Bond for Deed, Credit Sales &

Lease Purchases

What is the difference?

There are many differences between a Bond for Deed contract and a Credit Sale, but one difference is most important. That difference is that in a Bond for Deed, title remains with the Seller until the purchase price is paid in full. In a Credit Sale, title transfers to the buyer right away, and the seller has a mortgage on the property until the debt is paid in full. In both transactions, the seller of the property finances the home for the buyer much like a bank would finance the property.  If the seller of the property is able and willing to finance the property for the buyer, then the question becomes which option is better suited for both buyer and seller.

A Lease Purchase is simply a Lease with an Option to Purchase the property, with some important characteristics as stated below. Many people use these three terms without fully understanding them. While there are many similarities between these three transactions, there are many legal differences that will affect all parties involved.  So, it is important for people not to use the phrases interchangeably.  

 

Which transaction is right for you?

Give us a call and we can walk you through what is best for you given your particular circumstances.

Definitions:

A Bond for Deed transaction is a Louisiana real estate contract in which the purchase price is paid in installments, and a title is transferred to the buyer after the payments are made in full. In other states, a Bond for Deed is called a Contract for Deed or a Land Contract. The seller holds legal title to the property as security for payment, while the buyer has an “equitable” title. When the buyer pays the full amount due under the contract, the seller delivers the legal title to the buyer. The buyer typically pays all the expenses of the property as if the buyer owned the property. Such expenses include maintenance, taxes, and insurance, but these terms are negotiable. Louisiana law does have some specific requirements for Bond for Deed Contracts. For example, if there is a preexisting mortgage on the property, a third party servicing company must be used to process the payments from the buyer to the seller. This requirement is one of public policy, as it ensures that the buyer's payments are being used to pay off the prior loan payments and not being retained by the seller only. This ensures that when the debt from the buyer to the seller is paid in full, the property is not still encumbered by a prior mortgage. In the event the buyer fails to make the payments, the seller can take possession of the property once certain criteria is met. There is no need for a judicial foreclosure.  According to La. R.S. 9:2948, the purchaser in a bond for deed contract may claim a homestead exemption.

         

To sum up, in a Bond for Deed:

  • Seller holds legal Title

  • Buyer has equitable title

  • Buyer usually pays all expenses

  • May require 3rd party servicer

  • Seller can take back possession in the event of non-payment

  • Buyer is eligible for Homestead Exemption

A Credit Sale is a sale in which the full amount will be made in one payment sometime in the future or in smaller regular payments over a period of time. The buyer is the owner of the property or goods being sold from the time the arrangement is made. The Title to the property transfers to the buyer at the time of closing (i.e. very similar to a traditional lender-financed sale). Because the Buyer owns title to the property, in order for the seller to enforce his lien, the seller will need to foreclose on the property through a judicial proceeding. Instead of taking possession of the property, the property will be sold at judicial auction and the seller will be paid back the debt with the proceeds. If the property sells for less than the buyer's debt, the seller will need to seek a deficiency judgment against the buyer personally. The buyer can seek a homestead exemption.

 

To sum up, in a Credit Sale:

  • Buyer holds Title

  • Seller has a mortgage

  • Buyer pays all expenses

  • No 3rd party servicer required

  • Foreclosure proceeding is required in the event of non-payment

  • Buyer is eligible for Homestead Exemption

A Lease Purchase is a Lease for a specified term with an Option to Purchase the property. A portion of the Lease payments may be allocated to the purchase price as stated in the agreement. Under a lease with an option to purchase, legal and equitable title to the property will remain in the name of the lessor/seller until such time that the buyer pays the agreed upon price. All of the terms are negotiable, so either party can be responsible for maintenance, taxes, insurance, etc. Also, the parties may negotiate the requirement of a non-refundable deposit to be applied towards the purchase price. There is no requirement for a 3rd party servicer for the collection of payments, even if there is a mortgage on the property. In the event of non-payment, the Lessor will need to legally evict the tenant in order to regain possession of the property. The Lessee is not eligible for a Homestead Exemption.

To sum up, in a Lease Purchase:

  • Lease with an Option to Purchase

  • Seller/Lessor holds legal and equitable title

  • Payment of expenses is negotiable

  • No 3rd party servicer required

  • Eviction proceeding is required in the event of non-payment

  • Buyer/Lessee is NOT eligible for Homestead Exemption

What terms and conditions can be put in each type of contract?

Louisiana allows the parties to generally put in a contract whatever the parties want, so long as it is legal and not usurious.

Thus, the parties are free to negotiate and agree upon:

  1. Price

  2. Length of Contract

  3. Interest Rate

  4. Payment Schedule

  5. Payment of Expenses

  6. Responsibility to maintain insurance

  7. Late fees

  8. When foreclosure proceedings may be instituted

  9. Etc.

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HERITAGE TITLE GROUP

 

WE MOVED TO A NEW LOCATION !

2800 Veterans Memorial Boulevard, Suite 202

​Metairie, Louisiana 70002

Tel:  504.333.6033