic workflow to reduce errors and capture audit information; configure authentication and routing before sending for signatures.

Template Save a reusable contract template with placeholders for names and amounts
Conditional Fields Show or hide clauses based on buyer type or loan term selection
Signing Order Set seller or escrow agent to sign first, then buyer
Authentication Require email plus SMS code or ID verification as needed
Notifications Enable reminders and a completion certificate for recordkeeping

Digital Signing and File Requirements

Choose a platform that supports PDF and DOCX files, audit trails, and secure signer authentication for legal reliability.

  • File formats: PDF, DOCX supported
  • Integrations: Title and storage systems
  • Authentication: Email, SMS, KBA options

Transaction Flow: From Negotiation to Recorded Security

This high-level flow shows core milestones and responsibilities for seller, buyer, and closing agent in an owner-financed sale.

  • Negotiate Terms: Agree loan basics and disclosures
  • Documentation: Prepare note, deed of trust
  • Execution: Sign, notarize, and collect records
  • Record: File security instrument in county

Supporting Documents to Attach or Collect

Attach documents that support enforceability, establish title, and evidence payments during the loan term for clarity and proof.

Title Report

A current title or preliminary report confirms seller ownership and identifies liens; essential before creating a new security instrument to avoid priority disputes.

Promissory Note

The signed note records the borrower's repayment obligation including payment amounts, due dates, and acceleration clauses and should be stored with the recorded security instrument.

Deed of Trust or Mortgage

This security instrument creates the lien that a county recorder will index; the recorded copy is primary evidence of lender priority.

Payment Ledger

Maintain a running record of payments received, dates, and outstanding principal to support enforcement actions and tax reporting.

Practical Tips to Reduce Risk and Delay

Adopt consistent practices that protect both parties and streamline closings; these reduce title issues, tax surprises, and enforcement friction.

Clear amortization schedule
Provide a fully detailed payment table showing each payment's principal and interest split, and disclose any balloon payments so both parties understand long-term obligations.
Title and lien clearance
Resolve outstanding liens or judgments before closing or specify subordination terms; unresolved defects can defeat the lender's security interest.
Record promptly
Record the mortgage or deed of trust immediately to protect lien priority and provide public notice of the seller-lender's interest in the property.
Use plain-language notices
Include clear notice provisions about late payments, default remedies, and cure periods to reduce disputes and litigation risk.

Common Preparation Pitfalls to Avoid

  • Ambiguous payment instructions that omit dates or amounts create enforcement disputes and collection delays for sellers.
  • Failing to include or record a security instrument leaves the seller unsecured and vulnerable to subsequent liens.
  • Using incorrect legal property descriptions causes recording rejection or clouds title, requiring corrective deeds or affidavits.
  • Skipping notarization or required witness attestation leads to refused recording and potential unenforceability in foreclosure.

Primary Legal Risks and Financial Consequences

Tax Reporting: Possible information reporting obligations
Foreclosure Risk: Costly enforcement if buyer defaults
Usury Violations: State rate caps may void agreements
Recording Errors: Clouds title or delays priority
Disclosure Failures: Consumer-finance rules may apply
Invalid Signature: Unenforceable without proper execution

Security, Compliance, and Audit Trail Essentials

Encryption: TLS 1.2/1.3 in transit
Data at rest: AES-256 encrypted storage
Audit trail: Timestamps, IP, and actions
HIPAA readiness: BAA required for PHI
ESIGN / UETA: Legal framework compliance
21 CFR: Supports Part 11 workflows

eSignature Vendor Comparison for Owner Financing Workflows

Comparing common vendor attributes for signing owner financing documents; signNow appears first and supports HIPAA and audit-trail needs alongside common integrations.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial 7-day free trial Trial available Trial available Trial available Trial available
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No

Real-World Examples of Owner Financing Use

Examples show how sellers and small brokers use owner financing templates and secure e-signing to close transactions when bank financing is impractical.

Martin Properties (Tim Martin)

A small property investor used owner financing to sell a rental asset quickly while preserving income stream.

  • The buyer paid a down payment and monthly installments.
  • Tim Martin noted he could process and execute these documents online with compliance and security, enabling remote closing without losing necessary legal protections or recordkeeping.

Optica Ventures (Brian Fitzgibbons)

A regionally focused seller-finance program matched buyers who could not get traditional mortgages.

  • The firm standardized documents and payment ledgers.
  • Brian Fitzgibbons emphasized the interface simplicity and customer ease, which helped scale seller-financed transactions while maintaining consistent documentation and signatures.

Common Questions About Owner Financing Contracts

Questions below address signature validity, recording, default consequences, and routine execution issues encountered with owner-financed agreements.


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