If the OP records his agreement, doesn't the original seller still need to deed the property to the OP, so the OP can complete a sale to a new buyer?

That all said, I think the piece that is missing here, is the OP is trying to claim the Seller carry back AS THE down payment.  

Not specific advice for OP but how many mistakes can we count in this experience?

Our 14 plex cost us $335k and produces over $6000/mo. in rents, plus we resell the utilities to the tenants and make money on that as well as the coin op laundry in the basement.

@Don Clark - I noticed that you mentioned zillow in your op.

Here is how I would view this deal from a numbers point of view:Mortgage Rate 4.50%Length of Mortgage in years 30Monthly Mortgage payment $491.89 Taxes $272.67 Sewer and Water $- Trash $- Heat/Utilities $- HOA $- Cap Ex and Ops $150.00 Insurance $83.33 Mgmt Fee $180.00 Vacancy $144.00 Total Expenses$1,321.89 Unit 1 $1,200.00 Unit 2 $600.00 Total Revenue $1,800.00Cashflow/month $478.11 Cash on Cash Return 19.27%

Sounds like the OP was looking at an installment sale / contract for deed / land contract type of sale, based on stating the owner collects payment but never transfers a deed.

Thorough and just what the OP needed to read. 

I never use prepayment penalties, but there is not a lot of interest to be made on these buyers.Pretty sure the OP would be challenged to get an option to buy from the seller at this point.  

I believe the OP was attracted to the idea of buying something of value on the cheap from another state.