Bond for Deed in Louisiana: 99 Problems but Being a Sale Ain't One

• Author: Endya L. Hash
• Position: J.D./D.C.L., 2018. Paul M. Hebert Law Center, Louisiana State University.
• Pages: 1289-1339

Bond for Deed in Louisiana: 99 Problems but Being a

Sale Ain’t One

TABLE OF CONTENTS

Introduction ................................................................................ 1290

I. The Birth of the Modern Bond for Deed Contract ..................... 1295

A. Jurisprudence ....................................................................... 1296

B. Legislation ........................................................................... 1301

C. Study and Failed Reform ..................................................... 1304

II. What Are We Getting Ourselves into?: How Parties

Use Bond for Deed Contracts ..................................................... 1306

A. Methodology ........................................................................ 1306

B. Secrets Revealed .................................................................. 1307

1. Risk of Loss and Repairs ............................................... 1307

2. Rights of the Purchaser as to Third Parties ................... 1308

C. Conclusions.......................................................................... 1310

III. How to Fix the Bond for Deed Problem..................................... 1311

A. Barber Asphalt’s Blunders: Possibility of

Conditional Sales in the Civil Code ..................................... 1312

1. Not a Sale ...................................................................... 1312

2. Not a Sale Subject to a Modality ................................... 1315

3. Existence of Price .......................................................... 1316

4. Bond for Deed Exception .............................................. 1317

B. To Codify or Not to Codify? ............................................... 1318

C. Sales Solutions ..................................................................... 1321

1. Sales Law ...................................................................... 1321

a. Delivery .................................................................. 1321

b. Redhibition ............................................................. 1323

c. Eviction ................................................................... 1325

2. Solutions Particular to Bonds for Deed ......................... 1326

Conclusion .................................................................................. 1330

Appendix A: Form Contracts ..................................................... 1331

Form A ................................................................................ 1331

Form B ................................................................................ 1332

Appendix B: Survey of Contracts .............................................. 1339

1290 LOUISIANA LAW REVIEW [Vol. 78

INTRODUCTION

In 2009, Robin Murray executed a rent-to-own agreement, formally

called a bond for deed contract, for Ingrid Leverett’s house.1 Under the

agreement, Murray would make monthly payments toward the purchase

price, and after completion of the payments, Leverett would transfer title

of the home.2 Sometime before May 2011, Murray fell late on payments;

as a result, Leverett cancelled the contract, evicted Murray’s family, and

filed criminal charges against Murray for stealing the stove, microwave,

and dishwasher.3 Murray claimed that she owned the appliances, which

had stopped functioning, purchased new appliances before her wrongful

eviction, and was waiting for the new appliances to be installed.4 Leverett

countered that Murray had taken the appliances in retaliation for the

eviction.5 Media reports of the trial arguments demonstrate confusion

among the parties and their attorneys regarding each party’s respective

rights and duties under a bond for deed contract.6

Bond for deed contracts can result in situations like Murray’s because

Louisiana law lacks solutions for potential disputes associated with these

contracts.7 For example, if all of the appliances in Leverett’s home were

broken, the statutes and jurisprudence governing bond for deed contracts

would not provide a clear answer as to who would bear the responsibility

of replacing the appliances or whether Murray had the right to replace the

appliances merely because she desired different ones.8 As a result of the

Copyright 2018, by ENDYA L. HASH.

1. Paul Purpura, New Orleans woman convicted of trying to steal appliances

from former landlord, NOLA, http://www.nola.com/crime/index.ssf/2011/11/robin

_murray_convicted_of_atte.html (last updated Nov. 10, 2011, 6:22 AM) [https://per

ma.cc/9FM7-FPEJ]. This method of financing commonly occurs when the purchaser

cannot obtain a mortgage. Vanessa Richardson, Rent to own homes: When it’s not

time to buy, BANKRATE (Sept. 26, 2016, 1:30 PM) (on file with author).

2. Purpura, supra note 1.

3. Id.

4. Id.

5. Id.

6. Id.

7. See, e.g., Berthelot v. Le Inv., L.L.C., 866 So. 2d 877, 881 (La. Ct. App.

2004) (providing an exa mple of a court struggling to determine the applicable

law); Lyons v. Pitts, 923 So. 2d 962, 965–66 (La. Ct. App. 2006).

8. Compare Keyes v. Brown, 158 So. 3d 927, 934 (La. Ct. App. 2015) (suggesting

that sellers protect their security interests by requiring purchasers to maintain repairs),

and Montz v. Theard, 818 So. 2d 181, 191 (La. Ct. App. 2002) (suggesting that normal

maintenance expenses are the responsibility of the purchaser), with Regua v. Saucier,

129 So. 3d 798, 801 (La. Ct. App. 2013) (awarding reimbursement for cost of repairs

2018] COMMENT 1291

deficient law, Murray spent six months in jail.9 Although these agreements

can confuse laypersons, and even attorneys, people continually choose

bond for deed contracts to finance a home when traditional financing

options are not available.10

Most notably, the bursting of the housing bubble in 200811 caused a

banking panic that affected America’s entire financial system and increased

the perceived credit risk throughout the country, causing difficulty for

homebuyers like Murray who are attempting to obtain financing.12 The crash

of the housing market also affected homeowners in record-breaking ways;

foreclosure filings in 2008 were up by 81%,13 and in 2009, 2.8 million

properties received foreclosure notices.14 Damaged personal credit impacted

previous homeowners’ abilities to obtain financing, and the increase in

to purchaser as a matter of equity). Neither the Bond for Deed Act nor the relevant

Civil Code articles illustrate these rights. See LA. REV. STAT. §§ 2941–49 (2018); LA.

CIV. CODE ANN. arts. 2623–24 (2018).

9. Purpura, supra note 1.

10. See Bond for Deed, ESCROW SERVS., INC., http://www.escroserv.com/

bond-for-deed.html (last visited Feb. 14, 2018) [https://perma.cc/Q7KC-BLY8].

11. On December 1, 2008, the National Bureau of Economic Research

announced that the economy had entered into a recession in December 2007. Jeff Holt,

A Summa ry of the Primary Causes of the Housing Bubble and the Resulting Credit

Crisis: A Non-Technical P aper, 8 J. BUS. INQUIRY 120 (2009). Numerous

commentators have weighed in on the cause of the recession, but many agree that the

main cause likely was the quality of subprime loans that had deteriorated for six

consecutive years before the crisis. Id. Other factors leading to the housing bubble and

credit crisis include low short-term interest rates policy of the federal government,

increased leveraging by investment banks, and increased debt-to-income ratios for

households. Id. at 121. The problems could have been detected long before the crisis,

but they were masked by rapidly rising home prices. Id. at 120.

12. Id. at 120, 127−28. Credit risk refers to the risk that a borrower ma y not

repay a loan. See id. After the housing bubble burst, lenders were concerned about

the ability of homes to retain value, which may affect the ability of owners to

repay their loans. See id. When major lenders perceive a high credit risk, they are

less likely to lend. See id.

13. Les Christie, Foreclosures up a record 81% in 2008, CNNMONEY (Jan. 15,

2009), http://money.cnn.com/2009/01/15/real_estate/millions_in_foreclosure/ [https:

//perma.cc/U4LR-EK6F].

14. Daren Blomquist, A Record 2.8 Million Properties Receive Foreclosure

Notices in 2009, TAKE2REALESTATE, http://www.take2realestate.com/Record+2.8

+million+properties+receive+foreclosure+notices+in+2009 (last visited Feb. 14, 2018)

[https://perma.cc/9UUT-SHNW]. Some homeowners, who purchased their homes

without making any initial payments immediately before the downturn of the housing

market, simply walked away from homes after prices plummeted. Holt, supra note 11,

at 127.