What is a Bond for Deed?
Overview of Bond for Deed
A Bond for Deed is one type of seller financing used when selling real estate in Louisiana. It is a contract that you can use to sell your house where the purchase price is paid by the buyer using installment payments. The buyer obtains possession of the property but the title to the property is not transferred from the seller to buyer until all payments have been made in full. Outside of Louisiana, Bond for Deed is called a Contract for Deed or Land Contract. Bond for Deed contracts may seem new to some home owners but they have been around since the 1930s.
When To Use It
Most people want to sell their house fast for all cash and at top dollar. However, often that's not always possible, especially if working with a company that buys houses as is with no repairs needed. There are many situations in which a bond for deed can be used including when the home buyer can't qualify for a new loan, the property needs repairs and can't qualify for a new loan, there is little to no equity in the property, etc. Some of these are short term problems that can easily be fixed with a little time.
Servicing and Payments
There are Louisiana laws in place that protect both the buyer and seller when using a Bond for Deed. The Buyer is protected because any judgments or liens against the Seller after the start of the Bond for Deed contract will not impact the ability of the buyer to obtain clear title. To protect the Seller and mortgage company (if there is an underlying loan), a third party escrow company authorized to do business in Louisiana must be used.
The escrow company will collect monthly payments from the buyer. They will use those funds to pay any servicing fees, property taxes, insurance, interest, and principal. If there are any funds remaining, those will be paid to the seller. The escrow company will also issue tax forms for the IRS.
When using a bond for deed, the buyer has certain responsibilities regarding payment of taxes, insurance, and maintenance. The Buyer technically owns the property but the contract can include certain requirements such as maintaining a termite contract on the house. They will also be responsible for any property tax increases although they may be able to apply for a homestead exemption to reduce their tax burden.
Canceling After Default
If the escrow company does not receive the monthly payment from the buyer as per the terms of the Bond for Deed, they will notify both the Buyer and the Seller. If the Buyer has not made the monthly payment, the Seller may have to make the mortgage payment to ensure that it is not late. However, at that point, the Buyer has defaulted on the terms of the contract.
If the buyer defaults, the Seller has the option to cancel the Bond for Deed contract and take back the property. The process generally includes:
- Send Notice of Default to Buyer via certified mail
- Wait for 45 days to cure the Default
- Sue for amount due including principal, interest, and expenses
The entire process could take 45 - 60 days and require the Seller to make at least two of the mortgage payments. Starting on the 46th day after mailing the notice, the Seller can convert to a lease and the Seller will be responsible for a monthly rent. The Seller may have to evict the Buyer as a tenant in order to obtain possession and resell the house. However, this process is much cheaper and much faster than the foreclosure process.
Selling a house using a Bond for Deed may or may not be right for your situation. The important thing to know is that it is available as an option.
Fairview Home Buyers can provide multiple options to sell your house fast including an all cash offer. We usually buy houses for cash throughout the New Orleans area but we are also really creative with helping people sell their house fast for top dollar.
If we are not your best solution, we can at least point you towards resources that may be able to help you sell your house fast.