Our firm’s title attorney, Joseph Marriott, is often asked how a seller can finance the sale of their home or other immovable property to a proposed buyer. In Louisiana, there are two available options, the Credit Sale and the Bond for Deed, and it is important to know which one is best for your particular circumstances.

Credit Sale

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 (similar to a mortgage).

Bond for Deed

A Bond for Deed is a contract to sell property in which the purchase price is to be paid in installments to the seller and only after the agreed upon sum has been fully paid to the seller does the buyer receive title to the property.

Credit Sale or Bond for Deed?

To determine which process to use, a buyer and seller must look to the following issues:

• Does the seller own the property out right? The initial and most important question is, whether the seller owns the property free and clear of any and all mortgages, encumbrances, liens and/or any other security interests against the property. If the answer is yes, then the seller may use either the credit sale or the bond for deed. If the answer is no, then the only option available to the seller is the bond for deed.
• Additional Considerations. There are several other aspects to consider when choosing between a Credit Sale or a Bond for Deed. Below we provide a quick snapshot of the most important issues. However, these are not the only parameters one must consider, so it’s important to speak with an attorney before making a final decision.
• Credit SaleBond for DeedBuyer Homestead ExemptionYesNoTitle TransfersYesNoForeclosureYesNoEvictionNoYesSeller has Mortgage on PropertyYesNo, seller retains titleInterest ChargedYesYesIRS – TaxationConsidered installment sales and will be treated as capital gains, avoiding ordinary income taxation.Escrow ServicesMay elect to useRequired to use by law

Questions? Contact Joseph Marriott for guidance.