Owner Finance Note Servicing in Texas: What a Servicer Does

You sold a Texas property and carried the note. Every month for the next ten or twenty years someone has to take the payment, split it between interest and principal, set aside the tax and insurance money, send statements, report the interest to the IRS, and make the call when a payment is late. That work is note servicing. This guide covers what a servicer does, what it costs, which Texas and federal rules apply to your note, and what to ask before you hand a note to anyone.

It is written for the seller or investor holding the note. Cedar Top services Texas owner finance notes and does not give legal or tax advice. Every rule cited below links to its source, and each one should be confirmed with your Texas attorney and CPA for your own note.

What a note servicer does every month

The buyer pays the servicer, not you. On boarding, the servicer sends the buyer a welcome letter with the payment address, the portal login, the draft authorization, and the first payment date. From then on the servicer is the buyer's point of contact for the loan.

Each payment gets applied against the amortization schedule in the note: interest first, then principal, then any escrow deposit. The servicer tracks the balance to the penny, which matters when the buyer asks for a payoff figure, refinances, or sells. Both you and the buyer get a monthly statement and online access to the same numbers.

If the note requires escrow, the servicer collects one twelfth of the annual property tax and insurance premium with each payment, holds it, and pays the county and the carrier when the bills come due. When the tax bill and premium change, an escrow analysis resets the monthly deposit so the account does not run short. Without escrow, the servicer still watches whether taxes are paid and insurance stays in force, because a tax lien or a lapsed policy puts your collateral at risk.

The payoff figure is the other place the accounting shows. When the buyer refinances or sells, the title company asks the servicer for a payoff statement good through a closing date: principal balance, accrued interest per diem, any unpaid late charges, and the escrow balance to be refunded. A servicer with clean records produces it the same week. A seller working from a spreadsheet and a shoebox of check stubs is the reason closings slip.

When a payment is late, the servicer sends the late payment notification, assesses any late charge the note allows, and tells you. At year end it handles the interest reporting described below. Cedar Top's servicing scope, and the documents we need to board a note, are listed on the owner finance note servicing page.

What note servicing costs

Third-party servicers in Texas publish rates in two parts: a one-time boarding fee and a monthly per-loan fee. In 2026 the published range is roughly $50 to $150 to board a note and $20 to $40 per month, with escrowed loans priced at the top of that range because of the disbursement and analysis work. Some servicers charge separately for payoff statements, returned payments, research on a disputed balance, and for transferring the note out to another servicer. That range comes from published third-party rate cards and the servicer selection guide at Note Investor, checked September 2026.

Many notes are written so the buyer pays the servicing fee. Check yours. If the note is silent, the fee is yours.

Cedar Top does not publish a flat rate because setup depends on the note: whether it escrows, whether there is a dwelling to insure, and whether we are boarding an existing note with a payment history behind it. With your note and closing documents we quote the boarding cost and the monthly fee before you commit.

Which Texas rules apply to a seller-financed note

Three Texas statutes come up on every owner-financed sale. Each one applies to a narrower set of deals than the internet suggests.

Contract for deed versus deed, note, and deed of trust

Texas Property Code Chapter 5, Subchapter D governs executory contracts, meaning contracts for deed, on property used as the buyer's residence. Under a contract for deed the buyer does not receive title until the last payment. Subchapter D requires the seller to record the contract within 30 days under Section 5.076 and to send the buyer an annual statement each January under Section 5.077, postmarked by January 31 if mailed, showing the amounts paid, the balance owed, and the tax and insurance items. A seller who has done fewer than two such deals in the prior 12 months and misses the statement owes the buyer $100 per missing statement plus attorney's fees. A seller who has done two or more owes $250 per day after January 31 until the statement is delivered, capped at the property's fair market value, plus fees.

Most Texas sellers do not carry a contract for deed. They convey the deed at closing and take back a promissory note secured by a recorded deed of trust. That sale is not an executory contract, and Subchapter D does not govern it. How that structure is papered is covered in owner financed land in Texas. A servicer will still send the buyer a year-end statement as a matter of practice. It just is not the Section 5.077 statement with the Section 5.077 penalties.

The three-loan licensing exemption

Texas requires a Residential Mortgage Loan Originator license to originate residential mortgage loans. Finance Code Section 156.202 exempts an owner of residential real estate who makes no more than three residential mortgage loans to purchasers of that property in any 12 consecutive months. Two things narrow it. The exemption counts loans, not properties, and co-owners are aggregated as one owner when any owner is an entity. A seller financing four houses out of an LLC in a year has left the exemption. The exemption is also for residential loans; a note on raw land with no residence is outside Chapter 156.

Servicer registration

Finance Code Section 158.051 bars anyone from acting as a residential mortgage loan servicer in Texas unless registered with the Department of Savings and Mortgage Lending or exempt. Section 158.052 exempts a person servicing a loan made with their own funds or taken to secure the price of property that person sold. That is you, collecting your own note. It is not a third-party company collecting notes for others.

The department takes servicer registrations through NMLS, and as of January 1, 2026 it requires every registered servicer to carry a surety bond filed through NMLS. Anyone can look up a servicer's registration by company name at NMLS Consumer Access. Run that search before you send anyone your note and the buyer's payment stream.

The federal seller-financer rules

The federal Truth in Lending Act treats a person who originates residential mortgage loans as a loan originator, with the licensing and compensation rules that follow. Regulation Z, 12 CFR 1026.36(a)(4) and (a)(5), excludes two kinds of seller financers.

The three-property exclusion covers a seller who finances the sale of three or fewer properties in any 12-month period, if the seller did not build the residence in the ordinary course of business, the loan is fully amortizing, the seller made a good-faith determination that the buyer can repay, and the rate is fixed or does not adjust for at least five years with reasonable annual and lifetime caps.

The one-property exclusion covers a natural person, estate, or trust financing one property in a 12-month period. It drops the fully amortizing and ability-to-repay conditions but requires a repayment schedule that does not produce negative amortization and the same five-year rate rule.

A balloon note fails the three-property test because it is not fully amortizing. A balloon can still fit the one-property exclusion. This is where your attorney earns the fee: the structure of the note decides which rules you are inside.

Who reports the interest to the IRS

Interest on an owner-financed note is taxable income to you and, for a buyer using the property as a residence, potentially deductible to them. Who reports it depends on who collects it.

Under the Form 1098 instructions, a servicer that receives the interest on your behalf in the course of its business files the 1098 with the IRS and sends the buyer a copy when the year's interest is $600 or more. The instructions put this duty on the collection agent who first receives the payment, which is why a serviced note produces a 1098 and a self-collected note usually does not.

A seller who collects the note directly and is not in a lending business does not file a 1098. The Schedule B instructions have that seller list the interest first, with the buyer's name, address, and Social Security number, and require the seller to give the buyer the seller's Social Security number, with a $50 penalty for not doing so. On the other side, IRS Publication 936 has the buyer deduct the interest on Schedule A and write the seller's name, address, and taxpayer identification number on the dotted line. Two private parties swapping Social Security numbers every January is one of the quieter reasons sellers hire a servicer.

When the buyer stops paying

The servicer's job on a default is accounting and notice. It sends the late payment notifications, adds the late charge the note allows, keeps trying to collect, and reports the delinquency to you with the exact days past due and amounts owed. It does not decide whether to foreclose. You do, with your attorney.

Foreclosure on a Texas deed of trust runs under Property Code Section 51.002: a public auction at the county courthouse on the first Tuesday of a month, after the required notices. If the property is the buyer's residence, the buyer gets a written notice of default by certified mail and at least 20 days to cure before the notice of sale can go out. The servicer supplies the payment history, the reinstatement figure, and the payoff figure the attorney needs to run those notices correctly. A servicer that cannot produce a clean payment history on demand has cost you a foreclosure before it starts.

No Texas statute sets a grace period or caps late charges on a note like this. The note does. If the note is silent on late charges, the servicer has nothing to assess, so settle that term before signing.

Moving an existing note to a servicer

A note you have been collecting yourself, or one another servicer holds, can be boarded mid-stream. The servicer sets up the account from the note terms and the payment history you provide, confirms the current balance and next due date with you, then sends the buyer written notice of where payments now go and when. Expect to provide the promissory note, the recorded deed of trust, the closing disclosure or HUD-1, the sales contract, a W-9, the first payment letter, proof of insurance where there is a dwelling, and the current tax certificate.

If you are leaving another servicer, check its agreement for a transfer-out fee and a notice period. Many servicers charge one, and some raise it when notice is short. Ask for the complete payment history and the escrow balance in writing before the transfer date.

What to ask a Texas note servicer

• Whether it is registered with the Texas Department of Savings and Mortgage Lending under Finance Code Chapter 158, and the NMLS number so you can check.
• The boarding fee, the monthly fee, and every other fee it charges, in writing.
• Whether it collects and disburses escrow for taxes and insurance, where those funds are held, and how often it runs an escrow analysis.
• Whether it files Form 1098 for the buyer and sends you the year-end interest total.
• Whether both the buyer and you can see the account online, and what a statement shows.
• Its late notice sequence, and how fast you hear about a missed payment.
• Whether it boards existing notes, and what payment history it needs to do that.
• What it charges, and how long it needs, if you move the note to another servicer.

Where Cedar Top fits

Cedar Top services Texas owner finance notes, wrap loans, and private lender loans. Co-founder Kody Fain spent six years in commercial and agricultural banking before Cedar Top and runs the servicing side. The service covers payment processing with bank draft, online, and mailed-check options, monthly statements to both parties, escrow collection and disbursement with escrow analysis, IRS reporting on the note, late payment notifications, online account access for both sides, and distribution of collected funds to you. We do not draft your note or advise on the tax or legal side. Your attorney and CPA do that, and we work from the documents they produce. We board new notes at closing and existing notes with a history. Pricing is quoted from the note.