In today’s investment environment sellers who have no immediate need for the cash they receive out of the sale of their home are giving more and more consideration to providing seller financing, particularly to buyers with material down payments. Why? There are not many places today to get a 6+% return on your money. Is there risk? Sure, however having a property they know as collateral in a market they know, that risk for many is very manageable.  As a seller you need not be a seasoned investor or real estate expert to provide seller financing either through a Bond for Deed or private mortgage. Escrow Services can help you better understand the pros and cons of each and handle the closing quickly and professionally should you choose to offer seller financing. After the sale, Escrow Services will do the servicing for you by billing payments, holding escrow for taxes and insurance, and handling all the accounting and tax reporting. In addition, Escrow Services can facilitate converting all or part of your note or BFD equity to cash should the need to do so arises in the future. 

A funny thing happened on the way to the government bailout of the "too big to fail" mortgage lenders. As it happens, lenders with whom we have spoken of late have once again realized that having a secondary source of repayment (and foreclosure and liquidation should never be considered a source of repayment) is a good thing. Consequently, a home with a BFD contract on it is not a negative but in fact a positive in that two parties (the BFD buyer and seller) have a vested interest in seeing that the mortgage is paid on time and in full.  Recently we have heard from both national and local lenders that the idea of a secondary source of repayment through a BFD actually enhanced the credit, particularly if their borrower was struggling to make payments. Who knew? Back in the day this was a basic tenet of prudent lending – like your parents guaranteeing your first car loan. Looks like we may be finally coming full circle in mortgage lending. We can only hope.

Sellers often assume that an individual acquiring a property under a BFD must have bad credit. This may be the case in some instances, however, we see individuals daily with good credit that cannot qualify for a conventional mortgage loan. Among the many reasons are:  too new in their current job, recently divorced, moving and have not sold their old home, self-employed and shelter much of their income, family illness, and more. Many prospective buyers with and without impaired credit have excellent incomes, substantial funds to use for a down payment, and handle their finances in a responsible manner. Sellers are well advised to keep an open mind when offered a BFD purchase as, short of a cash sale for the full asking price, a well-structured BFD offer may be the best offer.  

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”.  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.

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.

In Lieu Of A Lease/Purchase—The Advantages of a Bond for Deed versus a Lease Purchase to both Buyer and Seller are numerous and significant. Any party considering a Lease Purchase should investigate the clear advantages of a Bond for Deed before entering into a Lease Purchase Agreement.

Purchase/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 much 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 Mortgages Insurance (PMI), or for repairs required by a mortgage company before it will make a loan.

Bridge Financing—use a 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.

Simply put a Bond For Deed is a form of Seller Financing. It is a contract to sell Real Estate in which the purchase price is paid in installments and title is transferred after the payments are made in full. In other states, Bond for Deed is usually called Contract for Deed or Land Contract. Bond for Deed contracts may seem relatively new, however, laws covering Bond for Deed contracts have been in existence since 1934.

Recently, the Louisiana legislature enacted legislation that protects the Buyer under a Bond for Deed by not allowing any subsequent judgments or liens against the Seller under a Bond for Deed contract to prime a Bond for Deed contract. To protect all parties, Louisiana law requires the services of a licensed escrow agent. The escrow agent is responsible for collecting the payments, paying any underlying mortgages and issues IRS 1098 interest reports. In the event of non-payment, the escrow agent sends the required notices to both Purchaser and Seller. The contract allows the Seller to take back the property if payments are not made within the time allowed and without the costly expense of judicial foreclosure. Escrow Services, Inc. is the only statewide commercial escrow agent that has the experience and expertise required to properly service Bond for Deed contracts.