Bond for Deed Myth of the Day
We regularly hear, “If there is a mortgage on the property you need the mortgage holder’s approval to do a BFD”.
We regularly hear, “If there is a mortgage on the property you need the mortgage holder’s approval to do a BFD”. This often arises from a misreading of the original BFD statute that says “It shall be unlawful to sell by BFD contract, any real property which is encumbered by a mortgage or privilege without first obtaining a written guarantee from the mortgage or privilege holders to release the property on payment of a stipulated mortgage release price, with which agreement the notes shall be identified”.
The purpose of the guarantee of release by the mortgage holder is to ensure that upon payment of the BFD and in turn, the underlying mortgage, that the mortgage is released to enable the buyer to obtain clear title. When put in context that at the time of the enactment of this statute there were no mortgage statues (as there are today) requiring a mortgage holder to release a mortgage upon payment in full, two things become clear. First, the language in the BFD statute is to protect the buyer and NOT the mortgage holder. Second, mortgage statutes requiring the release of a mortgage when paid, enacted subsequent to the BFD statutes, obviate the need to obtain any such written guarantee. Years of actual practice and court cases have substantiated both of these points.
We bring this topic up because there are erroneous references to be found on the internet perpetuating this myth. The internet is not always your friend. Contact us when researching BFD contracts to get pertinent and accurate information.
