How to protect myself as the seller in a seller financing deal

[Wang Windy]

I am helping my mom to sell her property in East Wenatchee, Washington. My mom has no existing mortgage or any form of lien on this property.

We accepted a seller financing offer, and are currently under the closing process. We have a collection company selected. We are closing with First American, and the closing document has a seller finance addendum and promissory note. We did not choose lender insurance on the purchase agreement (our agent misguided us so we thought we did, but just realized we did not). The buyer is paying 20% down with a 7% interest on the remaining balance. There is no other lender involved in this transaction. We are wondering, in the event of default, how we are going to regain the property. How does the process go and how complex it is going to be? Should we add lending insurance out of pocket?

First Amenrican's agent explained to me that the deed of trust is going to be recorded with the county, and that will put a lien on the property. However, she said without lender insurance, it cannot be guaranteed that my mom is the first lien holder. I am confused on that part because upon my research, if there is no other lender in the deal, we are automatically gonna be the first lien holder. So do we get the first lien position with only the deed of trust?

Would really appreciate your insight into a seller financing deal cuz none of my family has done anything like this. Thanks!

[Derek Dombeck]

So I think you may be confusing Lenders Title Insurance with Property Insurance. 

Often the borrower/buyer will pay for a title insurance policy to insure against title issues or flaws, but it's usually a rider to a standard title insurance policy the seller typically pays for. In this case since your family is the seller and knows there are no title issues, it's a pretty safe bet you wouldn't need that policy.

In regards to lein position, you should have a promissory note secured by a deed of trust that gets recorded ahead of any other encumbrances and that's what keeps you in 1st position. 

Also make sure the buyer lists your mom as a lender on the property insurance policy, NOT as an additional insured party. There's a big difference in the order of payout in the event of a claim.

If the buyer defaults on the payments or any other stipulations of the note, you will need to hire an attorney to foreclose and get the property back. You should familiarize yourself with your state laws on that.