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A while back “for sale by owner contracts were popular.” It wasn’t until the state legislature enacted the Texas Property Code rule basically prohibiting such contracts to be used anymore. Since 2005, these devices are considered “executory contracts” and are heavily regulated under Chapter 5 of the Property Code. Unfortunately there are still these types of contracts out there and they need to be cleared up and litigated or turned into regular warranty deeds. Texas Property Code Title 2. § 5.081. Right to Convert Contract.

A contract for deed, unlike a typical secured transaction involving a deed of trust, is a financing arrangement that allows the seller to maintain title to the property until the buyer has paid for the property in full. See Flores, 185 S.W.3d at 429. Under Subchapter D, real estate transactions involving contracts for deed require the seller to make certain disclosures and provide certain notices. See, e.g., Tex. Prop.Code §§ 5.069, .070, .072, .085. Various sections in Subchapter D entitle a buyer to “cancel and rescind” the contract for deed and “receive a full refund of all payments made to the seller” if the seller fails to comply with the disclosure and notice requirements. See, e.g., id. §§ 5.069(d), .070(b), .072(e). For instance, if the seller fails to comply with disclosure requirements related to property that is encumbered by an existing lien, then the buyer can “cancel and rescind” the contract for deed and receive from the seller “all payments of any kind made to the seller under the contract” and reimbursement for (1) taxes paid by the buyer, and (2) the value of any improvements made to the property by the buyer. Id. § 5.085(c)(2). A claim may also be made under the Deceptive Trade Practices-Consumer Protection Act (“DTPA”) which can result in treble damages plus attorney’s fees

The buyer in a “for sale by owner” type contract has equitable rights and is more than a mere tenant. The Property Code therefore requires ample notice and opportunity for the buyer to cure the default. Sections 5.063 and 5.064 specify the content of the default notice, which must be followed to the letter if it is to be valid. The buyer must be allowed a 30-day unconditional right to cure the default before an eviction can be filed. If the judge grants possession to the seller at the eviction hearing, then and only then is the buyer’s down payment forfeited.

If you have a for sale by owner contract and need legal representation to fix the matter call out law firm. Our attorneys are here to help you. If you have been sued because of one of these contracts call us, we can help you get through the defense of this matter.

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