The Legality of a Land Contract in Texas

A land contract, or contract for deed, is a real estate rent-to-own agreement that does not involve the participation of a third-party lender. The seller does not transfer title until the buyer completes payments, sometimes decades after the contract is signed. In many states, if the buyer defaults at any time, he loses all accumulated equity in the property. Texas law, however, is more protective of buyers.


Pre-Contractual Disclosures

The seller must provide the buyer with certain information before a land contract is signed. Failure to do so will give the buyer the right to rescind the contract and recover any money paid pursuant to its terms. This information includes a survey of the property, a list of any liens or other encumbrances on the property, a report of the condition of the property such as the availability of running water, and a formal statement of the negotiated financing terms.


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Content Requirements

If contract negotiations took place in a language other than English, the seller must translate the land contract and all related documents into that language. The contract must contain a notice to the buyer that he has the right to cancel the contract within 14 days after signing it. It also must contain a statement alerting both parties that oral agreements not reflected in the written contract cannot be enforced.


Contract Execution

After the contract is signed, Texas law requires the seller to provide the buyer with an annual accounting statement that includes the amount paid by the buyer, the unpaid balance, the number of payments remaining, the amount of taxes and insurance premiums paid, and the amount of any insurance proceeds received for damage to the property. The seller also must record the land contract and all pre-contractual disclosures with the local land recorder's office.


Buyer Default

If the buyer breaches the contract for any reason, the seller must provide the buyer with advance notice of default and allow the buyer 30 days to remedy the breach. If the buyer defaults anyway, the seller may take collection action. If the buyer has paid no more than 40 percent of the total purchase price or the equivalent of 48 monthly installments, the seller may petition a court to regain possession, and the buyer will forfeit all payments made. If the buyer has paid more than that, the seller must give the buyer a 60-day default notice, and in the event of default he must appoint a trustee to sell the property. The seller is entitled to collect the amount owed from the proceeds of the sale, and the buyer is entitled to keep any surplus.



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