Hazards of DIY in Seller Financing – Real Deal #286

DIY has its time and place. Staining your deck, give it a shot? Rewiring your electrical? Call the professional. Putting together IKEA furniture? That’s all you.

Offering seller financing and creating a note with no experience or real estate background? Please protect your valuable asset and reach out to the professionals.

And that brings us to Washington State for this Real Deal.

Hazards of DIY in Owner Financing – Real Deal Example

This deal came to our quote desk, and although there were some downsides (no down payment and an older home), we were hopeful based on the 9+ years of seasoning and equity.

The note and deed of trust were backed by a mobile home with land in Washington State — a big bonus for it being a mobile WITH land. The Seller, an older woman wanting to get her estate in order, sold the property to a family member.

The Note Terms

• Sales Date: June 2015
• Sales Price: $250,000
• Down Payment: $0
• Original Balance: $250,000
• Interest Rate: 6%
• P&I Payment: $1,498.88
• Payments Made: 110
• Payments Left: 246
• Unpaid Balance: $211,466.94
• Loan-to-Value: 85% to Sales Price (39% LTV to a $545,000 BPO)

We quickly noted that some terms were less than ideal for resale. First, there was no down payment, and even with the payment history, the LTV remained at 85% to the Sales Price. Fortunately, the values had increased in the area and there was plenty of equity to the current value. Additionally, the note was written at a lower rate for an older mobile home. While not a negative, the note had the first payment going only to the principal, which adjusted the term to less than the full 360 months.

And sadly, there were three years of unpaid taxes. The county also listed the Seller as the current owner. Remember that for later.

We were able to secure an option from an outside party with an 8% yield, which is lower than what we typically look for when investing in-house funds in mobile home deals. To get the Seller the highest possible pricing, we presented the outside offer minus our referral fee to the Seller and were able to sign this deal.

Handling Unpaid Taxes, Missed Payments, and Strained Relationships

Sadly, there was a strained relationship between the Seller and borrower, even though they were close family. In fact, by the time we came into the picture, they were no longer on speaking terms.

The final nail in the coffin of the strained relationship happened when the borrower got behind on payments in 2023/2024 (the same time as the start of the unpaid taxes). Luckily, the borrower made up the missed payments and were caught up by early 2025. That was not the case for the taxes.

When the investor inquired during the purchaser interview, the borrower stated that they had attempted to pay some of the taxes, but the county required full payment, and therefore, they hadn’t yet paid them.

Luckily, the BPO came in and valued the property at $545,000, with our LTV at 39%. Because of this value, the investor was willing to forgo taxes being paid (as opposed to requiring the Seller to pay if the borrower would not).

However, that victory was short-lived when we realized there was no Deed.

Solving Problems Created From DIY Notes

You read that right. There was a missing Deed.

In seller financing transactions, a Note and Mortgage or Deed of Trust are created and signed to solidify and secure the note terms and loan. The property is deeded to the borrower and the Deed of Trust puts a lien on the property. It’s similar to a typical bank transaction; the bank gets the mortgage, and the borrower receives the house.

However, our Seller didn’t realize that it had to be done. She had went the DIY route without the help of a title company or attorney. So with no Deed, the property still “belonged” to the Seller, which was why we saw them as the stated owner in the county profile.

To purchase the note, the Deed needed to be filed after the fact and recorded with the county, which also required payment of the real estate taxes and the deed excise tax.

Luckily, the Title Company agreed to insure a Deed recorded after the fact. The Seller was updated and agreed to cover the cost of the recording and Deed tax out of their proceeds (close to $4,000). The investor agreed to do an add-back for the unpaid real estate taxes, meaning the investor paid the taxes and added the cost to the unpaid balance of the note.

So – a rollercoaster ride – but one that eventually made it back to the station with everyone still in their seat.

Lessons Learned in Washington

While this was my first time working on a deal with a missing Deed, the takeaways I walked away with were not lessons from referring notes.

It’s for those creating notes. And it’s to do it right.

For those with experience, great. For those looking to gain knowledge, consider our Creating Notes Master Class. And for those who don’t have the experience or want to learn, hire the professionals to assist. And, if you already created a seller carryback note and need some help solving problems, we are here to help!