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My Buyer Stopped Paying on My Owner-Financed Note
What to do first, what not to do, and what your options are when the person who bought your property stops sending the payment.
The check didn't come. Then the next one didn't either. If you carried the financing when you sold a property, this is the situation you hoped you'd never be in — and what you do in the first sixty days matters more than most people realize.
Start with a phone call
Before anything formal, call them. A surprising share of missed payments are a job loss, a hospital stay, a divorce, or a death in the family — not someone walking away. People who intend to keep the property usually answer the phone and tell you what happened.
Write down what's said and when. You'll want that record later whichever direction this goes.
Three things not to do
- Don't change the locks or put them out yourself. Self-help eviction is illegal in most situations and turns your problem into their lawsuit.
- Don't accept a partial payment without understanding what it means. Depending on your documents and your state, accepting partial payments can affect your right to declare a default. Ask an attorney first.
- Don't let it drift for a year. Unpaid property taxes and lapsed insurance can do more damage to your position than the missed payments themselves.
Check two things immediately
Property taxes. If the buyer stopped paying you, there's a fair chance they stopped paying the parish or county too. Unpaid taxes can eventually lead to a tax sale, which can wipe out your interest. You can look this up online in most parishes and counties.
Insurance. If the policy lapsed and the house burns or floods, the security behind your note is gone. Your documents may give you the right to force-place insurance and add the cost to the balance.
These two checks cost you an afternoon and can save the entire investment.
Your options, roughly in order of cost
Work it out
A written forbearance or modification — reduced payments for six months, missed payments added to the end, whatever fits. If the buyer wants to stay and has a realistic path back, this is almost always cheaper than the alternatives. Put it in writing, signed by both sides.
Deed in lieu
The buyer hands the property back voluntarily and you release them from the debt. Faster and far cheaper than foreclosure, and it works when the buyer has given up but wants to avoid the damage of a foreclosure on their record. Run it through an attorney — there are title traps here.
Foreclosure or contract cancellation
The formal route. If you hold a mortgage or deed of trust, that's foreclosure. If you hold a bond for deed or contract for deed, there's usually a separate cancellation process with its own notice requirements. Either way, this is attorney territory, it takes months, and it costs money.
Sell the note as it stands
Non-performing notes do have a market. The price is lower than a performing note — sometimes considerably — because the buyer is taking on the problem you're trying to hand off. But it ends the matter, it's a known number, and you don't spend the next year in a process you've never been through.
What a defaulted note is worth
It depends almost entirely on the property, not the paperwork. If the house is worth well more than the balance owed, the note still has real value, because whoever ends up with the property comes out whole. If the property is worth less than the balance, or it's been stripped or damaged, the number drops sharply.
Other things that matter: how long it's been since the last payment, whether the buyer is still living there, the state of the taxes and insurance, and whether your documents were drafted properly in the first place.
You don't have to decide alone
If you'd rather not go through a foreclosure you've never done before, we'll look at it and tell you what we'd pay — and we'll tell you honestly if we think working it out with the buyer is the better outcome for you. The call costs nothing.
One note: default and foreclosure procedures are governed by state law and vary substantially. Nothing here is legal advice. Before you send any formal notice or take any action against a buyer, talk to an attorney in the state where the property sits.
Read next: Should I Sell My Mortgage Note or Keep Collecting?
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