What is a Bond for Deed?
Bond for Deed: Bridging to a FutureA Bond for Deed is a Louisiana contract to sell real estate in which the purchase price is paid in installments and title is transferred upon the fulfillment of the payments. In other states, Bond for Deed called "Contract for Deed" or "Land Contract". Laws covering Bond for Deed contracts have been in existence since 1934. The Louisiana Legislature granted Homestead Exemption to purchasers under Bond for Deed (provided they also occupy the property).

To protect all parties, Louisiana law requires the services of a licensed escrow agent. Sovereign Escrow Services, Inc. collects the payments, pays any underlying mortgages, and issues IRS 1098 interest reports. In the event of non-payment, Sovereign Escrow Services, Inc. sends the required notices to both purchaser and seller.

Advantages for Seller

Seller earns interest as the "lender." Sales price is not dependent on mortgage holder's requirements.

Advantages for Buyer

Neither purchaser nor property have to qualify for a loan. Purchaser can claim IRS interest deduction. Homestead exemption available under Louisiana law. 

When to Use a Bond for Deed

  • Mortgage Not Assumable - Use a Bond for Deed whenever the existing mortgage is not assumable. Anyone can make the payments of an existing mortgage and court decisions have clearly established that permission of the mortgage company is not required, unless the mortgage specifically prohibits Bond for Deed.
  • Assumable Mortgages - Use a Bond for Deed whenever the existing mortgage is assumable and the mortgage company will not give the seller a written "release of liability." If the seller still has the liability of the mortgage, he or she should retain the title to prevent credit problems created if the person that "assumed the loan" does not pay.
  • Purchaser/Property Doesn't Qualify - Use a Bond for Deed whenever the purchaser or the property does not qualify for a loan. Many would-be purchasers can not qualify for a new mortgage . . . sometimes the property doesn't qualify . . . the reasons are endless. The terms of the Bond for Deed are strictly between the seller and the purchaser.
  • Owner Financing - Use a Bond for Deed whenever the seller will finance all or a portion of the sales price. Canceling a contract for non-payment is a lot less costly than foreclosure.
  • Save Money - Use a Bond for Deed to save closing costs. When you buy or sell property under the Bond for Deed contract, you do not have to pay "points," appraisal and survey fees, private mortgage insurance (PMI), or for repairs required by a mortgage company before they will make a loan.
  • Bridge Financing - Use Bond for Deed to buy or sell property today and "bridge through" to a future period when mortgage rates become more favorable, market values increase, the property is renovated or improved, or insurance underwriting and rates are more favorable.