CONTRACTS FOR DEED
A contract for deed is an agreement for the sale of real property from a seller to a buyer which is financed by the seller. The use of contracts for deed for the purchase of Terlingua Ranch property has a long history in that the original developer, Terramar, sold almost all of Terlingua Ranch using this method.
Although a buyer under a contract for deed usually takes possession and use of the property, the seller retains the legal ownership of the property, remaining on the county tax roles as the owner. The contract should stipulate the responsibility for payment of property tax and Association assessments. Buyers should read these stipulations carefully.
If you are a buyer under a Contract for Deed, it is important that you fully understand all of the terms and conditions of your contract, particularly stipulations regarding additions and improvements you may wish to make on the property as well as your responsibility, if any, regarding payment of property taxes and assessments.
Under POATRI Bylaws, buyers under Contract for Deed will become Members of the Association upon POATRI’s receipt of a copy of the signed contract or the filing with POATRI of a Notification of Contract for Deed. Official Membership in POATRI is a prerequisite for participation in Association business.
Additionally, each Member becomes responsible for the payment of annual TRMA assessments. Until such time as a buyer under Contract for Deed becomes an official Member of POATRI, the seller incurs no additional cost of assessments under the terms of the current TRMA. Only if you, the buyer, become a Member of POATRI, will you become responsible for assessments, in which case POATRI will bill you directly.
Because title to the property does not transfer to the buyer until such time as the Contract for Deed is completed, the buyer is more vulnerable than with traditional seller financed methods such as Warranty Deed with Vendors Lien or Note and Deed of Trust.
In 1995 the Texas Legislature imposed laws governing the use of Contracts for Deed in the purchase of real property, primarily due to issues in which buyers had been left vulnerable in the past. Restrictions have been imposed particularly on the sale of property which qualifies for residential use, whereby Contract for Deed information must be filed with the County Clerk for the county in which the property is located.
Contracts for Deed are legal in the State of Texas and can be a useful tool for purchasers who might otherwise not meet mortgage requirements. If you are a Contract for Deed buyer, or if you are contemplating such a purchase, it is important that you thoroughly investigate the protections afforded under Texas law.
The following excerpts are taken from the web site of the Texas Attorney General, Greg Abbott. www.oag.state.tx.us/consumer/
"Contracts for Deed" - Contracts for deed, sometimes referred to as "rent to own" financing arrangements, are legal in Texas. The important difference between a contract for deed and a conventional purchase contract is that under the contract for deed the buyer generally does not gain immediate equity in the property as he or she makes payments. Equity is the difference between the value of the home and the amount still owed. Under a contract for deed, the buyer only has an equity interest after they have paid 40% of the loan or more, or have made 48 monthly payments.
Generally, if the buyer provides a promissory note for the note's balance and a deed of trust, the seller must provide a warranty deed within 10 days or provide an explanation that legally justifies why the seller is not providing the warranty deed.
Contracts for deed can also have strict conditions. Some consumers with a contract for deed have lost their homes because they were a few days late on one payment. This meant that despite making timely payments for years, the contract forced them to leave the property with no stake in the investment. It is therefore critically important for you to know exactly what type of contract you are signing and to make sure you can meet all the conditions.
For Public Information & Assistance, E-mail your questions and comments to:
or call: (800) 252-8011 or (512) 475-4413 (in Austin)
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