A Bond for Deed transaction is a Louisiana real estate contract in which the purchase price is paid in installments, and a title is transferred after the payments are made in full. In other states, a Bond for Deed is called a Contract for Deed or a Land Contract.
For sellers, the benefits include getting a better price for the property than an appraiser might estimate, gaining the ability to sell property in poor physical condition to a buyer willing to improve it, and the safety of knowing that the property’s title will not officially transfer until all payments have been made.
There are benefits to the buyer of using a Bond For Deed transaction. No lender approval is required and no need for an appraisal. The ability to buy any property because everyone qualifies as long as the seller agrees to sell the property using a Bond For Deed.
A Bond For Deed (BFD) is defined as a contract to sell real property in which the purchase price is to be paid by the buyer; to the seller in installments; and in which the seller after payment of a stipulated sum agrees to deliver title to the buyer (very similar to what some other states call a conditional sale or land contract). Simply put seller financing with different rules than when you give the title and take back a lien.
If the buyer under a BFD contract fails to make payment in accordance with its terms and conditions to the seller; the seller may have the BFD contract canceled by the proper registry in the mortgage and conveyance records. The seller must first give 45 days prior notice via registered or certified mail to the purchaser of his intent to cancel if all amounts due have not been paid. This default notice requirement is mandatory and may not be waived.
The role of the escrow agent in a BFD contract depends upon the needs of the purchaser and seller. The main function is to collect and remit payments to either the seller or mortgage holder, or both. NOTE: There are only eleven (11) licensed escrow agents in Louisiana. The way this is done at Southern Title, Inc. is to collect the payments from the purchaser on or before the 20th of each month. The reason this is done is to provide enough time for a check to clear and a payment to reach the mortgage company before the 1st of the month. A 5% late fee is charged if the payment is not received by the 20th, and the late fee is increased to 10% if the payment is not received by the 1st of the month.
The seller must also be aware that if the purchaser defaults on their obligations under the BFD contract, they will need to come up with approximately two months of mortgage payments in order to bring their mortgage current. It is best to bring a payment before the first of the month so that the payments are not late. The purchaser has forty-five days after default to bring the payments up to date, and those two months of missed payments will have to be paid by the seller if the purchaser cannot cure the default. Generally the seller in a BFD purchase receives a cash payment for their equity at the closing, and their real estate agent may recommend that they make sure to save a portion of these sums in case of a problem or deposit sums with the escrow agent to be used to keep a mortgage current in case of default.
In a situation where a buyer defaults after placing a large cash payment at the closing, it is possible that the seller may have to reimburse the purchaser some of that money. It is considered against public policy to allow one party in a contract to be unjustly enriched in this manner. The actual amount would, of course, be reduced by costs associated with the sale and loss of opportunity to sell the property, so it would have to be a large cash sum to require any sort of reimbursement. There is also a recent bankruptcy case where the Trustee went after the seller to get a portion of the down payment back.
It is possible that a buyer who was about to default on their BFD contract would damage or vandalize the property before they were evicted. In our experience, this is an extremely rare occurrence. Sometimes the purchaser has in fact improved the property. This is also an issue for anyone who rents property and is something the real estate agent should keep in mind.
A. Cost advantages
There are benefits to a buyer in a BFD transaction. The purchaser is able to deduct the interest portion of their payments on their federal income taxes. Their agent should make their purchaser aware of this advantage. The escrow company will send a 1098 interest statement to the buyer on or before January 31st of the following year.
Purchasing property by BFD can be significantly cheaper than acquiring financing thru a lending institution. There are no mortgage company fees, such as appraisals,credit reports, origination points, and so on. This can save the purchaser thousands of dollars. It is also much cheaper than doing an assumption of a mortgage, where many of the same fees apply.
B. Lack of lender approvals
There are also no lender approval issues. The contract is negotiated between the parties and is not dependent upon locating the proper financing. This makes the process much quicker and more certain.
Since there is not an issue of Lender approval, the buyer can have less than perfect credit and still execute a bond for deed contract. The agent should make certain that the buyer will be able to make the monthly payments, but concerns like a past bankruptcy or other credit problems will not prevent a sale.
C. Climbing the property ladder
A purchaser in a BFD contract is building equity in the property they are purchasing. There is a pride of ownership and sense of community instilled in the buyer. In many cases a BFD purchaser is someone who has never owned a home prior to this transaction, and would not have been able to acquire the financing to purchase a home in a conventional manner. The purchaser is now a property owner, and is not merely leasing the property. The purchaser may sell the property at any time, so long as there are enough funds available to pay the sums due under the BFD.
A. Advantageous Pricing
There are many benefits to a seller in a BFD transaction. The seller and buyer negotiate the sales price between themselves and do not have to concern themselves with the appraised value. The seller can sell the property for whatever the buyer is willing to pay. The seller can also add other terms, such as the balloon payment after a specified term
B. Collateral value
A seller can also use a BFD to sell property that is dilapidated or for whatever reason has little value as collateral. It can be difficult to sell the property where a buyer cannot obtain the necessary financing. The purchaser can repair the property and then acquire the financing to pay off the BFD.
Another benefit is that if a buyer defaults on their obligations, the seller can quickly and cheaply reclaim their property. Forty-five (45) days after the default letter is sent to the purchaser via registered or certified mail the owner may institute an eviction proceeding. This is significantly faster than to foreclose on a credit sale or other form of a mortgage. It is also much cheaper than going to a sheriff’s sale.
Preferred Escrow Agent: Southern Loan Servicing
Louisiana State Legislature RS 9:2941 – Bond for Deed Contracts
We are affiliated with the state’s largest dedicated Bond for Deed servicing company, Southern Loan Servicing. They can answer buyer, seller and agent questions about the Bond For Deed process. They provide 24/7 online account access post-closing.
If you are an existing Bond for Deed account holder, contact the servicing company, Southern Loan Servicing, for 24/7 online account access.