A seller “take-back” works like this:
Imagine that a home is worth $300,000 and has an assumable $100,000 mortgage. Instead of going to a lender, the seller “takes back” a note, secured by the property. For example, the seller might take-back a note for $270,000 if you will put up $30,000 in cash.
In other words, a seller take-back is a loan to a buyer from the owner.
A seller take-back is just like a loan from any lender. It must be repaid according to the terms and conditions outlined in the note. If not repaid, the property can be foreclosed.
The rules which apply generally to mortgages may not apply to seller take-backs. For example, some attorneys argue that a seller take-back is not subject to state usury rules (interest rate caps) because a seller take-back is NOT a loan — no money changed hands.
For details, have an attorney review take-back loan papers before signing anything. If you are a seller, insist on seeing a buyer’s credit report and past tax information — just like any lender. And be sure that any loan arrangement is written according to terms which are satisfactory to your attorney.