Not Every Seller Carry Is a Stack

Not every seller carry is a stack.

I hear the myth a lot. Seller financing works on any deal. A seller agrees to carry a note, the buyer moves in, and everyone wins. It sounds simple, and that is exactly why it gets people into trouble. A seller carry is a tool. A stack is a structure. They are not the same thing.

Here is the fact, in plain English.

My Stack shape is 40 percent down at closing and 60 percent carried by the seller at 4 percent interest only, with a balloon at month 36. The down payment at closing pays off the seller's existing mortgage in full, and that old mortgage is released. The buyer's new first position loan funds the closing amount. The seller note sits in second position, behind that new loan only. That order is the whole deal.

Why does the order matter so much? Because the first position loan is what makes the closing possible. It funds the cash the seller needs at the table. The seller carry is subordinate to it, which means the first position lender is protected first and the seller note is protected second. Everyone in the deal knows where they stand, in writing, before anyone signs. That clarity is what makes the structure safe enough to use again and again.

This week a seller asked to keep their note in first position instead. I said no, and I walked away from the structure. Not from the seller, and not from the conversation. From the structure.

A first position seller note flips who is protected and who is exposed. The buyer's new loan would have to sit behind the seller note, or the deal would have to close without a first position loan at all. Either way, it is not a Stack anymore. It is a different deal with different risks, and pretending it is still a stack would be dishonest to the seller and dangerous for the buyer.

Walking away is not a failure. It is the discipline that keeps the method honest. I would rather lose a deal than close a bad structure and call it creative finance. A seller who hears a clear no, with a clear reason, trusts you more the next time. A seller who hears a yes to a structure that cannot hold will find out the truth at the closing table, and by then it is too late.

There is a second lesson in this too. The first position question is one of the first things I check now, before I run numbers and before I spend anyone's time. If the seller needs to stay in first position, I know early, and I can say so early. That saves the seller weeks of waiting and saves me weeks of work on a deal that was never going to close in this shape.

Here is how I think about it now. A stack has three tests, and all three have to pass.

First, the down payment has to clear the seller's mortgage. Forty percent of the price has to be enough to pay off what the seller owes. If it is not, the structure does not work, and no amount of creative wording changes that.

Second, the seller has to be comfortable in second position. The seller carry is subordinate to the buyer's first position loan. If the seller is not comfortable with that order, the deal is not a stack, and I do not try to talk them into it.

Third, the numbers have to work for the buyer after the carry. The interest only payment at 4 percent has to fit, and the balloon at month 36 has to be a real plan, not a hope. If the buyer cannot see a clear path to the balloon, the structure is a problem waiting for a date.

If any one of those three tests fails, the stack is off the table. That is not a judgment on the seller or the property. Some properties are great deals in a different shape. Some sellers are better served by a straight cash sale. My job is to know which shape fits, and to say so plainly when this one does not.

Creative finance has a reputation problem, and most of it is earned by people who bend the structure until it breaks and still call it a stack. The method works because the rules hold. The day I start bending the rules to save a deal is the day the method stops working.

So here is my rule, and it is simple. Not every seller carry is a stack. When the order is wrong, I walk away from the structure, I explain why in plain English, and I keep the relationship intact for the next deal that does fit.

What is one deal structure you will not bend on?