Picture this deal. Older seller, Austin lot, owns it free and clear, no mortgage. Worth around $280,000. Buyer comes in wanting to do a creative seller-finance structure. Nothing unusual on the surface.
The buyer proposed having his LLC put up a $50,000 note secured by a first deed of trust in the LLC’s name. The seller carries the remaining $230,000 as a seller-finance second note. Monthly payments, no conventional lender, done deal. The buyer called it creative financing.
It was creative, all right. Just not in a direction that helps the seller.
That structure puts the buyer in control of the first lien position, and the seller’s entire equity sits in second behind the buyer’s own entity. The moment that LLC defaults — stops paying taxes, gets sued, misses payments, or simply dissolves — the first lien forecloses. Foreclosure pays the first note out of proceeds. Whatever’s left flows to the second. When the same party who controls the first is also the party most motivated to walk away, “whatever’s left” tends to be zero.
The seller loses the property, loses her $230,000 note, and loses her equity in a single foreclosure action. The deal looks fine on the HUD. The damage shows up later.
The fix was one structural requirement.
Bring in a real third-party lender in first position. Hard money lender, community bank, institutional note buyer — any party with no relationship to the buyer and their own financial reason to enforce the note. The seller’s second note stays. The creative structure stays. The only change is who sits in first.
Now if the buyer defaults, a neutral party forecloses, the property sells, the first gets paid, and the seller recovers whatever equity remains. She’s still subordinate. Subordinate to a lender, though, not to the same party who benefits from blowing up the deal.
The buyer pushed back. Adding a real first lender meant origination costs, underwriting, and a slightly higher rate on that note. That pushback told us what we needed to know. A buyer who won’t structure a deal that protects the seller’s lien position is a buyer whose deal you should walk away from.
The deal got restructured. A legitimate hard money lender took first. The buyer got his creative-finance acquisition. The seller kept her equity protected. Everyone gets what they came for — but only after lien priority gets respected.
This is why creative financing training has to cover the unwind.
Most agents who call themselves “creative finance specialists” mean they’ve heard of subject-to and seller carryback. They know the terms. They have never read a deed of trust while thinking about what happens in default. They do not know the foreclosure waterfall. That gap is where sellers get hurt.
Most brokerages won’t let their agents present owner financing to sellers at all — not because it’s wrong, but because their agents wouldn’t know what to say, and they wouldn’t know what to look for when a buyer proposes a structure like this one. That gap between knowing the vocabulary and knowing the mechanics is real, and it shows up in deals every week in Texas.
We’re operating in a market where the transactions that close are being made on terms, not on conventional rate math. Owner financing, wraps, and subject-to are your primary tools right now, not a fallback. That’s exactly the environment where bad deal structures get papered, because the motivation to close is high and the pressure to look at default scenarios is low.
Before you get near the closing table on any deal with seller-carried notes:
- Pull every existing lien on the property before any structuring conversation
- Identify who controls the first lien position and whether they have any relationship to the buyer
- Run the foreclosure waterfall from day one and ask what the seller actually recovers if the buyer walks
- Confirm the seller has genuine recourse, not just paperwork that reads like recourse
The due-on-sale clause comes up constantly in sub2 conversations. There’s no due-on-sale police and no due-on-sale jail. But there is a foreclosing lender if you let a buyer control first position in their own deal. That consequence is real and it falls on the seller.
Lien position is not a technicality you hand off to title. It is the entire deal for the person carrying equity in second.
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