If you are a seller in Louisiana and are looking to provide seller financing for a purchaser of real estate in Louisiana, there are generally three options, a mortgage, credit sale, or a bond for deed. It is important to know which options are available to you and then you can determine what is the best option for your particular situation. Important to any discussion regarding financing and consumers are consumer rights, which we are not discussing here. Please consult an attorney if you have any questions.
The first question in considering whether to use a mortgage, credit sale or bond for deed is determine if the property is owned unencumbered by the seller. When no mortgage exists on the property a seller may use a mortgage or credit sale. However, if there exists a mortgage on the property, then the only device available is a bond for deed. Following knowing which device available to you, you need to know more information about each.
A mortgage is a traditional financing instrument under the law and is widely used by banks, investors, and other individuals in real estate transactions. A mortgage is a secondary obligation to the primary obligation which is created by a promissory note. Once the promissory note is extinguished the mortgage ceases to be enforceable. A mortgage has certain prescriptive rights afforded it under the law. A mortgage should contain customary clauses of confession of judgment and be executed in authentic form to allow for a foreclosure if a debtor does not pay.
A credit sale is a contract of sale where a seller simultaneously (1) transfers ownership of the property and (2) encumbers the property with a vendor’s lien, which is similar to a mortgage but distinctly different. The vendor lien is entitled to a 50-year prescriptive period under the law. When the debtor has completed its obligation the credit sale is cancelled from the mortgage records. If a debtor defaults on the credit sale, a seller must use foreclose on the property to regain title and possession of the property.
A bond for deed is a contract to sell immovable property in which the purchase price is to be paid in installments to the seller. Only after the debtor has made all payments does title to the property transfer. For all intensive purposes, the debtor is the owner of the property except for the possession of title. If a debtor defaults on their payments, the seller merely needs institute eviction proceedings to regain possession of the property and to file a cancellation of the bond for deed. Under the law, a bond for deed contract requires the parties to use an escrow company to receive and process payments.
Here is a list of some of the details above and other considerations one should consider when determining whether a mortgage, credit sale or bond for deed best suits their transactions.
| Mortgage | Credit Sale | Bond for Deed |
Buyer may claim Homestead Exemption | Yes | Yes | No |
Title Transfers | Yes | Yes | Not Until Paid in Full |
Foreclosure | Yes | Yes | No - Eviction |
Interest Charged | Yes | Yes | Yes |
Escrow Required | No | No | Yes |
IRS Taxation | Call CPA or Attorney | Call CPA or Attorney | Call CPA or Attorney |
If you have any questions regarding seller financing, please contact Joseph Marriott at joseph@qtsnola.com or by telephone at (504)834-7171