Contract for Deed

A Contract for Deed, also known as a Land Contract or Installment Sale Agreement, is a type of real estate transaction where the seller finances the purchase of the property for the buyer. The buyer agrees to pay the purchase price in installments over time, while the seller retains the legal title to the property until the buyer has paid the full purchase price. Once the final payment is made, the seller transfers the legal title to the buyer.

Key Features of a Contract for Deed:

  1. Ownership: The seller retains the legal title to the property until all payments are made.
  2. Payments: The buyer makes regular installment payments to the seller.
  3. Default: If the buyer defaults on the contract, the seller can reclaim the property, and the buyer may lose all payments made.
  4. Interest: Often, the buyer pays interest on the outstanding balance, similar to a traditional mortgage.
  5. Equity: The buyer gains equitable title and builds equity in the property as payments are made.

Legality in Texas:

Yes, Contracts for Deed are legal in Texas, but they are subject to specific regulations to protect both buyers and sellers. The Texas Property Code includes provisions that address the requirements and limitations of such agreements, particularly for properties in certain areas like colonias.

Important Legal Provisions in Texas:

  1. Notice and Disclosure Requirements: Sellers must provide specific disclosures to the buyer, including details about the condition of the property and the terms of the sale.
  2. Recordation: The contract must be recorded in the county where the property is located within a certain period.
  3. Cure Period: If the buyer defaults, Texas law provides a cure period during which the buyer can make up missed payments to avoid forfeiture of the property.
  4. Annual Accounting Statement: Sellers are required to provide buyers with an annual statement showing payments received and the remaining balance.
  5. Right to Convert: Buyers have the right to convert the contract to a traditional mortgage under certain conditions.

These regulations are designed to prevent abuses that have historically occurred with Contract for Deed transactions, such as predatory lending practices and lack of transparency. If considering a Contract for Deed in Texas, it is advisable to consult with a real estate attorney to ensure compliance with state laws and to protect your interests.