Step-by-step mechanics of a Structured Installment Sale: the seller, buyer, escrow officer, assignment company, and A-rated carrier — what each one does, what paperwork is required, and how the wire flows at closing.
Critical distinction — read this
SIS is NOT a traditional seller-financed installment sale.
When most people hear “installment sale,” they think of the old-school version where the buyer pays the seller directly over time — like seller-financed real estate. That arrangement carries massive buyer-default risk for the seller and is NOT what the SIS does.
Question
Traditional installment sale
Structured Installment Sale (SIS)
Who owes the seller the payments?
The BUYER
An A-rated INSURANCE CARRIER (via third-party assignment company)
When does the buyer pay?
Monthly to seller for 10-30 years
Full cash at closing (just like any normal sale)
If buyer defaults?
Seller stops getting paid — buyer-default risk
N/A — buyer already paid in full. Carrier owes the seller, not the buyer.
Backing the payment stream?
Buyer’s creditworthiness only
A-rated insurance carrier’s general account + CLHIGA state guaranty (80%/$250K cap)
Tax treatment
§453 installment method
§453 installment method (same code, same blessing in Rev. Proc. 2005-26)
Bottom line: the SIS keeps the §453 spread-tax benefit of the old installment sale but eliminates the buyer-default risk. The buyer wires the full sale price to escrow on closing day — same as any cash sale. Escrow splits the wire per the SIS rider: any cash carve-out goes to you, the rest goes to the assignment company which immediately purchases an annuity from an A-rated carrier. The carrier becomes the obligor.
The 5 players in every SIS deal
An SIS is not a complicated structure once you see the players named. There are exactly five roles, and each has one specific job.
Player
Role
When they act
1. The Seller
Signs the Purchase Agreement with the SIS condition; signs the assignment addendum; receives the annuity payments for the term
Throughout
2. The Buyer
Signs the standard Purchase Agreement plus the one-page SIS rider; wires full sale price to escrow on closing day; receives title
PA signing + closing
3. The Escrow Officer
Receives buyer’s wire; splits it per the SIS rider (cash carve-out → seller; remainder → assignment company); records the deed
Closing day
4. The Assignment Company
Receives the wire from escrow; immediately purchases an annuity from the A-rated carrier; becomes the third-party obligor on the seller’s payment stream
Day 1 after closing
5. The A-Rated Insurance Carrier
Issues the annuity contract; pays the seller monthly/annually for the full term per the locked schedule
For the full 5-40 year term
What each player does NOT do
Buyer doesn’t pay the seller — buyer wires to escrow as in any sale
Buyer doesn’t carry any ongoing obligation — once the wire lands, buyer is done
Escrow doesn’t handle the annuity — escrow just records the deed and splits the wire
Assignment company doesn’t hold the funds long-term — they convert cash to annuity within hours
Carrier doesn’t deal with the buyer at all — the carrier’s only relationship is with the assignment company and the seller
The wire flow on closing day
Take a $2M sale with a $400K cash carve-out and $1.6M structured. Here’s exactly what happens with the money:
The paperwork checklist
Compared to a "normal" California real-estate sale, an SIS adds two documents. That’s it.
Document
Required for normal sale?
Required for SIS?
CA Residential Purchase Agreement (or commercial equivalent)
YES
YES — with SIS condition added
Standard disclosures (TDS, NHD, etc.)
YES
YES — unchanged
Escrow instructions
YES
YES — with wire-split language
+ SIS Assignment Agreement (1 page)
NO
YES — added at PA signing
+ Annuity Contract (carrier-issued)
NO
YES — issued by carrier on Day 1 after closing
Day-by-day timeline — typical 45-day escrow
Day -30 to -1 (before PA signed):Hans + escrow officer prepare the SIS structure — carrier identified, term and start date selected, cash carve-out amount fixed, addendum language drafted
Day 0 (PA signed):Buyer signs the standard Purchase Agreement plus the one-page SIS rider acknowledging the wire-split. Buyer’s timeline begins as in any sale.
Day 1-44 (escrow runs):Buyer’s loan funding, inspections, disclosures, contingency removals — all proceed normally. Escrow officer prepares wire-split instructions.
Day 45 (closing day):Buyer wires full sale price to escrow. Escrow records the deed. Wire splits: $400K to seller, $1.6M to assignment company.
Day 46 (assignment company acts):Assignment company receives the wire and immediately purchases an annuity from the A-rated carrier with the $1.6M. Carrier issues the annuity contract to the seller.
Day 76 (~30 days after issue):First annuity payment hits seller’s bank account ($8,800/mo for 20 years).
Day 76 – Year 20:Monthly payments continue per the locked schedule. Each year the seller files IRS Form 6252 reporting that year’s pro-rata gain recognition.
What if something goes wrong?
Buyer backs out before closing:Same as any cancelled sale. SIS is irrelevant until closing happens. Hans only gets paid if the deal closes.
Escrow falls through during contingencies:SIS addendum is voided with the rest of the PA. No fee, no obligation.
Carrier downgrade after the structure is in place:Annuity contract is locked at funding — subsequent rating changes don’t affect the existing contract. State insurance guaranty associations also provide backup protection up to state-specific limits.
Seller dies during the term:Remaining payments continue to the seller’s named beneficiaries (typically heirs), taxed under the same pro-rata gain recognition rules.
Seller wants to commute early:Not allowed. The non-commutability is what preserves the §453 treatment. This is a feature, not a bug.
Hands-on walkthrough on your specific deal
Every deal is slightly different — carrier selection, term length, cash carve-out percentage, deferred-start structure if you don’t need income immediately. Run the calculator first, then call for the walkthrough specific to your sale.
