Bond for Deed Fact #10: Why Choose a Bond for Deed Instead of a Private Mortgage

A common question from sellers is whether it makes more sense to use a bond for deed or a private (seller-financed) mortgage.

The first question is whether there is mortgage on the property. If the answer is yes, the Bond for Deed is the preferred alternative in that the title remains with the seller. Transferring the title out of the name of the borrower creates problems with the lender. If there is nit mortgage then the decision is often based on the following:

A private mortgage typically works as follows:

• The seller transfers title to the buyer at closing
• The buyer then gives the seller a promissory note and mortgage to secure the unpaid balance

At first glance, this appears simpler. However, the most important consideration for many sellers is:

“What happens if the buyer does not pay?”

Default Consequences: Bond for Deed vs. Private Mortgage

Bond for Deed

• Legal title remains with the seller
• If the buyer defaults:
  • The seller sends a statutory 45-day notice of default
  • If uncured, the seller may cancel the bond for deed and special mortgage
  • The cancellation is recorded in the public records
  • The seller can then resell the property

There is no judicial foreclosure, because title never left the seller’s name.

Private Mortgage

• Title is transferred to the buyer
• If the buyer defaults:
  • The seller must file a lawsuit
  • Obtain a judgment
  • Proceed through judicial foreclosure and sheriff’s sale
  • This process often takes months and can cost thousands of dollars

Why Sellers Often Prefer a Bond for Deed

The primary advantage of a bond for deed is speed and certainty in the event of default. Because there is no need to reclaim title through the courts, sellers avoid:

• Lengthy process to regain title
• Court costs and attorney fees

For sellers concerned about nonpayment or abandonment, this is often the deciding factor.

The Tradeoff: Liability Exposure

There is, however, an important tradeoff.

Because legal title remains in the seller’s name during a bond for deed:

• The seller may retain potential liability exposure if an incident occurs on the property
• The seller should protect themselves by carrying appropriate liability insurance

In a private mortgage:

• Title has transferred
• The seller is no longer on title
• The seller generally does not have ongoing property-related liability exposure

This potential liability is one of the primary reasons some sellers choose a private mortgage instead of a bond for deed.

The Bottom Line

The choice between a bond for deed and a private mortgage is a balancing act:

• Bond for Deed
  • Easier and faster remedy upon default
  • No judicial foreclosure
  • Seller retains title—and some liability exposure
• Private Mortgage
  • Slower and more expensive remedy upon default
  • Requires judicial foreclosure
  • Seller relinquishes title—and related liability

Neither structure is inherently “better.” The appropriate choice depends on:

• Risk tolerance
• Property type
• Buyer profile
• Seller’s financial and legal priorities

When properly drafted and insured, a bond for deed remains one of the most powerful and flexible seller-financing tools available in Louisiana.