Seller Carry-Back Financing in California

Seller carry-back financing is when the seller finances part or all of a sale price by taking back a promissory note from the buyer, secured against the property with a deed of trust, rather than requiring the buyer to obtain a new bank loan for that portion of the price. It can stand alone as the buyer's only financing, or it can sit alongside a bank loan or an assumed loan, filling the gap between what the buyer can obtain elsewhere and the full purchase price.

The term "carry-back" specifically describes the seller's role — carrying a note back on the sale rather than cashing out entirely — and it's the mechanism underneath most owner-financed deals, whether structured as a first-position loan or a second one behind other financing.

A first-position carry-back means the seller's note is the only lien on the property — the buyer pays no bank at all, only the seller. This is common on land, rural parcels in Sutter or Butte County, or properties a bank won't touch. A second-position carry-back means the buyer gets a conventional loan for most of the price and the seller finances the remaining gap — a smaller down payment plus a modest carry-back note, for instance, when a buyer is a little short of a lender's required down payment but otherwise qualifies easily. Second-position carry-backs carry more risk for the seller, since a foreclosure by the first lender would wipe out the seller's junior lien unless the seller steps in to cure the default themselves.

Two documents do the legal work. The promissory note is the buyer's personal promise to pay — it states the principal, interest rate, payment schedule, and what happens on default. The deed of trust is what makes the note secured: recorded against the property at the county recorder's office, it gives the seller (as beneficiary) the right to have a trustee sell the property through a non-judicial foreclosure if the buyer stops paying, without the seller needing to file a lawsuit first. Both documents need to be drafted carefully and recorded correctly; an unrecorded deed of trust, or one with an ambiguous default provision, can leave a seller far less protected than they assume.

A carry-back note's rate is typically set above what a bank would charge, reflecting the risk premium of an unsecuritized, one-off loan — often in the range of a few points above prevailing mortgage rates, though there's no fixed rule. Term length varies widely: some carry-backs amortize fully over 15-30 years like a standard mortgage, while others run shorter with a balloon payment due at the end, which shifts refinance risk onto the buyer at that date. Whichever structure you choose, the note should specify late fees, what constitutes default, and exactly how foreclosure would proceed if it came to that.

A carry-back and a wraparound mortgage both involve the seller acting as lender, but they solve different problems. A first-position carry-back is used when there's no underlying loan to worry about — the seller owns the property free and clear, or the underlying loan gets paid off at closing. A wraparound is specifically for situations where the seller has an existing loan they want to keep in place, usually because its rate is well below today's market — a distinct mechanic covered on our wraparound mortgage page, worth reading if you still owe money on the property you're selling.

Recording the deed of trust promptly at the county recorder's office establishes your priority against any liens the buyer might later place on the property — an unrecorded or late-recorded deed of trust can lose priority to a lien recorded in the meantime, which undermines the whole point of taking security in the first place. It's also worth deciding up front whether the note will be assignable — whether you retain the right to sell or transfer the note to another party later without needing the buyer's consent — since that flexibility matters if your own circumstances change down the road and you want to convert the note to a lump sum, a structure covered on our note-selling pages.