Which party typically bears the risk in a seller carry-back financing?

In seller carry-back financing, the selling party typically bears the risk associated with the loan. This financing arrangement occurs when the seller provides financing to the buyer by taking back a note for the purchase amount, allowing the buyer to make payments directly to the seller rather than obtaining a traditional mortgage from a bank or lender.

By providing this financing, the seller takes on the role of a lender, which inherently includes financial risk. If the buyer defaults on the payments, the seller may have to foreclose on the property to recover the owed amount. This could result in legal costs and the loss of the guaranteed income stream from the sale. Additionally, if the buyer is unable to maintain the property, its value could diminish, further increasing the seller's risk.

In contrast, the other parties mentioned do not typically take on this level of risk in a seller carry-back scenario. The purchasing party, while they do have a vested interest in the property, does not bear the financing risk linked directly to the loan terms set by the seller. Banks and government entities are not directly involved unless they facilitate a different type of financing. Thus, understanding the dynamics of seller carry-back financing is key to recognizing why the seller would be the party bearing the risk in this arrangement.