Writing a payoff letter for a seller-financed note
When your buyer sells the property or refinances, a title company will ask you for a payoff letter: the exact amount that pays the note off in full, good through a date. When you carried the note yourself, there is no bank to send it. You are the lender, so the letter comes from you.
Who asks for one
- A title company or closing attorney, when the buyer sells the property or refinances with a bank. They pay you from the closing funds and need a figure to put on the settlement statement.
- The buyer, when they want to pay the note off early from savings or another loan.
- A refinancing lender, which will usually also ask for a payment history. See what a certified payment history is.
What a payoff letter should show
| Item | Why it is there |
|---|---|
| The note and the property | The borrower's name, the property address and the note's date, so the closing pays the right loan. |
| Principal balance | What is still owed after every payment that actually arrived, not the balance from the amortization schedule printed at closing. |
| Interest through the good-through date | Interest owed from the last payment up to the payoff day. |
| The good-through date | The last day the total is correct. Title companies often ask for a figure good for 10 or 15 days so the closing has room to move. |
| Per-diem interest | The interest for each extra day, so the closer can adjust the figure if the closing slips past the good-through date. See the per-diem interest calculator. |
| Unpaid late fees and other charges | Anything the note allows you to charge that has not been paid. Fees you waived do not belong here. |
| Escrow, shown apart | If you hold escrow for taxes and insurance, show it separately so nobody mistakes it for part of the loan. See escrow for owner financing. |
| How to pay you | Who the funds are payable to, and how to reach you to confirm the payment details. |
Keep wiring instructions out of the letter
Fake wiring instructions are one of the most common ways closing money gets stolen. Someone intercepts the email with the payoff letter and swaps in their own bank account. The safer habit is to leave account numbers off the letter, ask the title company to call you at a number they already have, and confirm the instructions by voice before any money moves.
Where payoff figures go wrong
- Working from the original schedule. A late payment, a short payment or an extra one changes the balance. The schedule from closing does not know about any of them.
- Interest to the wrong day. Interest is owed up to the payoff day, not the next due date. That is what the per-diem figure is for.
- Forgetting a rate change or a fee. An adjustable rate, a modification or an unpaid late fee has to be carried into the total.
- Mixing escrow into the balance. Escrow is the buyer's money held for bills. It is settled separately.
A payoff quote and a payment history should come from the same record, so the two can never disagree. If you work out the figure by hand, the payoff quote calculator gives a starting point.
Payoff letters in OwnerNote
OwnerNote makes a payoff letter as a PDF from the note's own payoff quote. Choose the good-through date and it shows the principal, interest to that day, the per-diem amount, any unpaid late fees, and the escrow balance set apart from the loan. The letter asks the reader to contact you for payment instructions instead of printing account numbers. You can download it or email it straight to the title company or the borrower. The same record also prints a payment-history letter showing each payment, how many days after the due date it arrived, and how many were late.