The three ways Ohio sellers finance a sale
Seller financing is any sale where you, not a bank, wait for part of the price. In Ohio it usually takes one of three forms:
| Structure | Who holds the deed | If the buyer defaults | Main Ohio law |
|---|---|---|---|
| Note and mortgage | Buyer, from closing | You foreclose like a bank | Ohio mortgage and foreclosure law |
| Land contract | You, until paid off | Forfeiture, or foreclosure after 5 years or 20% paid | R.C. Chapter 5313 |
| Lease with option to buy | You, unless the option is exercised | Eviction under the lease terms | Lease law; disclosure form still applies |
Each one moves risk differently. The note-and-mortgage route is the most like a normal sale, and the land contract keeps more control with you but brings strict statutory duties.
Note and mortgage: the buyer owns, you’re the lender
With a note and mortgage, the closing looks like any other sale. You sign a deed to the buyer, the buyer signs a promissory note promising to pay you, and the buyer signs a mortgage giving you a lien on the house. The mortgage is recorded so the public, and later buyers, can see it.
What you get:
- a recorded lien that comes ahead of later creditors
- a clean ownership change for tax, insurance and code purposes
- monthly payments of principal and interest
What you take on:
- Default risk. If the buyer stops paying, you have to file a foreclosure in common pleas court, like any lender.
- Release duty. When the buyer pays off, R.C. 5301.36 requires you, as the mortgagee, to record a release “within ninety days from the date of the satisfaction.” A seller-lender who doesn’t can owe $250 in damages, and after a written notice, attorney fees plus $100 a day up to $5,000.
Land contract: you keep title until it’s paid
On a land contract, the deed stays with you and the buyer gets possession and equitable rights. Ohio regulates it heavily. R.C. 5313.02 requires 16 specific terms, recording within 20 days, and a general warranty deed at payoff. If the buyer has paid for 5 years or 20% of the price, R.C. 5313.07 says you can recover the property only through foreclosure and judicial sale.
The details are in our Ohio land contract guide. In short, a land contract doesn’t let you avoid court, and you can’t keep more than the unpaid balance if the house is sold in foreclosure.
Lease with option to purchase
A lease-option rents the house to the buyer with the right to buy later at a set price, often with part of the rent credited. It can bridge a buyer who needs time to qualify for a loan.
Ohio’s disclosure law treats it as a transfer. R.C. 5302.30 applies to transfers “by sale, land installment contract, lease with option to purchase,” and says the transfer occurs when the initial contract is signed. So you owe the disclosure form at the start, not when the option is exercised. A tenant-buyer who stops paying is usually removed through the Ohio eviction process.
Taxes, the conveyance fee and the 1099-S
Seller financing changes when you receive money, which affects taxes.
- Federal income tax. IRS Topic 701 says that if part of the sale price is paid in a later year, the installment method generally applies unless you elect out, and the home sale exclusion still applies. For a rental or investment property, the installment method can spread taxable gain over the years you collect it.
- Interest income. Interest the buyer pays you is taxable income each year.
- Conveyance fee. R.C. 322.01 defines value as “the full consideration therefor, paid or to be paid,” so the county fee is figured on the full price, including the part you finance.
- Form 1099-S. The IRS instructions say Box 2b, cash gross proceeds, includes notes, so the financed amount shows on the form.
Ask a tax professional how the installment method applies to your sale before you set the terms.
Protecting yourself as the lender
Banks screen borrowers and document loans carefully. Do the same:
- Check the buyer’s credit, income and references.
- Take a meaningful down payment. It gives the buyer something to lose.
- Use an attorney to draft the note, mortgage or contract. Ohio’s land contract rules are detailed, and missing a term can be enforced against you.
- Require insurance with you named as mortgagee or loss payee, and proof of tax payments.
- Close through a title company, so title is checked and every document is recorded.
- Consider a loan servicer to collect payments, send statements and keep records.
If you already carry a buyer and want out, the note or contract itself can sometimes be sold to an investor for a lump sum.
When seller financing makes sense
Seller financing works well when you own the house outright or nearly so, don’t need a lump sum now, and are comfortable acting as a lender for years. It can bring a higher price from a buyer who can’t get a bank loan.
It’s a poor fit if you need the cash to buy your next home, if your own mortgage has a due-on-sale clause you can’t satisfy, or if you aren’t prepared to foreclose. Other ways to sell are compared on our selling options page. Cash isn’t the only structure we use either; when another option fits a seller better, we’ll explain it plainly.
