Texas Border Business
Thousands of Texans who purchase their homes through non-traditional financing known as contracts for deed would be better safeguarded from losing their investment under legislation by Rep. Terry Canales, D-Edinburg, which was approved by the Legislature on Saturday, May 30. The measure, House Bill 311, whose Senate sponsor was Sen. Eddie Lucio, Jr., D-Brownsville, now goes to Gov. Greg Abbott for his approval.
“I am honored to announce that House Bill 311 has been passed by the Texas Legislature, ” said Canales. “This important legislation will help protect Texas homebuyers from unscrupulous sellers. For most Texans, our home is the most expensive purchase we will make in our lifetime and it is paramount that we protect that investment.”
Contracts for deed oftentimes are used when traditional financing, such as mortgages through a financial institution, is not available. Many of the estimated half-million Texans who live in colonias are at risk because they buy their homes through a contract for deed.
The legislation’s major goals include streamlining the title conversion process for contracts for deed so title is conveyed to the purchaser, giving the purchaser protection, and the seller still retains a lien on the property at the same terms of the original contract. “This puts these properties back into the real estate market, allowing them to be properly sold and allows the homeowner to take out a loan on them,” Canales said.
HB 311 also will encourage contracts for deed to be recorded so that other buyers, lenders, and title companies know that a property has been sold.
Contracts for deed, also known as executory contracts, are contracts for the sale of land – usually residential property – where the seller keeps title to the property until the buyer has paid the full contract price. “Most of these contracts are long-term arrangements, lasting eight to 10 years on average,” Canales, an attorney, explained. “In that time, lots of things can go wrong.
Sellers die, get divorced, or just disappear. Buyers have a difficult time getting homestead exemptions for their taxes, buying insurance, refinancing, or doing other things property owners with a deed can do.” A deed is a written instrument that, when executed and delivered, convey (transfer) title to or an interest in real estate. HB 311 would automatically require contracts for deed to convey (transfer) the title to the homebuyer, and would encourage these contracts to be legally recorded, which establishes ownership of the residence.
Canales said HB 311 would help improve “an outdated system of property transactions. Unfortunately, contracts for deed are structured in a way that allows for abusive practices to arise,” the House District 40 lawmaker explained. “Buyers who complete their payment are not guaranteed the conveyance of title, and if the buyer defaults, they may lose any payment that they have already paid. When not recorded, buyers face less protection and risk losing their property.
Robert Doggett, an attorney with Texas Family Council, which supported the legislation, agreed that the legislation modernizes this type of residential real estate transaction. “For many decades these transactions have caused problems for Texas homeowners because they delayed the buyer receiving title to their property for many years. Buyers who had to move in the middle of their contracts lost the value of all improvements and any equity they achieved because there was nothing for them to sell,” said Doggett. “Thanks to the continued efforts of Rep. Canales and his staff both this session and last, Texans with these contracts will actually become Texas homeowners simply by filing their contracts. HB 311 will truly help make the problems caused by contracts for deed a relic of the past.”
Canales thanked the Texas Family Council and Randy Lee with Stewart Title Guaranty Company for endorsing the legislation, which Canales first filed in 2013. But the South Texas lawmaker also praised a 2012 study commissioned by the Texas Department of Housing and Community Affairs (TDHCA), which contracted with Peter M. Ward, C.B. Smith Sr. Centennial Chair in US-Mexico Relations at the LBJ School; Heather Way, ’96, director of the Law School’s Community Development Clinic; and Lucille Wood, 2011–2012 Research Fellow at the William Wayne Justice Center for Public Interest Law, to direct the study.
Their “invaluable research” found that despite these reforms, contracts for deed continue to be problematic transactions for consumers, the South Texas legislator noted. The research was extensive, according to a December 10, 2012 feature story by UT Law, The Magazine of the University of Texas School of Law, which chronicled the in-depth look at the problems of contracts for deeds among lower-income families (www.utexas.edu/law/magazine/2012/12/10/colonias-contracts/ ).
