Note + Trust Deed vs All-Inclusive Trust Deed vs Contract for Deed vs Lease Option in Utah

Most Utah seller-financed sales use a note and trust deed, and it is usually the cleanest choice. An all-inclusive trust deed wraps an existing loan, which means the due-on-sale clause is in play. A contract for deed keeps title with the seller. A lease option delays the sale. Pick based on your mortgage, the buyer's needs, and how predictable you want default to be.

What are the four ways to structure seller financing in Utah?

The four common structures are a note and trust deed, an all-inclusive trust deed, a contract for deed, and a lease option. Each one answers the same two questions differently: who owns the house today, and what happens if the buyer stops paying.

Here is each one in a sentence or two.

Note and trust deed. The buyer signs a promissory note for the amount the seller is carrying. The buyer also signs a trust deed, which conveys the property to a trustee in trust to secure the note (Utah Code § 57-1-19). The buyer takes title at closing. The seller becomes the lender with a recorded lien.

All-inclusive trust deed (AITD). This is a note and trust deed that "wraps" around the seller's existing loan. The buyer pays the seller on one larger note. The seller keeps paying the original lender out of those payments. Utah has a state-approved All Inclusive Trust Deed form dated October 1, 1983 (All Inclusive Trust Deed (state-approved form, Oct. 1, 1983)). It has a companion All Inclusive Promissory Note Secured by All Inclusive Trust Deed of the same date (All Inclusive Promissory Note Secured by All Inclusive Trust Deed (state-approved form, Oct. 1, 1983)). No Utah statute specifically regulates all-inclusive trust deeds or wraparound financing (Utah Code Title 57, Chapter 1).

Contract for deed. Utah practice often calls this a Uniform Real Estate Contract, or URC. It is also called an installment land contract. The buyer moves in and pays the seller over time. The seller keeps legal title and signs the deed over only when the contract is paid in full.

Lease option. The buyer rents the house and holds an option to buy it later at a set price. The buyer often pays an up-front option fee. Part of each rent payment may be credited toward the price, if the agreement says so. Until the buyer exercises the option and closes, the seller is a landlord and still the owner.

A quick example makes the difference concrete. Say you sell a $450,000 house with $45,000 down and carry $405,000. Under a note and trust deed, the buyer owns the house and owes you $405,000. Under a contract for deed, you still own it, and the buyer has a contract right to receive the deed after paying $405,000 plus interest. Under a lease option, you own it, collect rent, and wait to see whether the buyer buys.

Who holds title under each instrument?

The buyer holds title under a note and trust deed or an AITD. The seller holds title under a contract for deed or a lease option. That single difference drives most of the risk on both sides.

When the buyer holds title, the seller's protection is the recorded trust deed. Recording a document gives constructive notice of its contents to everyone (Utah Code § 57-3-102). A later buyer or lender who checks the county records will see the seller's lien.

When the seller holds title, the buyer's protection is the contract and whatever gets recorded to show it. An unrecorded document is void against a later good-faith purchaser who records first (Utah Code § 57-3-103). That is why a contract buyer should record the contract or a memorandum of it. Otherwise a seller could, in theory, sell or borrow against the property without the buyer's interest showing up.

Title also decides who carries day-to-day ownership headaches. When the buyer owns the house, the buyer's name is on the property tax notice and the homeowner's policy. When the seller still owns it, the parties have to agree in writing on who pays taxes and insurance and how the other side verifies it.

Think about title from the buyer's side too. A buyer who holds title can refinance, sell, or pledge the property the normal way. A contract buyer or tenant-optionee has to go through the seller to do any of that.

How do the four instruments compare side by side?

The table below compares the four instruments on the points that matter most in a Utah deal. Read the default and due-on-sale rows first. Those are where the surprises tend to live.

A few of those cells need their sources. The trust deed rows rest on Utah's trust deed statutes, covered in the default section below. The addendum's two choices come from Section 1 of the form (Seller Financing Addendum § 1). The due-on-sale row rests on the federal list of exempt transfers, which does not include a wrap, a contract for deed, or a lease with a purchase option (12 U.S.C. § 1701j-3(d)).

If you'd rather answer a few questions than read a table, try the which-instrument tool. It walks the same four options.

Why does the Utah Seller Financing Addendum only offer two choices?

The state form offers only the instruments on Utah's current approved-forms list. That list includes trust-deed tools and leaves out contracts for deed and lease options.

The Seller Financing Addendum is the state-approved form, effective October 20, 2021, for seller-financed terms in a Real Estate Purchase Contract (Seller Financing Addendum (state-approved form, Oct. 20, 2021)). Section 1 of the addendum offers two boxes: "Note and Deed of Trust" or "Note and All-Inclusive Deed of Trust" (Seller Financing Addendum § 1). There is no third box for a contract for deed. There is no fourth box for a lease option.

That tracks the state's current list of approved forms. The list does not include the Uniform Real Estate Contract, any lease-option form, or any subject-to form (Utah Admin. Code R162-2f-401f). The Uniform Real Estate Contract dated January 1, 1987 used to be a state-approved form, but the rule that approved it was repealed in 2010 (former Utah Admin. Code R162-6 (repealed 2010)).

So when an agent fills out the addendum, the only instruments the form can express are the two trust-deed options. That matters for agents. Licensees may not alter state-approved form boilerplate and must use approved addenda (Utah Admin. Code R162-2f-401b). Custom terms for a contract for deed, a lease option, or an unusual wrap belong in attorney-drafted documents.

The addendum itself says as much. It warns that real estate brokers are not qualified or licensed to ensure the financing complies with the law (Seller Financing Addendum). That is not a knock on agents. It is the form telling everyone where the agent's job ends and the documents begin.

A few other addendum sections shape the choice:

• If an all-inclusive deed of trust is used, the seller provides evidence within 10 days that underlying payments are current (Seller Financing Addendum § 4).
• The seller discloses the underlying loan documents, and if a due-on-sale clause is triggered, the buyer's payoff is credited to the note's principal (Seller Financing Addendum § 5).
• The addendum includes an option for a lender's title insurance policy protecting the seller's lien (Seller Financing Addendum § 8).

For a line-by-line walkthrough, see how to fill out the Utah Seller Financing Addendum. The state forms themselves are collected on our forms page.

What happens if the buyer stops paying under each instrument?

A trust deed follows a statutory foreclosure path with fixed notice periods and a reinstatement right. A contract for deed follows the contract and court decisions. A lease option follows the lease. The difference is predictability.

Trust deed and AITD: nonjudicial foreclosure

Utah trust deeds can be foreclosed without a lawsuit through a trustee's sale. Only a Utah State Bar member with a Utah office, or a licensed title insurance company or agency with a Utah office, may exercise the power of sale (Utah Code § 57-1-21). The trust deed may also be foreclosed judicially as a mortgage (Utah Code § 57-1-23). An AITD is a trust deed, so in practice it is foreclosed the same way.

Here is the nonjudicial path in order. Use the foreclosure timeline tool to compute dates from a specific default date.

1. Before the notice
   30-day cure letter
   On an owner-occupied residential loan, the beneficiary or servicer sends a written notice giving at least 30 days to cure before recording a notice of default.
2. Day 0
   Notice of default recorded
   The notice of default is recorded in each county where the property sits.
3. Day 0 to 3 months
   Reinstatement window
   The buyer can reinstate by paying the amount then due, not the accelerated balance, plus costs and fees actually incurred.
4. After 3 months
   Notice of sale
   The notice of sale is published once a week for three weeks and posted on the property at least 20 days before the sale.
5. Sale day
   Trustee's sale
   The property is sold at public auction, and the trustee's deed carries no right of redemption.
6. Within 3 months after sale
   Deficiency deadline
   Any deficiency suit must be filed within three months and is capped by the property's fair market value.

Each step has a source. The 30-day pre-notice letter applies to owner-occupied residential loans, with no small-lender exemption (Utah Code § 57-1-24.3). The notice of default is recorded, and at least three months must pass before a notice of sale (Utah Code § 57-1-24). The buyer may reinstate within three months by paying what is then due, not the accelerated principal (Utah Code § 57-1-31). Publication and posting rules come next (Utah Code § 57-1-25). After the sale, there is no redemption (Utah Code § 57-1-28). A deficiency action has a three-month filing window and a fair-market-value cap (Utah Code § 57-1-32).

That is a lot of steps. But every step is written down, and both sides can see it coming.

Contract for deed: forfeiture

No Utah statute governs contract-for-deed forfeiture (Utah Code Title 57, Chapter 1). The law comes from court decisions and the contract's own terms. A typical contract lets the seller declare a forfeiture, end the buyer's rights, and keep the payments made so far.

Utah courts do review those forfeitures. A forfeiture is unenforceable when it is so grossly excessive that enforcing it would shock the conscience (Jensen v. Nielsen, 26 Utah 2d 96, 485 P.2d 673 (1971)). Courts look at what the seller actually lost compared with what the seller keeps.

Consider a buyer who put $45,000 down and paid $60,000 over four years, then missed three payments. A forfeiture clause may say the seller keeps all $105,000 and the house. Whether a court enforces that depends on the seller's real losses and the facts. "Legally allowed to" and "actually goes well" aren't always the same thing. Our contract for deed guide goes deeper.

Lease option: landlord remedies

A lease option is a lease first. If the tenant-buyer stops paying rent, the seller's remedies are typically the landlord remedies in the lease and ordinary landlord-tenant practice. The option usually ends when the lease is in default, if the agreement says so. Whether the tenant keeps any credit for option fees or rent depends on how the agreement was written. That's practice guidance, not a statutory rule, so the drafting carries a lot of weight.

Which instrument works if I still have a mortgage?

Any of the four can be layered over an existing mortgage, but none of them is protected from the due-on-sale clause. Federal law lets a lender enforce a due-on-sale clause (12 U.S.C. § 1701j-3(b)(1)).

The federal statute lists transfers a lender can't treat as a sale on homes of fewer than five units. Examples include a transfer to a spouse or children, a divorce transfer, and a lease of three years or less without a purchase option (12 U.S.C. § 1701j-3(d)). A wrap, a contract for deed, and a lease with a purchase option are not on that list (12 U.S.C. § 1701j-3(d)).

So the question isn't which instrument hides the transfer. None of them does. The question is which one you can manage if the lender demands payment in full.

Here is what that can look like. Say you sell for $450,000 with $45,000 down. You still owe $280,000 at 3.1%. You wrap it with a $405,000 AITD note at 7%. If the lender calls the $280,000, you need to pay it off or refinance, or the lender can foreclose. The buyer may not be ready to refinance yet. The wrap spread calculator shows the monthly spread and what you would owe on acceleration.

If an agent is involved, there is a written disclosure step. Before a binding agreement, a licensee discloses in writing 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)).

How do you manage the risk?

The steps below are practice guidance. They don't remove the risk. They make it easier to live with.

• Use a third-party servicer. The buyer pays the servicer, and the servicer pays the underlying loan first. That creates a paper trail. See third-party note servicing in Utah.
• Keep a reserve. Set aside enough to cover several months of the underlying payment in case the buyer is late.
• Get the insurance right. Make sure the homeowner's policy protects the underlying lender, the seller, and the buyer as their interests appear.
• Write an exit plan. Set a balloon date or refinance target that pays off the underlying loan within a realistic window.
• Put the disclosure in writing. Both sides sign a plain statement that the lender could call the loan and what happens then.

Our guide to seller financing with a mortgage in Utah covers this in depth. The due-on-sale article walks through what happens when a lender calls the loan.

How do I decide which instrument fits my deal?

Answer four questions in order: do you have a mortgage, does the buyer need title now, how thin is the down payment, and how predictable do you want default to be. The answers usually point to one instrument.

1. Do you have a mortgage on the property? If not, a plain note and trust deed is the natural starting point. If you do, you're choosing between paying off the loan at closing, an AITD, or one of the title-retaining structures. All three wrap-style options carry due-on-sale exposure.
2. Does the buyer need title now? A buyer who plans to refinance, improve the property, or build equity on paper usually needs title. That points to a trust deed or AITD. A buyer who is still repairing credit and only needs a place to live may be fine without title for a while.
3. How thin is the down payment? On a $450,000 house with $45,000 down, the buyer has real money at stake. That usually justifies a trust deed with its statutory protections. On a $5,000 down payment, some sellers lean toward a lease option to test the buyer first. A thin down payment doesn't make forfeiture easier to enforce.
4. How much do you want a predictable remedy? If default happens, a trust deed gives you a written path with known dates. A contract for deed gives you a contract remedy that a court may review. A lease option gives you landlord remedies. Predictability usually favors the trust deed.
5. Will a lender or title company need to insure the deal later? Deals on the state forms with recorded trust deeds are familiar to Utah title companies. Custom structures take more explanation at closing and at refinance.

The which-instrument tool asks these same questions and suggests a starting point. Treat the result as a conversation starter, not the decision.

When does a contract for deed or lease option still make sense?

A contract for deed or lease option can fit when the buyer can't take title yet or the seller needs a trial period. They fit less well when the buyer is putting serious money down.

A contract for deed can suit a seller who wants title to stay in their name until paid in full. It can also suit a buyer who can't qualify for a bank loan yet and needs a path to ownership. The trade-off is that the buyer carries more risk, and the seller's remedy is less predictable than a trustee's sale. Because the 1987 form is no longer state-approved (former Utah Admin. Code R162-6 (repealed 2010)), the contract should be drafted for the deal rather than copied from an old blank.

A lease option can suit a buyer who needs a year or two to fix credit or save for a larger down payment. It gives the seller rent in the meantime. It can also suit a seller who isn't sure yet about carrying a long-term note. Utah's state-approved forms don't include a lease-option form (Utah Admin. Code R162-2f-401f), so the lease and option should be written for the deal.

Both structures need care on the buyer's side. A contract buyer should record the contract or a memorandum. A tenant-optionee should consider recording a memorandum of option. Both should confirm the seller's underlying loan is being paid.

If you're weighing these structures, our services page explains what drafting covers for $750.

What Greg would tell you

Start with the plain note and trust deed and make every other structure earn its place. If you still have a mortgage, pick the instrument you can manage when the lender calls the loan, not the one that seems to hide the sale. And if the buyer is putting real money down, give them the protections of a recorded trust deed.

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.