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Carryback Financing

About Carryback Financing

Carryback Financing is a type of mortgage where the seller, as long as he or she owns their property free and clear, can effectively provide financing to the seller directly. This is done by the seller carrying the note for a specified amount of the purchase price. The amount can be anywhere from ten percent to one-hundred percent of the purchase price.

Benefits of Carryback Financing

Carryback financing is an excellent option for people who have blemished credit, difficulties obtaining financing from a traditional source, and may be of limited financial means. This type of financing allows the seller to effectively get a buyer into the home, and the buyer to own a home even when their credit history is less than perfect.

Additionally, because carrybacks offer more flexibility than traditional loans, the arrangement can be crafted to suit both parties in the deal. The amount of interest a seller can charge is less than what a traditional lending institution would charge. Also, a carryback loan on average lasts five to seven years. This is the perfect amount of time for the buyer to reestablish his or her credit and eliminate negative reporting. When this time period comes to an end, the buyer is then able to obtain traditional financing from a reputable lender. Of course, as with any loan, there will be associated closing costs and other fees upon obtaining new financing.

Associated Risks

Because the type of buyer who traditionally seek carryback financing are people with credit history issues, this creates great risks for the seller in the event the buyer were to default. The seller would be stuck with the whole mortgage, if there is still a mortgage on the property. And the task of evicting the buyer.

The buyer is not without risks either. The seller could default on their mortgage on the home. If payments are owed on the property and the seller defaults, the seller could lose the property and the buyer would then lose the sum of the amount they invested in the property up until that date of default.

Pitfalls of Real Estate Carrybacks

In real estate transactions, it is not uncommon for a buyer to ask the seller to finance a portion of the purchase price via a promissory note secured by a second deed of trust against the property.

Where the property is residential real estate of two and one-half acres or less—a normal residential sale—special rules apply and the seller will have no right to sue to collect money due in the event of a default.

Under Arizona law, the seller’s sole remedy is to foreclose upon the property. The foreclosure process can be lengthy and, in the meantime, the seller must protect his interest by keeping prior encumbrances current. In effect, this amounts to giving the defaulting buyer free rent during the foreclosure process.

A seller can be in a very difficult spot where there is insufficient equity in the home or where the seller’s funds are insufficient to keep the prior encumbrances current. Each case must be analyzed on its merits, but where a seller can foresee no circumstances in which he or she would retake possession of the home, it may be a better practice to secure the carryback note with other property, if available, or to not secure it at all, thereby preserving the option to sue for collection in the event of a default.

Consult With An Attorney About Carryback Financing

In order to draft a solid carryback financing agreement, it is essential to consult with a real estate attorney to protect both parties involved. There are many intricacies associated with this type of financing and hiring a lawyer to, at a minimum, review the documents and arrangement is the only way to ensure a successful agreement.

To talk with one of our experienced real estate attorneys about carryback financing, please contact the law office of Platt & Westby, P.C., or call 602-277-4441.

If you have a question about carryback financing, contact us.

We can help.


Melissa Keiper
Melissa Keiper
00:40 22 Feb 18
I wrote in to a law message board asking about a step in my case and Mr. Peter Westby replied with some sound advice. I emailed him to thank him for his advice and shared with him I was not being represented. He offered to meet with me to go over my case and possibly about representing me. In our meeting he allowed me to give him all the details of my case and he spent a good amount of time offering advise and insight to the law pertaining to my situation. Mr. Westby was very patient and allowed me to ask multiple questions and was thorough in his answers. Because I live 2 hours away and in a different county (Tucson), and because my case will most likely go to trial and the cost of travel for him to represent me I am unable to retain Mr. Westby as my attorney. However, if this were to be taking place in Phoenix I would hire him in a heartbeat. I appreciate his willingness to talk with me and spend his time assuring me about the steps i'll need to take in my case. He was very prompt in his reply to my question and then for scheduling a phone conference to go over a case he prob knew he wouldn't be able to take given the distance.read more
Lance Wallace
Lance Wallace
16:44 04 Jan 18
I've worked with Pete Westby on a few matters over the years and I do recommend him and his firm. It is nice to talk and work directly with a principal of the firm who has both integrity and tons of experience.read more
John Rukavena
John Rukavena
23:25 12 Oct 17
Meet with Peter today and was very impressed. I had a large tile job that was done improperly and was not sure if a lawsuit made economic sense. Peter was straightforward and told me that if the contractor did not have sufficent assets, a lawsuit would be risky because a favorable court decision might not result in a payout. I now know what I need to do thanks to Peter.read more
David Hughes
David Hughes
17:08 08 Nov 17
Mr. Westby was great and very knowledgeable and the staff was friendly and very responsive and kept me informed every step of the way... I would and will definitely recommend Platt & Westby P.C. to friends and family.read more
Jordan P
Jordan P
19:07 04 Sep 17
We went in for our free consultation regarding our legal concerns and we were very happy with our experience and outcome of our situation. Mr. Rahtz was professional, informative, and helpful. I would recommend him for anyone seeking legal counselling. Thank you to Mr. Rahtz and the rest of the team at Platt & Westby.read more
Kenneth Crayton
Kenneth Crayton
07:30 22 May 18
RahtzHe gave me his undivided attention and seemed to genuinely care. In my experience, it has been very tedious and daunting to begin a conversation with an attorney, especially one at a law firm with other partners, etc. That is, usually law firms won't lend an ear, it seems, unless you pay $100-300 initial consulting fee, which is basically a $15 overview of your case and whether they think it's worthwhile$$$.However, not only was I surprised to see Attorney Rhatz offer a no-cost consultation, but he also kept it "real." He advised me with information that even seemed to work against his assumed interest in profit (i.e., he didn't try to exploit me for money), such as by providing me with self-help research suggestions, and even helped me put together an outline for my case.He didn't want me to lose more money winning with him (he didn't want me to spend so much money to retain him, that even if winning the case, I'd still be at a net negative dollar-loss).He gave me his undivided attention, asked questions that showed he actually paid attention, and was very resourceful with directing me towards credible sources of jurisprudence.What's more, is that he didn't throw me out after 15 minutes, but rather stayed with me until he felt I was sufficiently informed with the material and answers to questions to send me along my way.This man even read through all my notes and connected with me as a person.I also appreciated his aggressive, but civil, nature towards vanquishing the countering party. He is strategic, he is prepared to preempt the countering party's legal arguments by first calling them out himself, and sparks reassurance that he is sedulously and astutely on the case.Obviously, I would recommend attorney R Andrew Rahtz for the aforementioned reasons, despite only meeting with him one time on an preliminary consultation.read more
Paulo Soares
Paulo Soares
01:38 11 Jul 18
Mr. Westby really knows his stuff, and gave me some excellent advice. I will be back to move forward on my situation.
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