Seller financing — sometimes called owner financing or a purchase money mortgage — is a transaction structure where the seller acts as the lender. Instead of the buyer obtaining a traditional bank loan, the seller agrees to carry some or all of the financing, and the buyer repays them over time according to agreed-upon terms. In Southwest Florida’s current real estate market, this approach has become increasingly common, particularly as interest rate volatility continues to complicate conventional lending for certain buyers. Understanding how seller financing works — and what the law requires — is essential for any agent who wants to quarterback these deals effectively.
Title Transfers at Closing — This Is Not a Land Contract
One of the most important distinctions to understand upfront: in a properly structured seller financing deal, title transfers to the buyer at closing. This is not a contract for deed, and it is not a land contract. Both of those arrangements are disfavored in Florida — in fact, Florida statute requires foreclosure regardless of how a financing arrangement is structured. If it looks like a mortgage, it is a mortgage, and all the rules that go with it apply. That means if a buyer defaults, the seller’s remedy is foreclosure, full stop. There is no self-help option, no taking the property back without going through the court process. The upside: the law protects the lender. A seller who properly structures a seller financing deal and holds the original promissory note will generally be made whole — either through payment or by recovering the property.
Why Seller Financing Makes Sense Right Now
Seller financing fills a gap that traditional lending simply cannot. Commission-based salespeople, independent contractors, and small business owners often have strong financial profiles but irregular income that makes W-2-dependent underwriting a poor fit. For those buyers, seller financing can be the difference between a deal happening and a deal dying. On the seller’s side, carrying a note can generate meaningful interest income for sellers who don’t need an immediate lump sum — and at current conventional rates hovering in the mid-to-upper 6% range, seller financing rates (typically one to two points above bank rates) can represent a genuinely attractive return.
The other advantage is deal certainty. Seller financing replaces the lender underwriting process with a much simpler credit review, which can be wrapped up in as few as ten days. That speed, combined with lower closing costs for the buyer — no origination fees, no lender charges, reduced loan document costs — makes these transactions attractive on both sides of the table when structured correctly.
What Both Sides Need to Understand Before Agreeing to Terms
Seller financing creates an ongoing relationship between buyer and seller that can last anywhere from three years to thirty, depending on the balloon and payment structure. That is worth naming plainly. A transaction that was contentious during the negotiation phase will produce a buyer and seller who are now financially connected for years. Agents should help their clients think through this reality before committing to the structure.
For buyers, seller financing requires sharing detailed credit and financial information with a private individual — not an institution — and committing to maintaining creditworthiness throughout the loan term, since most deals include a balloon payment that will eventually require refinancing into conventional financing. For sellers, the critical protections are a strong down payment and a properly drafted note and mortgage. A down payment of at least 20%, and ideally 30 to 40%, is recommended to cover the cost of foreclosure proceedings if the buyer defaults — which can range from $5,000 to $20,000 depending on how vigorously the borrower contests the action. The seller must also retain the original promissory note for the life of the loan. Losing that document complicates any future foreclosure significantly.
Dodd-Frank and Why It Governs Most Seller Financing Deals
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a federal banking law, and a significant portion of it directly governs residential seller financing. Specifically, any person who offers or negotiates the terms of a residential mortgage loan is generally required to be a licensed mortgage loan originator — which most sellers are not. Dodd-Frank applies when the buyer intends to occupy the property as a residence, and it covers houses, condominiums, townhomes, apartments, mobile homes, and even boats used as residences. It does not apply to vacant land, commercial property, or transactions where the buyer is purchasing through an entity (such as an LLC or corporation) with no intent to occupy.
The consequences of non-compliance are serious. The buyer retains a private right of action and may be able to rescind or reform the loan, recover borrowing costs, and seek monetary damages. Any seller financing deal that does not comply with Dodd-Frank — or fall within one of its established exceptions — is legally vulnerable in ways that could cost the seller significantly.
The One-Property Exclusion
The one-property exclusion is the most commonly used pathway for individual sellers to engage in residential seller financing without triggering the full Dodd-Frank licensing requirements. To qualify, the seller must not have sold another property with financing within the previous 12 months. The seller must be a natural person, an estate, or a trust — not an LLC or corporation. The seller must own the property being sold and cannot have been the builder of the property.
The loan itself also has to meet specific structural requirements. It cannot include negative amortization — meaning each payment must reduce the outstanding balance, not increase it. The balloon payment, if any, cannot come due in fewer than 60 months (five years). The interest rate must be either fixed or adjustable with no adjustment for the first five years, and any rate increase is capped. When a seller qualifies for the one-property exclusion, one significant benefit is that they are not required to conduct a formal ability-to-pay analysis of the buyer — a meaningful relief in deals between family members or in other situations where financial disclosure may be sensitive.
The Three-Property Exclusion
Sellers who want to do more than one seller financed transaction per year — up to three — can use the three-property exclusion. The ownership and builder requirements are the same as the one-property exclusion, and the same loan structure rules apply: no negative amortization, no balloon before 60 months, fixed or qualifying adjustable rate. The key difference is that sellers using the three-property exclusion must comply with the ability-to-pay rules. That means a good-faith review of the buyer’s credit history, debt-to-income ratio, monthly debt obligations, and other financial information to reasonably conclude that the buyer can repay the loan. This review does not require a formal underwriting process, but it must be documented and substantive — and sellers who skip it and later face a defaulting borrower may find themselves unable to recover the full amount they are owed.
The FARBAR and NABOR Seller Financing Forms
Florida agents working in seller financing deals will use one of two standard contract forms: the FARBAR Rider C (Seller Financing) or the NABOR Seller Financing Addendum. Both are designed to be Dodd-Frank compliant within their structure, but they differ in meaningful ways that agents should understand before sitting down with clients.
FARBAR Rider C
Rider C gives agents four choices for the type of seller financing: a fully amortizing mortgage, an interest-only structure, a balloon mortgage, or an adjustable-rate mortgage. In practice, the adjustable-rate option is the most complex and least recommended — changing rates shift the amortization schedule in ways that become cumbersome quickly. Most deals use either the interest-only or balloon structure, both of which must run for at least five years. The rider requires agents to specify the loan amount, interest rate, payment frequency (monthly, quarterly, or annual), payment amount, first payment date, and maturity date. That last field — when the entire principal balance is due — is frequently overlooked and must not be left blank.
A few additional provisions in the FARBAR form deserve attention. The contract does not specify a hard timeline for the buyer to provide financial information or for the seller to approve or decline financing — it uses “timely manner” language, which is vague and worth addressing in a separate addendum. The form also does not limit assignability of the contract by default, which means agents should check the assignability box in paragraph 7 to restrict the buyer’s ability to transfer the contract without the seller’s knowledge. If the seller financing is structured as a second mortgage, a default on any first mortgage constitutes a default on the seller’s note as well.
NABOR Seller Financing Addendum
The NABOR addendum is somewhat simpler in structure and includes clearer timelines. The buyer has five days after the effective date to provide credit and financial information to the seller (though NABOR’s time-is-not-of-the-essence standard means this should be pushed on actively). The seller then has five days to review and either approve or decline — and silence is deemed acceptance. Both parties also have a 10-day window after the effective date to terminate if the seller financing structure does not comply with Dodd-Frank or its exceptions, which gives agents a useful buffer to get the details right after going under contract.
Key NABOR terms to know: there is no prepayment penalty, so the buyer can pay off the loan at any time. A default on any first mortgage is also a default on the seller’s note. The NABOR form includes a 5% late charge if payment is more than 10 days overdue. Loan document preparation costs are a buyer expense. The buyer pays intangibles tax and recording fees. And like the FARBAR form, the NABOR addendum requires the seller to be kept as an additional named insured on the property’s insurance policy.
One Rule That Cannot Be Overlooked: The Seller’s Mortgage Must Be Paid Off
If the seller has an existing mortgage on the property, that mortgage must be paid off at closing. This is not optional, and it is not a detail that can be worked around by having the buyer “just make the payments.” When title transfers at closing — which it does in every properly structured seller financing deal — that transfer triggers the due-on-sale clause in the seller’s existing mortgage. If the seller’s lender is not paid off, the lender can call the entire balance of the mortgage due immediately, putting both the seller and the buyer in a deeply problematic position. Sellers who ignore this rule are not just cutting corners — they are exposing themselves to foreclosure on their own mortgage.
A Note on FinCEN When Entities Are Involved
In some seller financing deals, the buyer may take title through an LLC or corporation — often as a strategy to step outside Dodd-Frank’s residential requirements. That approach is legally available, but agents and buyers should be aware that entity-based transactions not using traditional lender financing are likely to trigger FinCEN’s beneficial ownership reporting requirements. The FinCEN rules, which became effective in early 2026, require disclosure of the real people behind entities taking title to real property. It is an additional compliance layer that must be addressed, and sellers and buyers working with entity buyers should have an attorney involved early in the process.
Frequently Asked Questions About Seller Financing in Florida
Does filing a foreclosure affect the seller’s credit?
No. In a seller financing arrangement, the seller is the lender. Initiating foreclosure proceedings against a borrower who has defaulted does not appear on the seller’s credit report and does not affect their credit score.
What is a typical down payment for a seller financed deal?
At minimum, 20%. More commonly, 30 to 40% is recommended. The reason is practical: if the buyer defaults and foreclosure becomes necessary, the cost of that process can range from $5,000 to $20,000 depending on how contested the case becomes. A larger down payment ensures the seller has adequate reserves to cover those costs while the matter resolves.
What are typical closing costs in a seller financed transaction?
Significantly lower than conventional financing. Because there is no bank involved, the buyer avoids origination fees, underwriting charges, and other lender-imposed costs. Typical expenses include prepaid interest, prepaid insurance, loan document preparation (usually $400–$500), and standard closing costs. The savings compared to lender financing can be meaningful.
What is the typical interest rate for seller financing in Florida right now?
Generally one to two percentage points above prevailing conventional mortgage rates. With conventional rates currently in the mid-to-upper 6% range, seller financing rates are often in the 7.5–8.5% range, though this is negotiated between the parties and will vary based on the buyer’s profile and the deal structure.
Can a seller sell or transfer the promissory note to someone else?
Yes. There is a market for seller-financed notes, and companies exist that purchase them. Sellers who want liquidity before the balloon date can explore this option. The terms and discount rate will depend on the note’s structure, the buyer’s payment history, and the remaining balance.
What can a seller do if the buyer lets the property deteriorate?
A properly drafted mortgage can include collateral protection provisions that make material deterioration of the property a default event. If the property’s condition falls below an agreed standard, the seller may have grounds to initiate foreclosure. This is why having an attorney draft the note and mortgage — not just the contract addendum — matters.
Seller financing is a legitimate and increasingly useful tool in the Southwest Florida market. Done correctly, with the right legal structure in place, it can close deals that traditional lending cannot. Done carelessly, it can create serious legal and financial exposure for both parties. Agents who understand the framework — Dodd-Frank compliance, proper down payment sizing, correct contract form usage, and the critical rule about paying off the seller’s existing mortgage — are in a position to guide their clients through these transactions with confidence.