Are You Considering a Contract for Deed or Lease Purchase Agreement? Hold On!

You should know that Texas law prohibits these documents in many situations:

·     If the property is to be used as the purchaser’s residence, and the seller has an existing purchase money loan still outstanding, CONTRACTS FOR DEED AND LEASE PURCHASES ARE FORBIDDEN UNDER TEXAS LAW. 

·     Sec. 5.085 et seq of the Texas Property Code makes clear that, in addition to many other extremely rigid requirements that can trip up the parties, a seller may not enter into such a transaction unless they get the consent of their lender, which is near impossible in almost all situations involving normal mortgage holders. 

·     If a seller does sign such an agreement without securing the lender’s advance consent, it is considered a deceptive trade practice under the DTPA, subjecting Seller to liability for triple damages.

·     If that isn’t enough, Seller must repay the Buyer all amounts Buyer has paid to date, all taxes paid by Buyer, and other costs and expenses. Multiplied by three. 

Clearly, the parties must avoid these situations, and a prudent attorney would want to refrain from documenting such a deal.

We would always recommend a deed, note and deed of trust, but be warned, those have issues as well, especially if there is an outstanding mortgage. What type of transaction are you considering? You can email Jeff Rattikin with any questions at rattikin@rattikinlaw.com.