Question regarding seller financing

Question regarding seller financing

Member since 2025 · 37 posts · 10 votes

We sold a fixer upper mobile home on payments a year and a half ago. It's going great and we love this strategy. But about six months ago, the homeowner's insurance was canceled due to underwriting issues and some repairs not being completed on the home. The borrower asked us if she could be released from the requirement to hold insurance until she could afford to make the necessary repairs, which we were fine with. She also asked us to continue collecting the insurance portion of her monthly escrow, as she is concerned that if she stops paying that extra $70/month, she will never get back into the habit of paying it. She is hoping to have the repairs completed and be able to purchase an insurance policy again next year. Well, I was doing some research tonight as I am working win preparing an annual escrow report to give to her at the end of this year, and it looks like we are legally required to issue her a refund check if the escrow surplus is over $50 at the end of the year. I understand this is not my money; it's hers, and I'm happy to issue the check. But she is ASKING me to keep it until she can get the insurance policy in place, to make it easier to purchase the policy. Any thoughts on this? Is this really illegal? And if so, what is a good workaround for her?

0Reply
449 views

11 Replies

Jump to latestLatest
  • Investor · San Antonio, TX · Member since 2026 · 50 posts · 29 votes
    1d

    Chris Colton here in San Antonio. I seller finance here in Texas too, so I get why you want to keep that habit in place for her. I would not decide this one from a forum post though. Escrow rules are the kind of thing I would run past a Texas real estate attorney or a licensed loan servicer before the annual report goes out, and I would keep her request in writing either way. It is a short question for them and it keeps you clean if the repairs and the new policy slip to next year. Hope she gets the work done.

    • Member since 2025 · 37 posts · 10 votes
      23h

      Thanks this is a good idea. Not sure why I didn’t think to call the real estate attorney who drew up our closing docs!!

  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 660 posts · 273 votes
    1d

    @Mark Jay It’s kind of you to help her keep that savings habit. Before holding the money, though, I’d have a local attorney confirm which escrow rules apply to your seller-financed mobile home. If Regulation X applies and she’s current, a surplus of $50 or more generally has to be refunded within 30 days of the analysis. I wouldn’t assume her permission makes an exception.

    The simpler option is to return any required refund and have her set up a separate savings account with an automatic $70 monthly transfer. She keeps the habit and controls the money, without you holding it. I’d also talk with an insurance agent now about options while repairs are pending—saving for next year doesn’t protect either of you from a loss today.

    • Member since 2025 · 37 posts · 10 votes
      23h

      Thanks so much, this is great advice. I will reach out to our real estate attorney who drew up our closing documents

  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    20h

    Why not class it as something else?

  • Realtor · Memphis, Shelby County · Member since 2026 · 261 posts · 95 votes
    19h

    Mark, I'll add the transaction-coordinator view since the legal and tax angles are well covered above. From the agent's seat, the seller-financed deals I've seen go sideways all share one trait: the note and the servicing arrangement were vague about the mechanics. Spell out who holds the escrow, how disbursements work, what triggers a statement, and what happens on a late payment — in the documents, not in a handshake. Get a loan servicer involved even on a friendly seller-financed deal; the monthly cost is small and it creates a paper trail both sides can point to. And echoing Chris: if it's not in writing, it doesn't exist. The time to negotiate these terms is before anyone signs, when everyone still likes each other.

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    11h

    Why do you not put forced place insurance on it for that amount? That’s the simple solution

    Also

    What if it burns down you are left with nothing?

    7e investments53 Reviews
    • Member since 2025 · 37 posts · 10 votes
      9h

      The closing docs do require insurance, but we released her from that for the time since some of the repairs required by the insurance company were not satisfactory when she purchased it. She bought it as a fixer upper and knew there were repairs to be made, but none of us knew that the insurance would require some of these things to keep her policy going past that initial year. So we felt if we were going to require her to keep the policy, we should have sold her the house in the condition needed to have that policy…but it’s been a learning curve for us as this is our first one. We will know for next time!

  • Owen RosenBusiness Member
    Professional · Clinton Township, MI · Member since 2015 · 705 posts · 264 votes
    7h

    From the insurance side: as the note holder, you're exposed right now if the home is lost with no coverage. Ask an agent about protecting your own interest while repairs are pending, since some carriers write mobile homes that need work on an actual cash value basis. Your note documents should also spell out what happens when insurance lapses.

    Royal Oath Insurance Group4.9208 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.