Here you will learn what a Bond for Deed is, Seller advantages, Purchaser advantages, when to use a bond for deed, and some other additional information we think you will find useful.

Bond for Deed

What is a Bond for Deed?

A Bond for Deed is a Louisiana contract to sell real estate in which the purchase price is paid in installments and title is transferred after the payments are made in full. In other states Bond for Deed is called Contract for Deed or Land Contract. Bond for Deed contracts may seem relatively new to the Louisiana real estate arena, however, laws covering Bond for Deed contracts have been in existence since 1934. To protect all parties in a Bond for Deed, Louisiana law requires the services of a licensed escrow agent. Escrow Services, Inc. is the industry’s leading commercial escrow agent with the experience and expertise required to properly Service Bond for Deed contracts. Escrow Services collects the payments, pays any underlying mortgages, and issues IRS 1098 interest reports. In the event of non-payment, Escrow Services sends the required notices to both purchaser and seller.

Seller Advantages

Seller earns interest as the "lender". Sales price is not dependent on mortgage holder's requirements. Property is acquired "as is" and purchaser is typically responsible for paying taxes and insurance. The Seller is not a landlord.

Purchaser Advantages

Neither purchaser nor property has to qualify for a loan. Purchaser can claim IRS interest deduction. Purchaser builds equity through amortization of the Bond for Deed contract and market appreciation. Purchaser has benefits of home ownership and is not a tenant.

When to Use a Bond for Deed

• Mortgage Not Assumable – Use a Bond for Deed whenever the existing mortgage is not assumable. Anyone can make the payments of an existing mortgage and court decisions have clearly established that permission of the mortgage company is not required, unless the mortgage specifically prohibits Bond for Deed.
• Assumable Mortgages – Use a Bond for Deed whenever the existing mortgage is assumable and the mortgage company will not give the seller a written "release of liability". If the seller still has the liability of the mortgage, he or she should retain title to prevent credit problems created if the person that "assumed the loan" does not pay.
• Purchaser/Property Doesn’t Qualify – Use a Bond for Deed whenever the purchaser or the property does not qualify for a loan. Many would-be purchasers can not qualify for a new mortgage…sometimes the property doesn’t qualify…the reasons are endless. The terms of the Bond for Deed are strictly between the seller and the purchaser.
• Owner Financing – Use a Bond for Deed whenever the seller will finance all or a portion of the sales price. Canceling a contract for non-payment is much less costly than foreclosure.
• Save Money – Use a Bond for Deed to save closing costs. When you buy or sell property under the Bond for Deed contract, you do not have to pay 'points', appraisal and survey fees, private mortgage insurance (PMI), or for repairs required by a mortgage company before it will make a loan.
• Bridge Financing – Use a Bond for Deed to buy or sell property today and 'bridge through' to a future period when mortgage rates become more favorable, market values increase, the property is renovated or improved, or insurance underwriting and rates are more favorable.
• Material Down Payment – Use a Bond for Deed when the seller requires a material down payment. A Bond for Deed provides benefits and advantages to a buyer which justify the investment of a material down payment.

Additional Information on Bond for Deed

• Recordation: The Bond for Deed contract is recorded in both the conveyance and mortgage records to protect the rights of both parties.
• Maintenance: The purchaser is responsible for repairs, maintenance, insurance, etc. after the closing of the Bond for Deed contract.
• Insurance: Property insurance should be carried in the owner’s name with the purchasers listed as additional insured. Title insurance is also available to ensure the validity of the title that is to be conveyed to the purchaser.
• Tax Deductible: The IRS treats a Bond for Deed the same as an installment sale for interest purposes.
• Power of Attorney: Our contract includes a power of attorney empowering Escrow Services, Inc. to transfer ownership of the property to the purchaser upon full payment or refinancing.
• Bankruptcy: In the event the seller files a bankruptcy action, the purchaser is protected by the Bankruptcy Code.
• Death: The death of a seller or buyer does not affect the validity of a Bond for Deed. As a ‘heritable contract’ under Louisiana Civil Code, the heirs inherit the benefits and the obligations of the Bond for Deed.
• Refinance: Mortgages to buyers under a Bond for Deed qualify as refinances by mortgage lenders rather than new purchase loans. Payments to Escrow Services, Inc. are viewed as mortgage payments paid to an independent third party by mortgage loan underwriters.