Seller finance note servicing in Texas: hire a servicer or keep the records yourself
Once a seller-financed sale closes, somebody has to service the note for the next ten, twenty or thirty years. In Texas that is usually either a loan servicing company or the seller. Here is what the job involves and how to decide who does it.
What servicing a seller-financed note involves
Servicing is everything that happens to the note between closing and payoff:
- Receiving each payment and recording the date it actually arrived.
- Applying it to late fees, interest, principal and escrow in the order the note specifies (why that order matters).
- Knowing the balance, the next due date, and whether the borrower is late.
- Collecting and paying property taxes and insurance, if the note has escrow.
- Sending the borrower statements, and the year-end interest figures in January.
- Producing a payoff quote good through a date when the borrower refinances or sells.
- Handling a default: knowing exactly what is owed before any notice goes out. When the borrower's residence secures the note, a Texas foreclosure under a deed of trust starts with a notice of default giving at least 20 days to cure, and the amount in it has to be right.
- Releasing the lien when the note is paid off.
Option one: a loan servicing company
A third-party servicer takes the payments, keeps the ledger, handles escrow, sends the statements and year-end forms, and passes the money on to you. Servicers typically charge a setup fee and a monthly fee per loan, and some charge extra for escrow, payoffs or default handling. Get the full fee schedule before you sign.
It tends to make sense when:
- the note has escrow for taxes and insurance and you do not want to handle that money;
- you want a neutral party between you and the borrower, especially if you know them personally;
- you expect to sell the note and want a servicer's payment history behind it; or
- you simply never want to think about the note again.
The trade-off is cost over a long life — a monthly fee for every month of a thirty-year amortization adds up — and one more party between you and your own money.
Option two: service the note yourself
Plenty of Texas note holders keep their own records, whether they hold one note or dozens: the borrower pays the seller directly, and the seller keeps the ledger. Nothing about that is unusual. What goes wrong is rarely the arithmetic of one month; it is the record drifting over years — a short payment applied one way in March and another way in October, a late fee that was waived but never recorded, a spreadsheet lost with an old computer.
If you service it yourself, the record has to be good enough to hand to a title company, a refinancing lender, a note buyer or a judge. That is what OwnerNote is for. You log each payment as it arrives, and it applies every one the same way, keeps the balance current, produces payoff quotes good through any date, totals the year's interest, prints statements for any period, and can email your borrower a monthly statement on the 1st. It also keeps late fees, an escrow ledger for taxes and insurance, reminder and receipt emails, payment coupon books, year-end interest statements, payoff letters, and the January annual statement a contract for deed requires.
OwnerNote is not a servicer. It never collects, holds or disburses money, and payments keep going from your borrower to you. If you later hand the note to a servicer, export the full payment history as a CSV and take it with you.
How to decide
| If this describes your note | Leans toward |
|---|---|
| Escrow for taxes and insurance | A servicer |
| Borrower is a friend or relative and you want distance | A servicer |
| You plan to sell the note soon | A servicer, or a very clean self-kept record |
| No escrow, a reliable borrower, payments by bank transfer | Self-service with good records |
| Per-loan servicing fees would eat a real share of the interest, on one note or many | Self-service with good records |
| A wraparound, where you also pay the underlying loan | Either, but someone must track both sides |
Texas rules that apply either way
A servicer can do the paperwork, but the seller's own statutory duties stay with the seller. In Texas:
- A contract for deed requires an annual accounting statement to the buyer every January, with damages for missing it. See contract for deed versus deed of trust in Texas.
- A wraparound brings its own disclosure and licensing rules. See how a wraparound note works and Texas seller finance notice requirements.
- How many owner-financed sales you make in a year matters for licensing. See RMLO licensing thresholds.