An Introduction to Owner Financing Your Property Sale

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 Sale	Bond for Deed
Buyer Homestead Exemption	Yes	No
Title Transfers	Yes	No
Foreclosure	Yes	No
Eviction	No	Yes
Seller has Mortgage on Property	Yes	No, seller retains title
Interest Charged	Yes	Yes
IRS – Taxation	Considered installment sales and will be treated as capital gains, avoiding ordinary income taxation.
Escrow Services	May elect to use	Required to use by law

Questions? Contact Joseph Marriott for guidance.

BR Company Seeks to Real Estate Market by Leveraging Technology.

 

Silicon Bayou News[1] recently featured an article on Property Sprocket, a new and upcoming Baton Rouge real estate technology startup company. The company’s stated purpose is to “disrupt the real estate market” by levering technology to provide seller’s a platform to help list their property for less.

How does Property Sprocket intend to disrupt the market? Property Sprocket seeks to leverage the combination of customer service, technology and fixed listing prices to sellers to save them money on listings. According to their website, Property Sprocket has a model to list the property for a 2.5% commission rate plus a $495.00 fixed charge. Essentially, Property Sprocket appears to be offering a discount from the traditional 6-7% commission rate charged by agents in the Baton Rouge area.

Comparing Property Sprocket to competitors like ForSaleByOwner.com and Redfin, it appears that Property Sprocket is trying to capitalize on the combination of these two services. By offering a listing fixed rate of $495.00, it is cheaper than the ForSaleByOwner.com. However, Property Sprocket is charging a 2.5% commission, which is 1% higher than that of Redfin (1.5%), but they offer the services of a local real estate agent.

It appears that Property Sprocket is ready to service the Baton Rouge and surrounding markets and have developed a working model to support their efforts. If you are interested in viewing Property Sprocket’s website, click here.

[1] http://siliconbayounews.com/2017/10/26/property-sprocket-looks-shake-real-estate-listing-space/

Second Property Assessment Coming in the Spring of 2017 to Orleans Parish

In December of 2016, the residents of Orleans Parish approved a property tax millage increase for both fire protection and drainage. The New Orleans City Council adopted the millage ordinance on January 26, 2017. In order to collect the additional millage, the City of New Orleans will be sending a supplemental assessment to property owners. Thus, property owners in Orleans Parish need to be aware or made aware of the impending second property assessment tax bill coming out in the Spring of 2017.[1]

What does that mean for property owners and investors? First, a second assessment means that property owners must be prepared to pay the tax bill. Second, if the property owner does not pay the tax bill, the second assessment will be sold at a future tax sale to an investor. Thus, this year, the likelihood of an owner missing paying their property taxes and becoming delinquent to be sold at a future tax sale has increased exponentially.

What can realtors, brokers, attorneys, accountants, and the like do? Tell your clients about the impending second assessment. Then, follow-up with those clients to ensure they have paid their taxes. What does that mean? It means you are saving them from major problems and therefore saving them money! In my experience, there is nothing more a client likes to hear than, “hey, here is how I can save you money.”

[1] City of New Orleans, Office of the Mayor,. City Issues Property Tax Reminders. 2017. Web 01.31/2017

2017 LREC changes to the Mandatory Agreement to Buy or Sell and Residential Property Disclosure Form

As we prepare to enter into the year 2017, it is important that all agents and individuals are informed as to the modifications and additions to the mandatory forms as approved by the LREC. Specifically, those forms include the Residential Agreement to Buy or Sell and the Residential Property Disclosure Forms. These modifications and additions are effective as of January 1, 2017. As such, in an effort to help keep readers informed as to any changes in law affecting Louisiana real estate, I have summarized the modifications and additions and will begin with the Agreement to Buy or Sell and then finish with the Residential Property Disclosure Form.

 

Agreement to Buy or Sell

Initial Heading (Parties to the Transaction). The first changes appear on the third line of the Agreement to Buy or Sell. Now real estate agents will have to list their license numbers (both buyer and seller) in addition to their respective names. Additionally, a line now exists whereby the brokerage firm, broker’s name and license number must be placed.

Finance Sale. There has been a substantial change in the language used on lines 72-81. The lines now formally give the Buyer notice that any Lender or Consumer Protection Bureau caused delays due to requirements will not extend the period of time in which the Buyer is to furnish to the Seller written documentation demonstrating that the Buyer has applied for a loan, received approval, and given the Lender the written authorization to proceed with the loan. The Seller retains the option right to terminate the contract, but now it is based upon the aforementioned notice the Buyer is required to supply.

Appraisals. Language has now been added to require that the Seller is the party that must supply utilities for the appraisal.

Inspection and Due Diligence Period. There now is a built-in extension for the inspection period when the inspection cannot be completed due to lack of access to the property with utilities by the Seller.

Acceptance. The change was to clean up the section language by adopting embracing the current, now industry, practice of accepting offers in accordance with the Louisiana Uniform Electronic Transaction Act.

Notices and Other Communications. Updates the medians by which requests, claims, demands, and other communications notices are permitted to be transmitted and received. Additionally, there is now a line to place the addresses where the Buyer or Seller and their agents are to receive the above-mentioned communications.

 

Residential Property Disclosure Form

Informational Statement For Louisiana Residential Disclosure Form. The very first addition comes on the first line of the Informational Statement For Louisiana Residential Disclosure Form. The addition is to correct the statutes listed as those added by the legislature to now include R.S. 9:3200. Further, there is now a check box now that clarifies that the Seller is claiming an exemption to the Property Disclosure Form and warrants that the Seller has knowledge of known defects. Additionally, the Seller is now able to selectively elect exemptions instead of an all or nothing election.

Section 4: Plumbing, Water, Gas, and Sewerage. The disclosure now requests whether there is any gas available on the property being delivered  and if so, is it owned or leased. The check box was adopted to clarify to the Buyer the type of service as a lessee or owner.

Section 6: Miscellaneous. Under question 41, there is now a check box for Contaminated Flooring. In question 44, now Seller’s will need to disclose information pertaining to solar panels, including ownership versus leasing, whether they are removable and any monthly payments thereon. Question 45 asks if those panels are owned or leased.

Acknowledgments. The first line is entirely new. It is a reiteration of the requirement of Sellers are to disclose known defects to sellers.

 

There you have it. You are now aware of all the alternations and additions the LREC has approved for the Mandatory form revisions for the year 2017. Looking forward into 2017, I wish you and your family good luck and fortune. Don’t forget to eat your cabbage and black eyed peas.

Condo Purchasers Beware!! Make Sure You Receive the Mandatory Disclosures.

Whenever a person purchases a condominium in Louisiana, there are mandatory disclosures and declarations that the Condo Association must provide to the Seller to be provide to the Purchaser prior to the signing the act of sale. Until such time that these statutorily mandated disclosures and declarations are provided, the Purchaser is able to withdraw from the contract to sell.

In accordance with LA R.S. 9:1124:107, in the event of a resale of a unit an owner, other than a declarant, shall furnish to a purchaser of any contract to purchase a unit, or otherwise before conveyance, a copy of the declaration other than plats and plans, the articles of incorporation or documents creating the association, the bylaws, and a certificate containing eight enumerated items. Those eight items include the following:

1. A statement setting forth the amount of any current common expense assessments.
2. A statement of any capital expenditures approved by the association for the current and two next succeeding fiscal years.
3. A statement of the amount of any reserves for capital expenditures and of any portions of those reserves designated by the association for any specified projects.
4. The most recent balance sheet and income and expense statement of the association, if any.
5. The current operating budget of the association, if any.
6. A statement of any unsatisfied judgments against the association and the status of any pending suits to which the association is a party.
7. A statement describing any insurance coverage provided by the association, and
8. A statement of the remaining term of any ground lease affecting the condominium and provisions governing any extension or renewal thereof.

By adopting the above, it is clear the legislature intended for the purchaser to be fully informed as to the current state of the Condo Association financial status and impending and potential obligations. By allowing the Purchaser to withdraw from the contract to sell until the requirements are provided, the Purchaser is protected from obligating themselves to what has the potential to be a disastrous situation.

Here are a few examples of situations the legislature is trying to avoid:

1. The Seller is not current as to the Condo Association fees, the Condo Association can take action to collect those fees from the new owner.

2. Other condominium owner’s are behind on their fees and/or cannot be collected from and the association seeks to replenish their reserves by levying additional charges on the those unit owners they can collect from.

3. The Condo Association has elected to improve or repair the exterior of the building or common spaces and to pay for the expense the Condo Association is levying an additional assessment for the next several years.

Critically, one must understand that the protection of LA R.S. 9:1124.107 only extends to such time as the Purchaser signs a contract of sale or other act of conveyance. Once the act of sale or any other act of conveyance has been executed, the Purchasers can no longer rely on or claim the privilege of LA R. S. 9:1124.107. Thus, it is imperative the Purchaser ensure all due diligences related to the transaction are completed prior to signing any document conveying ownership.

 

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