Contracts for Deed - Fact Sheet
Authored By: Texas RioGrande Legal Aid
Contracts for Deed
What is a contract for deed?
A contract for deed is a contract in which the buyer pays for land by making monthly payments for a period of years. The buyer does not own or have title to the land until all the payments have been made under the contact.
What are my rights as a buyer under a contract for deed?
The law (Deceptive Trade Practices Act, or DTPA) requires that certain information to be given to the buyer in writing. If the negotiations are in Spanish, the written information must also be in Spanish.
You have the right to know the condition of the property, including:
- whether utilities are available, including whether septic has been approved,
- if it is part of a subdivision, who maintains the roads, and if it is in a flood zone,
- whether any back taxes are owed, and
- the types of buildings that are allowed on the property.
You have the right to know the terms of financing, including:
- the purchase price, and total amount to be paid, including interest,
- the interest rate, and total interest to be paid, and
- the terms for late fees (which by law cannot be more than 8% of your monthly payment).
You have the right to an annual accounting by Jan 31st of every year that includes:
- what you’ve paid so far,
- what you owe,
- the number of payments left, and
- the property taxes paid.
You have the right to take title within 30 days of your last payment under the contract.
Can I cancel the contract for deed?
Yes.You have theright to cancel the contract within 14 days after you signed it by sending notice of cancellation to the seller by certified mail or hand delivery. You can also cancel the contract if the seller:
· fails to properly plat or subdivide the property, or
· fails to provide water and sewer service.
Can the seller cancel my contract for deed?
If you miss a payment, the seller may send you written notice of default by certified mail. The notice must state what you owe in principal and interest, additional charges (like late fees), the contract terms that were violated, and what you can do to cure the violation. What happens next depends on how long or how much you’ve paid.
· If you’ve paid less than 40% of the amount due or made less than 48 payments –cure the default within 30 days or notice. If not, the seller can cancel the contract and take possession of the property (through an eviction procedure).
· If you’ve paid more than 40% or made more than 48 payments – cure the default within 60 days of the notice. If not, the seller can post, file, and serve notice of sale similar to a foreclosure.
Can I convert the contract into a deed of trust?
Yes. Deliver a promissory note to the seller for the full amount left on the contract, along with the same interest rates, late fees, and due dates as the contract for deed. Include a letter with the promissory note stating that you want to covert the contract into a deed of trust under Tex. Prop. Code Sec. 5.081. Within 10 days of receipt, the seller must:
· give you a written explanation of the legal reason to refuse to convert into a deed of trust, or
· contact you to schedule a date and time to execute a deed and deed of trust.
By law, the seller must act on your request within 30 days of your notice to convert.