Texas Contract For Deed

Contract For Deed

Executory Contract In Real Estate

Anyone that wants to buy property knows that a contract for deed is a type of executory contract.  Executory contracts are agreements that set terms that can only be performed in the future. A contract deed in particular is an agreement between a seller of real property and a buyer that allows the seller to hold on to the deed or title of real property until the buyer finishes paying for the real property.

Contract Of Deed In Texas

Property Contracts

In Texas, a contract of deed is also called:

  • Land sale contract
  • Land contract
  • Land purchase agreement
  • Simple land contract purchase agreement

A contract of deed is not a mortgage but a simpler tool two parties can use for a real estate transaction. Before 2005, signing a contract of deed placed the buyer at risk of getting forcefully evicted if they defaulted in paying the installments of the agreed upon price. That is why more regulations were introduced to ensure that buyers are protected when signing executory contracts.

For instance, there is a requirement for the existing lender to give consent for such agreements to become valid.

Why Texas Reformed Executory Contracts

Texas Contract For DeedTraditionally, executory contracts gave a huge advantage to sellers by letting them retain “legal title”  to the property.  But buyers only had “equitable title” that could only be enforced if the buyer filed an expensive lawsuit. So, if a buyer did not have money to file the lawsuit to enforce, they risked losing the property and any money they had already paid for it.

Fraudulent sellers could also disregard the equitable rights of such buyers by misrepresenting them as ordinary tenants to Justices of Peace.  They could use minor or technical defaults as an excuse to confiscate buyers’ down payments and hold on to the real property. Texas legislators rightfully saw that this should not continue and introduced regulations to stop these abuses.

Formulation Of A Contract Of Deed

First a buyer and seller must negotiate the terms they want to include in the agreement and the purchase price for the real property or land. The terms they agree on will be determined by the particular needs of both parties and the nature of the real property. That includes set monthly payments and the down payment.

The buyer is often not allowed to take on a mortgage if they sign a contract of deed.  Buyers need to see the warranty deed to verify that they are the new owner of the real property and no other claimant exists.

How Buyers Can Protect Themselves

Land Contract Texas

To protect your interest in property, you have to file your contract of deed in the deed records of the county where the property is located.  This will notify anyone interested in acquiring that property that it is held under a contract of deed.  You should also know that the seller cannot evict you from the property if you default unless they file and serve notice of sale. Before you get into an agreement with a seller of real property, you need to consult an experienced Texas real estate lawyer.

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