What is a contract for deed?

A contract for deed is made when you agree in writing to purchase real property (for example, land or a site-built home) by making monthly payments, but the seller keeps the deed (in his or her own name) until you have made all payments due under the contract.

Does this apply to MY contract for deed?

This information does not apply to:

sale of state land or sale of land by the Veteran's Land Board;

contracts that provide the seller must deliver the deed to the buyer within 180 days of fulfillment of the contract;

certain transactions where the seller and buyer are blood relatives.

Some of the rules in this pamphlet apply only to contracts for deed concluded after September 1, 2001, on property to be used as the buyer's home, or the home of a person related to the buyer. You should contact an attorney to be certain of your rights.

What if my contract for deed is an oral contract?

A contract for deed is not enforceable unless in writing and signed by the seller. The seller is required to record the written contract in the deed records within 30 days of the date it is signed.

If you negotiated the contract in a language other than English, the seller must provide all documents in that language, including any notice of default.

What is required before I sign?

The seller is required to provide you with certain information about the property before signing the contract. Prior to signing, the seller must provide you with:

a survey completed within the last year or a plat of a current survey;

a legible copy of any document describing an encumbrance or other claim affecting title to the property;

a written notice, which must be attached to the contract, informing you of the condition of the property; this notice must contain a lengthy checklist of items set out by law, along with a notice that if any item remains unchecked, you may not be able to live on the property; the notice must also advise you to obtain and have an attorney review a title abstract or commitment and to obtain title insurance on the property;

a tax certificate from the collector for each taxing unit that collects taxes on the property;

a legible copy of any insurance policy, binder, or other insurance relating to the property that indicates the name of the insurer and the insured, a description of the property insured, and the amount for which the property is insured;

a separate document, or a contract provision, stating that there are no oral agreements between you. This statement must be signed and dated by you.

A seller's failure to provide you with this information prior to signing the contract constitutes a violation of the Texas Deceptive Trade Practices Act.

Can the seller cancel or rescind my contract or accelerate my note?

Yes, but only under certain circumstances. If you have made fewer than 48 monthly payments or have paid less than 40% of the amount due under the contract and you are not fulfilling your obligations under the contract, the seller may (1) rescind the contract, or (2) exercise his remedy of forfeiture and acceleration. But the seller must comply with strict requirements first.

The seller must send by registered or certified mail, a notice containing the following language in 14-point type, "YOU ARE NOT COMPLYING WITH THE TERMS OF THE CONTRACT TO BUY YOUR PROPERTY. UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE BY (date) THE SELLER HAS THE RIGHT TO TAKE POSSESSION OF YOUR PROPERTY."

The notice must identify and explain what remedy the seller intends to enforce if you do not comply.

If the seller claims you have failed to make a timely payment, the notice must provide:

(1) the delinquent amount, itemized into principal and interest;

(2) any additional charges claimed; and

(3) the period to which the amounts due relate.

If the seller claims you have failed to comply with some other term of the contract, the notice must identify that term and specify the action you must take to cure the violation. The notice must also advise you of your right to cure the default within 60 days of the date the notice is mailed. And the seller must allow you 60 days to cure the default before enforcing a remedy, regardless of what your contract says.

What if I've paid at least 40% of the contract price or made at least 48 monthly payments on the contract?

If you default under the terms of the contract, and you have paid at least 40% of the contract price or have paid at least 48 monthly installments, then the seller cannot enforce the remedies of rescission or forfeiture and acceleration against you.

The seller's remedy is to designate a trustee, who is empowered to sell your interest in the property. Before he may do so, however, he must comply with strict requirements.

The seller must comply with all the notice provisions in the previous section, but must substitute the following language, "YOU ARE NOT COMPLYING WITH THE TERMS OF THE CONTRACT TO BUY YOUR PROPERTY. UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE BY (date) A TRUSTEE DESIGNATED BY THE SELLER HAS THE RIGHT TO SELL YOUR PROPERTY AT A PUBLIC AUCTION."

If you do not cure the default during the 60-day period following the date the notice is mailed, the trustee may post, file, and serve a notice of sale giving you twenty-one days'' notice of a foreclosure sale to be conducted on the first Tuesday of the month. The county clerk must record and maintain the notice of sale.

What happens after the trustee sells the property?

The seller retains the amount due under your contract. Any excess must be paid to you. But, if the sale proceeds do not cover the amount due under your contract, the seller may attempt to collect the balance from you, unless your contract states otherwise.

Am I in default if a utility lien is placed on the property?

No. Placement of a utility lien on the property for the reasonable value of improvements for purposes of providing utility service cannot result in default, regardless of what your contract says.

What if, after I sign the contract, I learn the property has some restrictions or a lien against it, or is encumbered by delinquent taxes, or has other problems?

You may be able to sue the seller for damages under the Texas Deceptive Trade Practices Act. In addition to bringing suit under that act, you may be entitled to cancel and rescind the contract and receive a full refund of all payments made to the seller.

Can I cancel the contract in any other circumstances?

Yes. Within two weeks of signing the contract, you can cancel it for any reason by delivering a signed, written notice to the seller by telegram, certified mail, or registered mail, return receipt requested. The seller is required to inform you of this right, and your deadline to exercise it, as part of the contract, near the signature line. If you properly cancel, the seller must return all payments you've made under the contract.

What other obligations does the seller have?

The seller must provide you with a detailed accounting statement in January each year. You can recover $250 per day for each day after January 31^st for the seller's failure to comply, plus attorneys fees.

The seller must provide you with a written statement detailing the financing terms in language that can be easily understood.

The seller must inform any insurer of the property of the contract within 10 days of making the contract or obtaining the insurance coverage. The seller on a contract for deed concluded before September 1, 2001, who is a "named insured" on a policy or other coverage relating to the property that is the subject of the contract, must notify the insurer, by January 1, 2002, of the contract and of the full name of the other party to the contract.

If an insurance company pays out on a claim made on the property, those insurance proceeds must be disbursed to you and the seller jointly and must be used to repair or improve the condition of the property.

What if the seller delays transferring title or deed after I've paid in full?

The seller is required to transfer recorded, legal title of the property within 30 days of receiving your final payment. If he fails to do so, you may recover statutory damages of $250 per day for the first 60 days of failure to comply, and $500 per day after that, plus attorney's fees.