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
 
FREE EXCERPT
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 Asphalts 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, 96566 (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. §§ 294149 (2018); LA.
CIV. CODE ANN. arts. 262324 (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.

To continue reading

FREE SIGN UP