Quick Answer
A seller carryback is a transaction where the seller finances part of the purchase price rather than receiving all cash at closing. The seller accepts a promissory note secured by a deed of trust for a portion of the sale proceeds.
Carryback Example
Purchase price: $500,000. Buyer obtains a conventional loan for $350,000. Buyer brings $100,000 cash. The seller carries back a $50,000 promissory note at 5% interest. The seller receives $450,000 at closing ($350,000 plus $100,000) and holds a note for the remaining $50,000.
Why Would a Seller Do This?
A seller may agree to carry back financing to bridge a gap between the buyer available cash and the purchase price, earn interest income on the carried amount, or facilitate a sale that might not otherwise happen.
What Secures the Seller?
The seller carryback is secured by a promissory note and a deed of trust (or mortgage) recorded against the property. The seller has the right to foreclose if the buyer defaults on the carryback note.
What Lien Position Does the Carryback Hold?
The carryback lien position depends on the transaction structure. If the buyer has a first mortgage from a conventional lender, the carryback typically sits in second lien position, subject to the first mortgage. Subordination may be required.
For more on these topics, see Lien Priority Explained, Promissory Note vs. Deed of Trust (see our articles on promissory notes and deeds of trust), and What Is a Deed of Trust?
A Carryback Is a Real Loan
A seller carryback is not a favor or an informal arrangement. It is a real loan with enforceable terms, interest, amortization, default provisions, and collection rights. It should be documented by qualified professionals.