Home Buying in Metairie>Question Details

Char316, Home Buyer in Metairie, LA

what is the difference between owner financing and bond for deed?

Asked by Char316, Metairie, LA Thu May 21, 2009

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With a Bond for Deed , you are not leasing - that is incorrect - this IS a real estate purchase, and even during the Bond for Deed period, prior to you refinancing the property, you assume and enjoy the benefits of home ownership from a legal and tax standpoint. The deed is formally executed, however, is held in escrow, by an attorney, who is responsible for protecting both parties - the attorney receives the monthly payments from the buyer, and sees that the underlying mortgage and taxes are paid, out of the buyer's payments, so that both the buyer and seller are protected. The terms are negotiable between buyer and seller, but tend to follow a certain format. The interest rate charged, tends to be above market - but again, is negotiable. The length of the Bond for Deed period, prior to the required refinance which would cash out the seller is also negotiable, and varies from six months to 30 years...

There are protections in place for the seller that provide that the buyer can be kicked out for non-performance if a payment is 45 days late. No foreclosure process. Also, the down payment would be forfeit in most situations.

The buyer and seller can agree to restrictions on what can be done with a property during the Bond for Deed period. For example, a seller may wish to have in the contract that no improvements or construction are to be done, or the buyer is not allowed to lease the property, and further incumber it with a tenant's rights. These, as all terms in the contract, are negotiable, and should be set forth by an attorney who is aware of the intention of the parties in the particular situation. In some cases, a buyer and seller will agree to allow certain improvements, and the purpose for the Bond for Deed is to get an otherwise non-conforming property in a state where it can, then, be financed. Bond for Deed is a very useful tool for both buyers who are not yet qualified under underwriting standards, but expect to be in the near future, and for properties that, for whatever reason, would not qualify in their current state for financing.

Always seek the counsel and guidance of a real estate attorney before entering any real property contract, is my advice -
1 vote Thank Flag Link Wed Dec 10, 2014
again its all in the detais

In Louisiana, as in some other states, A bond for Deed is much riskier than a traditional mortgage

A traditional mortgage, there is a lengthy foreclosure process.

Bond for Deed, mis a payment, 45 day later, State Law allows the Sheriff to remove your possessions!
1 vote Thank Flag Link Thu Jun 18, 2009
Owner financing and bond for deed are both financing options for buyers who normally can not qualify for mortgage but would like to own a home. These financing are more flexible than mortgage, seller can usually work out the details to meet your needs. You just need to find the seller who is willing to work on private financing.

Owner financing - You as the buyer will actually own the home and have title to it at closing. You can do anything you like to the home, rent out, resell it as you like because you are the OWNER by then. The seller of the home becomes a lien holder (like the bank), and you will pay payments just like you pay mortgage, at an agreed term, rate, etc. Some owner financing could be very similar to mortgages: ex. 30 years, fix rate.

Bond for deed - You as the buyer will rent the home for a period of time usually 1 to 2 years, and then refinance with a mortgage to cash the seller out. This is good when you can not get mortgage now but think you can improve credit and meet the lender's guidelines later on. However, you don't have the title to the home yet, so you can not resell, and most likely can not rent out, or do renovations to it as if you have already own it. Your payments could be higher than market rent and most likely high enough to cover the seller's current mortgage, insurance, tax, HOA, etc. Besure to check if the seller has adjustable rates or is not currently in default with mortgage, and pay your payments through escrow companies to make sure the money is properly distributed to all accounts.

Good Luck!

Celine Fang
Immi-Nest, LLC
I Sell Houses - Owner Financing Available for ALL Credit Types
504-723-9269
http://www.imminest.com
Web Reference: http://www.imminest.com
1 vote Thank Flag Link Sat May 23, 2009
I never heard of bond for deed, but it would seem like someone would get bonded to hold onto a deed until they can actually close on the home. In case the person holding the deed defaults the bond would step in and cover the cost of recouping the deed. If that is the case the best thing to do is to hold the deed in escrow until the buyer closes.
0 votes Thank Flag Link Sat May 23, 2009
i believe with owner financing,the owner would basically act as your bank--you would get the deed at closing and pay the owner off over a long period of time. This only works when the owner owns the house outright--no mortgage. Here are the basics of bond for deed:

(1) you pay a down payment,usually 10% but negotiable
(2) You agree to lease the house for a specified period of time--usually no longer than 2 years. you pay a rental that must be above market rate.
(3) The down payment and extra funds are placed into an escrow account
(4) At the specified time,you take your accumulated down payment and go to a mortgage lender to get financing
(5) you purchase the house just as you would in a standard purchase
(6) The owner holds the mortgage and the deed until you actually close
(7) if you do not go through with the transaction,you forfeit your escrow funds and can be asked to leave the house
(8) you are responsible for taxes,insurance & maintenance
(9) if you miss even 1 payment( you can be declared in default and formally evicted. The grace period is usually only 3 days before eviction proceedings can be started.
0 votes Thank Flag Link Thu May 21, 2009
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