If a buyer carried on seller financing stops paying, which lever actually protects the seller?

I've been reading for six months and still can't decide, so a poll is a good way to put it. I lean toward the down payment, only because it's the one thing that's true on day one and doesn't depend on anybody doing their job later.

A few definitions first, since the poll options assume them.

When you carry a note, the buyer signs a promissory note, which is the promise to pay, and a security instrument, which is what lets you take the property back if they don't. In some states that instrument is a mortgage and in others it's a deed of trust, and the recovery process differs a lot between them. Some states use judicial foreclosure, which runs through a court and takes months. Others allow a nonjudicial process that's faster. A contract for deed, where you keep title until the buyer pays in full, is treated as a sale requiring full foreclosure in some states and allows a quicker forfeiture in others. Which one applies to you depends on where the property sits, and that is a question for an attorney licensed in that state.

That's why the poll doesn't have one right answer. A 25% down payment is worth more in a state where you can complete a nonjudicial foreclosure quickly, because the equity cushion is still intact when you get the property back. In a slow judicial state, months of unpaid taxes, insurance lapse, and deferred maintenance can eat a cushion that looked generous at closing, which is where escrowing taxes and insurance earns its keep.

So the honest way to vote is to find out what your state's process looks like and how long it takes, then pick the lever that covers the weakness that process leaves you with.

Anyone who has watched enough carried notes go sideways tends to become a servicing voter. The default almost never arrives as a surprise. It arrives as three months of small weirdness that nobody was watching for, because the seller was checking a bank app once a month and doing little else. A servicer notices on day six. Also the escrow point. A lapsed insurance policy tends to do more damage than a missed payment.

@jordan_ellis2 the down payment argument has a hole in it that took me a while to see. The cushion protects your recovery. It does not stop the default, and it doesn't do anything about the months of carrying costs and legal fees between the missed payment and getting the keys back.

Still voted for it though. Every other lever needs someone to act correctly under pressure and the down payment just sits there.

Documents, and it is not close. The other three options are all things you can add to a well drawn note. You cannot add a security instrument that works in your state after closing, and you cannot retrofit a clause the buyer already benefits from. Bramble, the specific ones to make sure someone competent addresses: how prepayments apply, what happens if the buyer stops paying property taxes or lets insurance lapse, whether the note is assumable if they sell, and whether there is a due on sale clause. Half the seller carry paper in circulation leaves at least two of those blank.