Owner Financing Your San Antonio Home: TREC 26-8, Dodd-Frank Limits, and the Wraparound Notice Sellers Miss

Owner financing is the deal you consider when rates are high, your buyer can't quite clear a conventional underwrite, and you own enough equity to be the bank. In Texas it is legal, it is documented on a standard TREC addendum, and it is heavily regulated once the property becomes the buyer's primary residence. Structure it right and you clear a stuck listing with an above-market yield. Structure it wrong and you have violated federal lending law before you finish closing.

This is the framework a San Antonio seller needs before agreeing to carry paper — the form, the federal caps on how often you can do it, the wraparound disclosure most people skip, and the servicing decisions that determine whether you actually get paid for the next fifteen years.

When owner financing actually pencils in San Antonio

The typical fit is a paid-off or lightly-leveraged home priced $250K–$500K in a neighborhood where inventory is sitting — parts of the far West Side, the South Side inside Loop 410, older tracts in Judson ISD, or a Stone Oak resale competing against new-construction rate buydowns. The buyer is usually self-employed, a recent 1099 earner, a foreign national without US credit depth, or someone rebuilding after a short sale. They have a real down payment (10–25%) and can service a note; they just can't produce two years of clean W-2s.

You charge 1.5–3 points above prevailing conventional, take a 15–25% down payment, and hold a first-lien note for 5, 10, or 30 years amortized with a balloon. That is the shape. Everything below is what makes it legal and collectible.

TREC 26-8: the Seller Financing Addendum

Seller financing on a resale attaches to the TREC 20-17 One to Four Family Residential Contract (Resale) as the Seller Financing Addendum (TREC 26-8). It specifies:

• Cash down payment and total loan amount
• Interest rate and amortization term
• Balloon date, if any
• Whether the note is assumable and on what terms
• Buyer's credit documentation the seller can require (credit report, verification of employment, verification of funds) and the deadline to deliver
• Seller's right to terminate if the credit package is unsatisfactory

The addendum is short. It is not the note or the deed of trust — those are drafted at title by a Texas attorney (the title company itself will not draft them; it will only fill in blanks or accept documents prepared by counsel). Budget $500–$1,200 for note and deed of trust preparation. Do not use a form off the internet.

The Dodd-Frank one-per-year rule

If the buyer will occupy the home as a primary residence, the transaction is a residential mortgage loan under federal law, and Dodd-Frank / the SAFE Act apply. There are two thresholds Texas sellers need to memorize.

The one-property exclusion. A natural person (not an LLC, not a trust unless narrowly drafted) who finances the sale of one property in any 12-month period is exempt from the licensed Mortgage Loan Originator (MLO) requirement, provided the loan:

• Is not to a property the seller built (no builder-financed new construction under this exclusion)
• Has a fixed rate, or an adjustable rate that does not adjust for at least 5 years and has reasonable annual and lifetime caps
• Fully amortizes — no balloon — if you want the cleanest exemption. Texas practice is that balloons are still done under this exclusion when the seller reasonably determines the buyer's ability to repay, but this is the piece an attorney should size up for your specific deal.

The three-property threshold. Finance more than three in a 12-month period and you must be a licensed Residential Mortgage Loan Originator under the Texas SAFE Act. Almost no individual seller wants to be there. If you own rentals and plan to unload several with seller carry, you route through a licensed RMLO — several operate in San Antonio and will underwrite the buyer for a flat fee ($750–$1,500) so your file documents ability-to-repay properly.

Selling to an investor buyer who will rent the home out? Dodd-Frank does not apply the same way — it is not a consumer residential mortgage. The addendum and note structure look similar; the federal overlay largely falls away. Get that classification in writing.

Wraparound mortgages and the § 5.016 notice

A wrap is when you have an existing mortgage on the property and you sell with seller financing on top of it — the buyer pays you, you keep paying your underlying lender. This is common when the underlying loan is a low-rate mortgage from 2020–2021 that the seller does not want to pay off.

Two issues.

First, virtually every conventional deed of trust has a due-on-sale clause. Transferring title triggers the lender's right to call the loan. Lenders do not systematically police this, but they can, and rising rates give them motive. This is a real risk, not a theoretical one.

Second, Texas Property Code § 5.016 requires the seller to give the buyer written notice at least 7 days before closing that the property is being conveyed subject to an existing lien that will not be paid off. The notice must describe the lien, the balance, and the risk that the underlying lender could accelerate. Failure to deliver the notice gives the buyer the right to terminate any time before closing and, after closing, a damages claim. Title companies in Bexar County will ask for the § 5.016 notice in the file; some will not close a wrap without it.

Use a wraparound-experienced Texas attorney. This is not a title-company-only closing.

Servicing: do not collect payments yourself

Hire a licensed loan servicer. In Texas, several operate statewide and charge $15–$35 per month, deducted from the buyer's payment. The servicer:

• Collects principal and interest
• Escrows and pays property taxes to the Bexar County Tax Assessor and hazard insurance premiums
• Issues year-end IRS Form 1098 to the buyer and reports interest income to you
• Handles late notices and, if it comes to it, coordinates with a foreclosure trustee

A seller who collects Zelle payments and tracks taxes on a spreadsheet will, within two years, be dealing with an unpaid BCAD bill, a lapsed insurance policy, and no clean paper trail when the IRS asks about installment sale reporting under §453.

Homestead, taxes, and the buyer's exemption

Once the buyer takes title, they can file Form 50-114 with BCAD to claim the homestead exemption, deadline April 30 of the following tax year. The homestead cap (Property Code § 23.23, 10% annual appraised-value cap) resets to the buyer's purchase price the first year and then applies. Your prior homestead cap does not transfer.

On the seller side, holding a note converts a lump-sum capital gain into an installment sale. Interest income is ordinary; principal collected each year triggers proportional gain. Talk to a Texas CPA before signing — the tax profile of a note held over 15 years is very different from a cash close.

What most people get wrong

• Skipping the § 5.016 notice on a wrap. The buyer gets a termination right and a damages claim. Deliver it in writing, 7+ days before closing, and put a signed copy in the closing file.
• Balloon on an owner-occupied loan without ability-to-repay documentation. Even under the one-property exclusion, best practice is a full underwrite file: credit report, income documentation, DTI calculation. Pay an RMLO $1,000 to bless it.
• Using an LLC to "avoid" Dodd-Frank. The exclusion is for a natural person. Titling through an LLC can cost you the exemption, not gain it.
• Letting the buyer handle taxes and insurance directly. Escrow through the servicer. A lapsed policy after a hail event on a wrap-financed home is a five-figure problem you will absorb.
• Not recording the deed of trust immediately. The lien secures the note. Record at the Bexar County Clerk the day of closing. A junior lien recorded first — or a bankruptcy filing — can leapfrog an unrecorded deed of trust.
• Using an off-the-shelf promissory note. Texas has specific usury caps, notice-of-default requirements, and non-judicial foreclosure procedures under Property Code § 51.002. Generic forms do not comply.

When to walk away from seller financing

If the buyer cannot produce 10% down in verified funds, cannot document any income, and has recent unresolved collections — that is not an underwriteable buyer, it is a future foreclosure. Non-judicial foreclosure in Texas is fast (roughly 41 days from posting to sale date on the first Tuesday of the month at the Bexar County Courthouse steps) but it is still a foreclosure, and you will retake the property with wear, deferred maintenance, and unpaid taxes.

If the numbers work and the buyer is real, seller financing is one of the highest-yielding, lowest-hassle exits available to a San Antonio homeowner with equity. If you want to test the market both ways — list conventionally and signal openness to owner terms — you can post the home free at HomeFinder's /list-your-home, browse comparable active listings at /homes-for-sale, or connect with a Bexar County agent who has actually closed a wrap at /agents before committing to structure.