Due-Diligence and Closing Checklist for a Utah Seller-Financed Deal

A clean seller-financed closing follows five steps: check title and liens, review any underlying loan, sign the right disclosures, record in the right order, and set up servicing and insurance. Miss one, and the problem usually surfaces months later. The checklist below runs from signed REPC to recorded trust deed.

Start with the hardest item. If the seller still has a mortgage, that loan almost certainly carries a due-on-sale clause. A wrap or all-inclusive trust deed leaves that loan in place, so the clause sits at the center of your due diligence. Everything on this list assumes you name that risk early and in writing. The agents' hub collects the rest of our agent material.

What should be checked on title and existing liens?

Order a title commitment right after the REPC and addendum are signed, then read every recorded lien, judgment, and trust deed on it. The commitment tells you what the buyer's lien will sit behind.

Most title problems are dull and fixable. A home equity line the seller forgot about. A judgment against someone with the same name. An old trust deed that was paid off but never reconveyed. Each one needs a plan before closing, not on closing day.

On a seller-financed sale, the stakes on title run higher than usual. Take a $420,000 sale with $42,000 down and a $378,000 seller note. If an unknown $35,000 line of credit sits on title, the seller's note may end up behind it. The buyer may also inherit a cloud they never agreed to.

Here is what to check on the commitment:

• Every existing deed of trust, with lender name, recording date, and original amount.
• Lines of credit, which can show a small balance but a large available limit.
• Judgments, tax liens, and mechanic's liens against the seller.
• HOA liens or assessments, and whether dues are current.
• Easements or restrictions that affect the buyer's intended use.

On a straight note and trust deed with no underlying loan, existing liens are typically paid off at closing. On a wrap, at least one lien stays. That is why the next item matters.

What underlying-loan documents does the seller disclose?

The Seller Financing Addendum has the seller disclose the underlying loan documents, so the buyer can see the loan that stays in place. Seller Financing Addendum § 5 That section also credits any due-on-sale payoff to the note's principal.

In practice, ask for a complete set early in due diligence. That typically means the original promissory note, the recorded deed of trust, the last 12 monthly statements, and a current payoff figure. Read the due-on-sale paragraph in the deed of trust yourself. Do not rely on a summary.

When the deal uses an all-inclusive deed of trust, the addendum adds a second item. The seller provides evidence within 10 days that the underlying payments are current. Seller Financing Addendum § 4 A servicer's payment history or the lender's statement both work well as evidence.

Look for three things in those documents:

• The payment record. Late payments in the last year are a warning sign for a wrap.
• The escrow account. Taxes and insurance may be paid through the underlying loan, which affects who pays what after closing.
• The balance versus the note. On a $378,000 wrap note over a $260,000 underlying loan at 3.25%, the seller's equity spread is $118,000. That spread is what the buyer's payments protect.

Run the numbers with the wrap spread calculator before the due-diligence deadline passes.

Which disclosures and documents must be signed before closing?

A licensee must disclose in writing, before a binding agreement, the existence or possible existence of a due-on-sale clause and the potential consequences of selling without the lender's authorization. Utah Admin. Code R162-2f-401a(6)(d)

That disclosure comes first because the rule ties it to the binding agreement, not to closing. If you represent a party, put it in writing before the REPC is accepted. A sentence in an email after acceptance does not fix the timing.

Beyond that disclosure, the signing package on a typical seller-financed closing looks like this:

The addendum also offers a lender's title insurance policy for the seller. Seller Financing Addendum § 8 Check whether that box is marked. If it is, the title commitment should show the seller as a proposed insured.

The state-approved forms cover the contract stage, not the loan itself. Custom terms belong in attorney-drafted documents. Our forms page explains which forms do what. The guide for Utah real estate agents covers where the agent's role ends.

What gets recorded, and in what order?

Typically the deed to the buyer is recorded first, then the trust deed securing the seller's note. That order puts the seller's lien on the buyer's newly owned property.

Recording a document gives constructive notice of its contents to everyone. Utah Code § 57-3-102 That notice is the point. A later buyer, lender, or judgment creditor is charged with knowing about each recorded document.

Here is how a typical recording sequence runs on closing day:

1. Step 1
   Payoffs and releases
   Liens that are being paid off are paid, and the closing agent orders the releases or reconveyances.
2. Step 2
   Deed to the buyer
   The seller's deed to the buyer is recorded, so the buyer becomes owner of record.
3. Step 3
   Seller's trust deed
   The trust deed or all-inclusive trust deed securing the seller's note is recorded right after the deed.
4. Step 4
   Recorded copies
   The closing agent sends recorded copies to the buyer, the seller, and the servicer.
5. Step 5
   Final title policy
   If a lender's policy was chosen, it issues after recording, showing the seller's lien.

On a wrap, the underlying deed of trust stays on record. The all-inclusive trust deed is recorded behind it. Every party should understand that the buyer's home now carries both liens. Budget for recording fees as well.

The promissory note itself is typically not recorded. The seller keeps the original in a safe place, or the servicer holds it.

Who sets up servicing and insurance?

The buyer and seller typically agree on a servicer before closing, and the buyer insures the home naming the seller as mortgagee or loss payee. The agent's job is to make sure both happen on schedule.

Servicing is where many seller-financed deals drift. A buyer pays by app. A seller forgets to log a payment. Two years later, nobody agrees on the balance. A third-party servicer typically solves that by keeping one record, sending statements, and issuing year-end interest figures.

On a wrap, servicing matters even more. A typical setup has the servicer collect the buyer's payment, pay the underlying loan first, and send the remainder to the seller. On a $2,450 monthly payment with a $1,130 underlying payment, the servicer sends $1,130 to the lender and $1,320 to the seller.

Insurance needs the same attention. The buyer typically carries a homeowner's policy naming the seller. On a wrap, the underlying lender also expects coverage. Coordinate the policies so a claim check reaches the right people. Ask the insurer directly how it handles a policy on a wrap.

Finally, the buyer and seller exchange taxpayer ID numbers at closing so interest can be reported. Put that on the servicer's intake form.

How do you manage the due-on-sale risk on a wrap closing?

You manage it with written disclosure, a reliable servicer, cash reserves, matched insurance, and a real exit plan. None of these removes the clause. Together they give the parties time and options if the lender calls the loan.

A practical mitigation list for the closing file:

1. Written disclosure, signed. The licensee disclosure comes before a binding agreement. Keep a signed copy in the file.
2. Third-party servicing. The underlying loan gets paid on time, every month, with a record anyone can audit.
3. Reserves. Agree in writing who holds a cushion, often two or three months of underlying payments.
4. Insurance coordinated across both loans. Confirm the policy names and loss payees before closing.
5. An exit plan. Decide now what happens if the lender demands payoff. Typically the buyer refinances, and the payoff is credited under the addendum.

The agent one-pager lists what the attorney handles in a wrap closing, from the note through recording. The attorney fee for a standard seller-financed closing is $750.

What Greg would tell you

A seller-financed closing fails on the boring items, not the clever ones. Get the title commitment early, get the underlying loan documents in hand, and put the due-on-sale disclosure in writing before anyone signs the REPC. Then set up servicing before closing day, because the payment record is what everyone relies on later.

This site is for general information about Utah law and is not legal advice. Using it does not create an attorney-client relationship. Every transaction is different — talk to an attorney about yours. Attorney advertising.