What is a Bond for Deed in the State of Louisiana?
A Bond for Deed in the State of Louisiana is a “Contract to Sell,” between the buyer and seller. In other states, it may be called a “Land Contract.” Or “Contract for Deed.” In this type of transaction, the seller retains the legal title of property or Deed, while transferring the possession of the immovable property to the buyer, with payments made in installments. The title is transferred once all payments have been made to the seller.
A home or property does NOT need to be paid for in full to execute a Bond for Deed Contract.
A Bond for Deed can be executed in a much quicker time frame than that of other types of owner financing agreements.
Any property transfers in Louisiana are done voluntarily with a contract, including a Bond for Deed. A person must be of legal age of majority in the State of Louisiana in order to purchase a property.
Once a Bond for Deed purchase agreement is agreed upon and signed by all parties, then an executed Bond for Deed is prepared and signed in front of a Notary or Attorney, by all parties. If the parties are married then a declaration of the married parties names are recited in the executed document declaring they are both in fact buyers and/or sellers.
The executed Bond for Deed will be retained by Seller and/or a licensed servicing escrow company.
All payments for Bond for Deed are made to the seller or a servicing escrow company, acting on behalf of the seller to collect payments in monthly installments, as per the executed Bond for Deed contract.
Bond for Deed contracts doesn’t require credit checks so that someone with less than stellar credit due to medical bills, bankruptcy, and other issues can execute a Bond for Deed contract.
The Seller will retain title to the property until all installments, under the terms of the Bond for Deed Contract, are paid. Most payments are due on or before the 1st of the month unless otherwise specified. It is important to remember that paying the bond for deed before the 1st of the month is best for all concerned if there is an underlying mortgage so that the mortgage payments can be timely.
The Buyer can make improvements to the property, which in turn normally provides for property value increases, depending on the wider real estate market. These improvements accrue to the benefits of the buyer when they take title to the property. Any improvements that the buyer makes to the property will benefit the Seller in the event of a default. That said, the buyer benefits by being able to acquire property in As-Is condition without an appraisal through a negotiated agreement with the seller on terms that are acceptable to both parties.
In the State of Louisiana, the laws that govern and dictate how Bond for Deed Contracts is handled are recited in the Revised Statutes for the State of Louisiana. The Revised Statutes are namely in R.S. 9:2941 et seq. A closing Notary or Attorney that is licensed in the State of Louisiana can answer more pertinent questions that relate to the Revised Statutes in the State of Louisiana.
What type properties can be transferred in a Bond for Deed Contract?
Only real immovable property can qualify for this type of transaction. The property can be paid off already or have an existing mortgage. It can be located in an area that is harder to sell or it can be in any neighborhood. The property must be immovable and may or may not need additional work. Buyers can make improvements on the property; however, they are not entitled to any type of reimbursement or compensation for such improvements in the event that they default on the contract. Also, although buyers may increase the property’s value through their improvements, should they fail to maintain the property, then the Bond for Deed Contract may contain language that specifies penalties for such poor upkeep. It is always in the best interest for all parties to the Bond for Deed Contract to have a clear understanding of maintaining the property for the benefit of all parties to the Bond for Deed Contract.
How does financing in a Bond for Deed Contract work?
Financing in a Bond for Deed contract is what is typically called owner-financing of the property. The specific difference from most owner-financing events with a Bond for Deed is the Owner or Seller retains the title to the property until all installments have been paid in full.
Typically, the buyer will make a down payment that has been agreed upon by all parties and recited in the Bond for Deed Contract to start the process. Contractual payments are most often set in monthly installments, but the payments can be in any number of periods, including balloon provisions, that have been agreed upon by all parties. The payment timeframe, number and amount of payments are described in the Bond for Deed contract. Financing options are open and flexible, as long as all individuals agree to the specific terms of financing in the Bond for Deed Contract. Everyone that is a party to the Bond for Deed Contract should understand how the financing works, when the payments are due, what are the repercussions should a payment be late (i.e. is there a late fee due along with a late payment and/or missing a payment and what the consequences are when missing a payment?). Since tithe title remains in the seller’s name during the term of the bond for deed, I the event of default by the buyer there is no need for a judicial foreclosure. Instead, the bond for deed is canceled and the inscription removed from the public record in accordance with State statutes. Cancellations happen quickly when a payment is missed and the parties have been notified. It is important to make payments on or before that installment payment is due to avoid that situation.
When a balloon payment is established in the Bond for Deed contract, the buyer has permanent financing approved in the time frame established in the Bond for Deed contract so that the Balloon payment is paid in the time frame agreed upon by all parties. If the balloon payment is established to pay off the remaining balance on the loan, the Owner will then relinquish the title to the Buyer and the bond for deed will be canceled by a Notary or Attorney. The escrow or servicing company can assist with the cancellation of the note on the property as well as obtaining the title to the property, should a mortgage be paid off. Otherwise, if a property is paid in full the title will be relinquished by Seller to the Buyers as stated in the Bond for Deed Contract. The Attorney, Servicing or Escrow Company may assist in obtaining the title for the Buyers who now are due to the title of the property since it paid in full.
An owner can finance a property with a Bond for Deed contract even if the property is already paid in full. The owner will hold the note and the Owner retains the title until all terms and considerations recited in the Bond for Deed Contract are fully met. The Owner may collect the monies or appoint a servicing company or escrow company to collect stated installments until paid in full.
In most transactions, the foreclosure process is a long one that can last months. In a Bond for Deed contract, the Owner cancel the contract and take back possession of the property after issuing a certified default letter to the last known address on file and most particularly the property stated in the Bond for Deed Contract. State law provides a bond for deed buyer 45days to cure the default and, if they fail to do so, the seller can cancel the bond for deed and remove its inscription from the public record. Also, any down payment or installments as agreed upon in the Bond for Deed Contract are forfeited, giving the Owner the option to pursue selling or financing the property. Installments are due as recited in the Bond for Deed Contract. Any payments that are late can jeopardize the Bond for Deed contract unless otherwise noted in the contract. Also, any improvements made by buyers at the buyer’s expense does not have to be repaid by seller unless stipulated, signed and executed in the recorded Bond for Deed Contract. Other monies such as annual property taxes can be returned if the Bond for Deed contract stipulates this item and it is agreed and signed by all parties to the Bond for Deed Contract.
What are the requirements to buy with a Bond for Deed Contract?
The requirements to buy with a Bond for Deed Contract aren’t contingent upon Credit Checks or credit approvals, unless otherwise specified in the Bond for Deed Contract. A down payment will be established by the Seller(s) and Buyer(s). Also along with the terms, the installments will be agreed upon by all parties in the Bond for Deed Contract. Any balloon payments will also be agreed upon by all parties in the Bond for Deed Contract, so that the Buyer(s) are prepared to obtain a loan for the balloon payment or have funds available to pay the Balloon payment in full, on the date agreed upon.
Are Bond for Deed Contracts recorded in the Clerk of Court’s office?
The Bond for Deed Contract is recorded in the Mortgage office and the Conveyance office of the Parish in which the property is located. Also, any liens, sales, leases and or additional mortgages recorded after the date of the recordation of the bond for deed are subordinate to the Bond for Deed Contract.
What are the timeframes for the execution of the Bond for Deed Contract as well as a cancellation?
The execution of a Bond for Deed Contract can happen in a more robust timeframe. It can happen within the timeframe agreed upon by all parties; it can literally be done within hours of the agreement signed by all parties of the Bond for Deed Contract or a date and time agreed upon by all parties. An attorney, Notary or Title Company will normally execute the documentation necessary to transact the Bond for Deed Contract between all individuals. The Bond for Deed Contract will be signed in front of an Attorney or Notary and the documentation will outline key points that have been agreed upon by all parties to the Bond for Deed Contract such as, where the installments are to be made, the date that installments are due and more specific verbiage as agreed upon and outlined in the Bond for Deed Contract. Each Bond for Deed Contract is usually uniquely worded as to the items agreed upon by all individuals so that each has a clear understanding of the Bond for Deed Contract.
Cancellation of a Bond for Deed Contract also happens in a more rapid timeframe than a normal foreclosure. Bond for Deed Contract installments are normally paid on the date stipulated in the Bond for Deed Contract and again within 30 days. Once a payment is late, the buyer sent a certified default notice to the last known address, and the buyer has not cured the default within 45 days, the Seller can have the Bond for Deed Contract canceled in the Conveyance office in which it was recorded. Once canceled the Seller is able to again sell the property with any improvements that may have been made by the Buyers. The owner does not have to reimburse for any improvements to the property. The seller can take back possession of the property and execute another Bond for Deed on the same property within the 45-day timeframe provided all necessary notifications have been sent and the Bond for Deed Contract has been canceled at the Conveyance office.
When is the Bond for Deed Title given to the Buyer from the Seller
In a Bond for Deed Contract, the Buyer will make installments to the Seller and/or Servicing Company as per the terms of the Bond for Deed Contract, along with any specified Balloon payments. Once the Bond for Deed Contract has been fulfilled under the terms of the Bond for Deed Contract, then the Seller will relinquish the Title to Buyer. If an underlying mortgage note needs to be cancelled it is cancelled upon payments in full of the mortgage by the title company or attorney handling the title transfer with the proceeds of the bond for deed payoff. Any funds remaining after the payoff of an underlying mortgage are payed to the seller.
Can a Buyer under a Bond for Deed contract file annually for homestead exemption?
A Bond for Deed Contract in the State of Louisiana no longer qualifies for Homestead Exemption.
Does the Seller collect the installment payments or does a servicing company?
The parties to the Bond for Deed contract will agree upon the delivery of the installments, whether it’s to the Seller and/or Servicing Company or Escrow Company. By law, if there is an underlying mortgage the payments must be made to a licensed escrow agent. A Bond for Deed Escrow agent in the State of Louisiana has to be approved by the Louisiana Commissioner of Financial Institutions and bonded/insured; therefore they have the experience to handle the transactions and should any questions arise regarding payments made or late payments, they are prepared to answer those questions. Placing the money with a neutral third party that is approved, licensed and bonded adds credibility to the monies being directed where they are needed as per the Bond for Deed Contract.
What happens when a buyer defaults on a Bond for Deed Contract?
Bond for Deed Contracts will have stipulations regarding late payments. The cancellation of a bond for deed happens more quickly than with other transactions. Once a 45-day default notice is given and the default is not cured the contract is subject to being canceled. Once canceled the buyer must vacate the property. Should they fail to do so they may be evicted by the local sheriff. The Seller is then free to sell, lease, owner finance or Bond for the Deed the property. The stipulations as outlined and recited in the Bond for Deed Contract may vary according to what the parties in the Bond for Deed Contract initially agreed upon regarding any reimbursements of installments or any property upgrades. Installments paid may be held as liquidated damages consequently any deterioration of the property by Buyers not taking care of the property may also be part of the consideration of the sum of monies received. Any taxes paid by the buyer on the property and insurances, if separate from the installments will be stipulated in the Bond for Deed Contract on the method of reimbursement if at all should a cancellation occur. Those items will need to be agreed upon during the signing of the Bond for Contract so that all parties are aware of the details of transactions and the actions that may occur should a cancellation happen.
The information herein is not to be used as legal advice and is for informational purposes only. Any legal questions should be directed to a Louisiana licensed attorney. We are held harmless from any information that has changed, been modified or translated by others regarding any information herein stated.