Bond for Deed Myth #6: Only Banks Can Service These Contracts
When discussing Bond for Deed transactions—especially those involving an underlying mortgage—a common myth surfaces: “Only a Louisiana-licensed bank can service a Bond for Deed.”
When discussing Bond for Deed transactions—especially those involving an underlying mortgage—a common myth surfaces:
“Only a Louisiana-licensed bank can service a Bond for Deed.”
This belief stems from outdated interpretations of the original Bond for Deed statutes written a century ago. In this post, we will explore the origins of this myth, explain why it is no longer true, and clarify who can legally service these contracts today.
🏛️ The Origin of the Myth
Back in 1934, when Louisiana first codified its Bond for Deed laws, the statutes stipulated that if a property had an existing mortgage, the Bond for Deed had to be serviced by a bank licensed in the state of Louisiana.
This meant the bank would:
- Collect monthly payments from the buyer
- Remit the proper part to the mortgage holder
- Send the remaining balance to the seller
At the time, this made sense—banks were the primary institutions equipped to oversee financial servicing.
📉 Why Banks Stopped Servicing Bond for Deed
By the mid-1970s to early 1980s, most Louisiana banks had stopped offering Bond for Deed servicing. The reason?
It was not profitable.
Servicing these contracts required administrative effort, legal oversight, and financial tracking—without the revenue or scale to justify the cost. As a result, banks exited the space, leaving a gap in the market.
🤓☝️ The Legal Solution: Licensed Escrow Agents
To fill that gap, Louisiana created a new category of service providers:
Licensed Bond for Deed Escrow Agents.
These agents are licensed by the Louisiana Office of Financial Institutions and are specifically authorized to:
- Collect payments from buyers
- Remit funds to mortgage holders
- Disburse remaining funds to sellers
- Maintain exact records and ensure compliance with state law
Today, licensed escrow agents are the only entities legally allowed to service Bond for Deed contracts involving an underlying mortgage in Louisiana.
This modern framework supersedes the original bank requirement, reflecting the realities of today’s financial and legal landscape.
✅ What This Means for Buyers, Sellers, and Agents
If you participate in a Bond for Deed transaction—especially one with an existing mortgage—here is what you need to know:
- You do not need a bank to service the contract.
- You must use a licensed Bond for Deed escrow agent.
- These agents are equipped to oversee the financial and legal complexities of the arrangement.
Working with a licensed escrow agent ensures:
- Compliance with Louisiana law
- Accurate payment tracking
- Protection for both buyer and seller
At Escrow Services, Inc., we have been servicing Bond for Deed contracts for over 35 years, and we are fully licensed to manage transactions involving underlying mortgages.
💡 Bottom Line
The idea that only banks can service Bond for Deed contracts is outdated and incorrect. Louisiana law has evolved to reflect the needs of modern real estate transactions, and licensed escrow agents are now the trusted professionals for overseeing these deals.
If you are considering a Bond for Deed arrangement, make sure you are working with a licensed escrow agent who understands both the legal framework and the financial structure needed to make the deal work.
📣 Need Help Structuring a Bond for Deed?
This post is part of our ongoing Bond for Deed Myths series. Stay tuned for more insights that help demystify this powerful financing tool.
If you have questions or want to explore how Bond for Deed could work for your clients, we are here to help.
Contact Escrow Services, Inc.:
📞 (985) 626-3727
📧 mailto:service@escrowserviceinc.com
