Seller finance in Tennessee: the documents your title company will ask for
Seller finance is the deal where the seller becomes the bank. You pay them over time, and they hold a lien on the property until you're done. The structure is old and well understood. What trips up closings is that most title companies see a handful of these a year, and the documents arrive late, incomplete, or drafted for another state.
The four documents
1. The promissory note
The note is your promise to pay. It states the principal, interest rate, payment amount, payment date, maturity date, and what happens if you pay early or pay late. It also states the balloon, if there is one — the date the whole remaining balance is due. In Tennessee the note is not recorded; the title company keeps a copy in the file and the seller holds the original.
2. The deed of trust
Tennessee is a deed-of-trust state, not a mortgage state. The deed of trust is the document that gives the seller a lien on the property and names a trustee who can foreclose if you default. This one is recorded, and it's the document the title company cares most about, because it's what makes the seller's position enforceable and what the next title search will find.
3. The warranty deed
Same as any sale: the seller conveys the property to your entity. The deed is recorded before the deed of trust, so the lien attaches to you as the owner.
4. The seller-finance addendum or disclosure
The contract addendum that sets out the financing terms, so the note and deed of trust are drafted from the same numbers you agreed to. If your buyer will live in the property, additional disclosure and licensing rules can apply to the seller; that's a question for your attorney before you write the contract, not after.
What the title company will ask for beyond the documents
- Who is drafting the note and deed of trust. Most Middle Tennessee title companies will prepare a deed but want an attorney to draft the financing documents. Have that attorney named before you open title.
- The exact terms, in writing, early. Principal, rate, term, payment, balloon, late fee, prepayment. If those change after the documents are drafted, closing moves.
- The entity's documents. Formation documents and a signer resolution for the LLC taking title.
- Servicing. Who collects the payments and sends the seller a year-end statement. A third-party servicer keeps both sides honest and gives you a clean payment history.
- Insurance. A policy in your name with the seller listed as mortgagee, bound to start at closing.
Costs to plan for
Tennessee charges a transfer tax on the deed and a recordation tax on the deed of trust based on the amount financed, plus county recording fees. The title company calculates these on the settlement statement; ask for the numbers early so the seller isn't surprised by the deed-of-trust line.
Where deals get stuck
The note says one thing and the addendum says another. The deed of trust names a trustee who isn't licensed in Tennessee. The seller wants to see the documents for the first time at the signing table. Every one of these is a two-week delay that a coordinator prevents by getting the documents drafted, reviewed, and in front of the seller a week before closing.
This is general information for Tennessee and is not legal advice. Have your attorney draft and review the financing documents; confirm current tax and recording rates with your title company.