I'm in escrow with less than a week left until stipulated closing date and now the seller wants to change the terms of financing

Asked by Brian J. Lee, Los Angeles, CA Fri Mar 15, 2013

The signed sales contract and escrow instructions stipulate an interest-only seller-financed purchase. Now, the seller is saying that he's just spoken to his CPA and is being told that he needs to get principal interest or it'll have serious tax implications and is a "deal breaker". I've never read anything online about there being significant tax consequences for interest-only vs. principle interest -- is this even true? Also, can he change financing terms mid-escrow?

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Allan S Glass, Agent, Los Angeles, CA
Fri Mar 15, 2013
Dear Newb,

You're really asking two questions.

1) can seller financing have a tax impact on the seller, and
2) can the seller change the contract late in the game.

For the answer to #1, it's likely your seller is attempting to complete a 1031 tax deferred exchange. if that is the case there are implications to his taxes, and how his seller financed note is structured and handled will make a difference to him. You can get more details in this article:


Regarding #2. If you both have committed to the deal and all contingencies have been removed it is likely you both have a contractual obligation that cannot be changed without mutual consent. However, we don't have enough details about your particular transaction to understand if that is the case here.

You should consult with an attorney to review your contract in order to determine where you stand in the transaction. You may also want to consult your accountant or financial adviser to review the changes in the financing to see if there really is a significant impact to you.

Best of luck!
Allan S. Glass
ASG Real Estate Inc. ®
149 S. Barrington Ave, Suite #660
Los Angeles . CA 90049
Mobile: 213.952.9052
Direct: 213.973.8637 (213.97.FUNDS)
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0 votes
David Cooper, Agent, Los Angeles, CA
Sun Mar 17, 2013
Is this a real problem for you qualifying or just a bump in the road. If you want the house, play ball. If you want to get into litigation, resist and be prepared for some sleepless nights.

David Cooper
Foreclosure Property Marketing Manager
0 votes
Brian J. Lee, Home Buyer, Los Angeles, CA
Fri Mar 15, 2013
@hello: seller-financing is amortized over 30 yrs. but payable in 5.

Thanks everyone for the detailed insight. At this point, I've lifted my inspection contingency but the seller still has yet to produce all the documents he's agreed to provide before all contingencies are removed.

I just don't like the fact that the seller and his agent are essentially threatening to blow up the sale if I don't do what the seller wants, even though he's already signed the sales contract and all addendums explicitly defining the financing terms as interest-only. It's a bit ridiculous that the seller's agent would warn me that if I don't agree to changing the terms that "this is a deal breaker for [the seller]" -- from what I've read, it seems more like "breach of contract BY the seller".
0 votes
Ron Escobar -…, Agent, Beverly Hills, CA
Fri Mar 15, 2013
If you entered escrow with a clear understanding of each other's contractual responsibilities and duties (including financing terms) then he is bound by the contract to fulfill its terms. However, they may have worded in a way that gives them an out... the devil is in the details... if you have a large amount of potential losses or gains (over $50K) I would have an attorney review the matter in detail and advise you accordingly.

Best of luck.. if you find my answer useful, give it a Thumbs Up!

Ron Escobar
0 votes
Hello, , Leipsic, OH
Fri Mar 15, 2013
Why in the world are you doing an interest only loan?
0 votes
Cindy Davis, Agent, San Diego, CA
Fri Mar 15, 2013
The terms that were spelled out in your original contract and any addendums are the terms of the deal. The seller legally can't change the terms. I hope you have an agent to go to bat for you!
0 votes
Sona Gallatin, Agent, Santa Clarita, CA
Fri Mar 15, 2013
Read your purchase agreement, what are the terms you both agreed to? I hope you are working with an agent who can really be a huge help to you right now.
0 votes
Aziz Hasnain, , Los Angeles, CA
Fri Mar 15, 2013
It would be very difficult for him to back out at this point especially if you guys have passes the due diligence period. However, you maybe able to change the terms just a little so both parties(you an the seller) have a healthy beginning to this deal once escrow does close.
Hope this helps!

Aziz Hasnain, Broker
Westwood Realty
0 votes
Lance King, Agent, San Francisco, CA
Fri Mar 15, 2013
As a follow up, I would add this:

It's true that both parties need to agree, but if the seller is willing to pay your costs why not go along?
0 votes
Josh Barnett, Agent, Chandler, OK
Fri Mar 15, 2013
He agreed to it previously and should have consulted his CPA prior, this sounds like his problem and not yours.

Nothing can be changed without both parties agreeing to it, if you do not agree to his requests, it cannot be changed.

If the seller does not close consult an attorney.
0 votes
Caroline Har…, Agent, Northridge, CA
Fri Mar 15, 2013
Based on what you're stating here, without knowing more information, I can tell you not to worry. Loan documents will always supersede the purchase contract terms of the financing. It shouldn't matter to you what kind of a loan he is getting if he is still able to make the purchase and close on time. I always see loan terms change in escrow, especially when Borrowers are obligated to bring in more money down to close their deal or if they don't need to put down as much and get a higher loan. As long as it's not affecting your close of escrow date, you shouldn't worry. Even if you're being pushed back a week on the close date, I would stick with the deal. It's better than going another few days to look for a new buyer and another month in escrow. If you want to talk specifics, feel free to contact me directly.

Caroline Harabedian
RE-Search Concept
8700 Reseda Blvd., Suite 213-B
Northridge, California 91324
(818) 967-9626 mobile
(818) 979-0226 fax
0 votes
carlos parra…, Other Pro, Monrovia, CA
Fri Mar 15, 2013
As stated below the answer is yes to tax implications to the seller if he doesn't do it right on a 1031 exchange and maybe yes maybe no on whether or not terms can be changed mid-escrow, depending on your sales agreement language. However, despite this, the financial impact to you may not be so great if you still want to move forward with the deal. I think the amount of principal is not dictated.
0 votes
Ron Thomas, Agent, Fresno, CA
Fri Mar 15, 2013
Lance & Allan told you true;
But, if he is trying to do a 1031, and it sounds likely, he has to get your co-operation, in writing!
If he doesn't do the 1031, precisely as it is spelled out, he won't get it.
This isn't so much as a "Buyer Beware" as it is a "SELLER BEWARE":
Let your Realtor do your talking for you.
0 votes
Lance King, Agent, San Francisco, CA
Fri Mar 15, 2013
Allan has a good answer. I would add that if it went to legal action judges will rarely order specific performance - forcing them to sell their home.

If in fact they want to do a 1031 as Allan suggested, this is not a big deal. It doesn't cost you anything in and of itself, but if it delays the closing you should require the seller to pay your costs in exchange for you cooperating. This is standard operating procedure when one party delays closing.
0 votes
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