Seller Financing on Colorado Land: Should the Owner Carry?

A Colorado landowner who offers seller financing sells faster, reaches buyers a bank turns away, and collects interest on the balance. The trade is a wait for the full price and the work of a lender: a promissory note, a deed of trust recorded with the county, a servicer for the payments and, if the buyer stops paying, a Public Trustee foreclosure.

This guide covers how owner-carry land sales work in Colorado, the Colorado Real Estate Commission forms brokers use, what down payment and term Front Range sellers ask for, the default timeline under Colorado law, and how the IRS taxes an installment sale. For the basics of carrying a note on any property, read the complete beginner's guide to seller financing in real estate first.

What seller financing on Colorado land means

The seller deeds the land to the buyer at closing. In exchange the buyer signs a promissory note for the unpaid balance and a deed of trust that pledges the land as collateral. The title company records the deed and the deed of trust with the county clerk and recorder in the same closing. The buyer owns the land; the seller holds a lien on it until the note is paid.

Colorado brokers do not use a contract for deed for this. The deed plus deed of trust structure is what the Commission forms are built for and what title companies insure.

Why Colorado landowners carry the note

• Banks lend less on bare land. A lender that writes a mortgage on a Parker house at 3% to 5% down wants 20% to 50% down on a vacant 35-acre parcel in Elbert County, on a shorter term, at a higher rate. Owner financing puts the buyers who cannot meet that back in the pool.
• The price goes up. Buyers pay more for land they can actually close on. Land that sits for 12 months at a cash-only price moves in 60 to 120 days with owner terms.
• Interest income. The seller earns interest on the balance for the life of the note.
• Taxes are spread out. The IRS installment method recognizes the gain as the payments come in (details below).

The downside is real. The seller waits years for the full price, does a lender's paperwork, and takes the land back through foreclosure if the buyer defaults. A seller who needs the cash this year should list for a cash buyer instead; the selling land in Colorado for cash post covers that path.

The Colorado forms that document an owner-carry land sale

The Colorado Real Estate Commission publishes the forms licensed brokers must use. For an owner-financed land sale the set is:

• Contract to Buy and Sell Real Estate (Land). The land version of the standard Colorado contract. Section 4 lists the purchase price, earnest money, cash at closing and the seller-financed portion.
• Seller or Private Financing Addendum. Attached to the contract when the seller carries any part of the price. It sets the note amount, interest rate, payment amount, term, balloon date, late charge, whether the buyer escrows taxes and insurance, and whether the deed of trust is due on transfer.
• Promissory Note. The buyer's written promise to pay, on the Commission's approved note form.
• Deed of Trust. The lien instrument, naming the Public Trustee of the county where the land sits as trustee. The Commission form comes in a due-on-transfer version, which lets the seller call the loan if the buyer sells, and an assumable version.
• Seller's Property Disclosure (Land). Water rights, well permits, septic, access, mineral rights, easements and known defects, disclosed in writing before the buyer's deadlines run.

A broker fills these out; a title company or a Colorado real estate attorney prepares the note and deed of trust and records them. For a note with unusual terms, an attorney drafts it.

What a deed of trust and the Public Trustee do

Colorado is a deed-of-trust state. Every Colorado county has a Public Trustee, a public officer who holds the power of sale on every deed of trust recorded in that county. When a borrower defaults, the lender files with the Public Trustee, not a private trustee. This is why a Colorado seller-financed note is enforceable in months rather than years.

How much down and for how long

There is no statute setting these. Front Range practice on vacant and agricultural land runs in these ranges:

A 20% down payment on a $400,000 parcel is $80,000 at closing and a $320,000 note. Once the buyer builds a home on the land, the buyer refinances with a conventional lender and pays the balloon; a home on the parcel is what makes bank money available. Mike Oswald, VP of Mortgage Lending at Rate, NMLS 261003, Equal Housing Lender, runs those payoff refinances for Kenna buyers. You are free to use any lender. See the Colorado home financing guide.

Does Dodd-Frank apply to a Colorado landowner?

The federal loan-originator rules under Dodd-Frank cover consumer loans secured by a dwelling. Bare land with no house on it and no house going up under the loan is outside them. Once a home sits on the land, or the buyer will live in a home built with the financing, the rules reach the seller, with two exclusions written for private sellers: one for a person who finances a single property in a 12-month period, and a broader one for a seller who finances a small number of properties a year and meets fixed-rate and ability-to-repay conditions. The single-property exclusion permits a balloon; the other does not.

Colorado also licenses mortgage loan originators through the Division of Real Estate. A seller who carries notes on several parcels a year is in different territory from one selling their own parcel once. Have a Colorado real estate attorney confirm which exclusion the sale fits before the addendum is signed.

What happens when the buyer stops paying

After a missed payment the seller sends the notice the note requires. If the buyer does not cure, the seller's attorney files a Notice of Election and Demand with the county Public Trustee, who records it and mails notices to the buyer and every junior lienholder.

Colorado statute sets the sale date window from the day the notice is recorded: 110 to 125 days for most land, 215 to 230 days for land the county assessor classifies as agricultural. Before the sale the seller obtains a district court order under Rule 120 confirming the default. The buyer keeps the right to cure by paying the missed amounts plus costs until the deadline set by the Public Trustee before the sale. If no one cures and no one outbids the seller at the sale, the seller takes the land back, keeps the down payment and every payment made, and owns any improvements the buyer added.

Budget attorney fees, Public Trustee fees and publication costs. The Denver foreclosure process timeline walks through each step from the borrower's side.

How the IRS taxes an owner-carry land sale

A seller-financed sale of land held for investment is an installment sale under federal law, reported on Form 6252. The seller recognizes gain in proportion to the principal received each year and reports the interest as ordinary income. Land held more than one year gets long-term capital gains treatment on the gain portion. Colorado taxes the same income at its flat state rate.

A seller who elects out of the installment method pays all the gain in the year of sale, and a seller who sells the note later recognizes the deferred gain then. Land that produced depreciation deductions carries recapture rules. Run the numbers with a Colorado CPA before pricing the note. The tax strategies for Colorado real estate investors post lists the questions to bring.

What to check before carrying a note on Colorado land

• The buyer's credit and income. Ask for a credit report, two years of tax returns and proof of the down payment. The seller is the bank now.
• Water. A Front Range or Eastern Plains parcel without a well permit or an adjudicated water right is worth a fraction of one with water. Confirm the permit through the Colorado Division of Water Resources.
• Access. Legal, recorded access, not a neighbor's goodwill.
• Survey. A boundary survey on acreage, not an improvement location certificate. The Colorado ILC versus land survey guide explains the difference.
• Mineral rights and easements. Severed minerals and pipeline or utility easements show up on the title commitment and affect what the buyer builds.
• Zoning and septic. County zoning sets the minimum lot size for a home and whether horses are allowed; septic goes through the county health department. Buyers of Colorado horse properties ask about both on the first call.
• Insurance and taxes. Require the buyer to keep liability insurance and pay property taxes on time. Vacant land carries a higher assessment rate than a home in Colorado, so the tax bill is larger than a buyer expects.

Who collects the payments

Use a loan servicer or the title company's servicing arm, not a personal checking account. The servicer collects payments, tracks principal and interest, escrows taxes and insurance, sends the buyer a year-end interest statement, and gives the seller a clean payment history if the note is ever sold or foreclosed. Fees run in the tens of dollars a month.

Selling the note later

A seller who wants cash before the balloon sells the note to a note buyer at a discount. Notes with a large down payment, 12 months or more of on-time payments and a buyer with decent credit sell at the smallest discount. The how to sell a mortgage note in Colorado post covers pricing and paperwork.

Cash sale or owner carry

Sell for cash when the land is priced for a bank-financed or cash buyer and the seller needs the money within the year. Carry the note when the parcel has sat, when banks will not lend on it, when the seller wants monthly income, or when spreading the gain lowers the tax bill. Many Kenna sellers list both ways: a cash price and a higher owner-carry price with stated terms in the MLS remarks. The what Colorado landowners should know before selling vacant property post covers marketing the parcel, and the Smart Pricing Report gives a written price before it goes live.

Where to go next

• The complete beginner's guide to seller financing in real estate
• Owner-carry homes for sale in Colorado
• Colorado horse property buying guide
• How the Kenna Real Estate Group helps sellers
• Explore Colorado communities and search land and homes
• Meet the agents of the Kenna Real Estate Group

Talk to the Kenna Real Estate Group

The Kenna Real Estate Group, Keller Williams DTC, lists Front Range and Eastern Plains land with a cash price and an owner-carry price, writes the Seller or Private Financing Addendum, and brings the title company, servicer and attorney to the table. Call or text 303-955-4220. A live person answers. Not a robot, not a phone tree. Then search every home for sale in Colorado to see what the land around yours is listed at.